Author: Holly Johnson / Source: Wise Bread
As of early 2018, the average student loan debt for 2017 graduates was $39,400. That’s a 6% bump from the year before, notes Student Loan Hero. Collective student loan debt nationwide is also up to $1.48 trillion across 44 million borrowers. With stats like these, it’s no wonder students are struggling to repay their loans and defaulting at record pace.
But what’s a student to do?You can stick with the program and make regular monthly payments on your current loans until they’re gone, for starters. You can also sign up for an income-driven repayment plan that lets you pay a percentage of your “discretionary income” for 20-25 years before forgiving your loans. Or, you can sign up for an employment-related forgiveness program such as Teacher Loan Forgiveness and Public Service Loan Forgiveness (PSLF).
Refinance options for student loans
Some students even refinance their student loans — usually to secure a lower interest rate or lower monthly payment. There are notable disadvantages for doing so, however. For starters, you lose federal protections such as access to income-driven programs, and forbearance when you refinance federal student loans with a private lender.
Interest rates on federal loans tend to be fixed while private loans tend to be variable, and this could pose a problem in a rising interest rate environment. Finally, private student loans are never subsidized whereas certain federal loans allow the federal government to pay the interest on your loans while you are in school on at least a half-time basis.
If you want to stick with federal loans, you can refinance your federal student loans into a Direct Consolidation Loan. However, doing so won’t save you any money. That’s because this new loan will use the weighted average of your previous student loans as its new interest rate. (See also: How to Manage Student Loans On a Low Income)
Refinancing student loans with a balance transfer card
With few reasonable options to consider, some students may be lured into consolidating student loans with a balance transfer card. The reason is simple: Balance transfer cards come with 0% APR for anywhere from nine to 21 months, which means indebted borrowers could pay down their loans with no interest during that time.
According to Michael Lux, an attorney who has spent five years advocating for student loan borrowers at The Student Loan Sherpa, this is rarely a good idea, even though he…
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