College is expensive, and more expensive still if you choose a specialized career in medicine or law. A typical bachelor’s degree runs students up with approximately $20,000 in student debt, and a medicine or law degree leaves them with an average of $100,000 in loans. Unfortunately, for many students, the only way to get sufficient funding for the complete cost of education is to use multiple private student loans. This is because:
- The income and family earnings of a student are too high for one private lender to cover the total amount needed for tuition.
- The student’s credit at the time of the loan application is not high enough for the lender to issue the complete loan amount.
- Students aren’t sure in advance how much their total education will cost them due to tuition hikes or a lack of advanced planning.
While many students find themselves stuck with multiple, private student loans, this is not the ideal situation. Carrying a single private student loan is fine, but there are a number of reasons why this structure gets students in trouble once the loans start accumulating interest, and fall into the repayment period.
Cons of Using Multiple, Private Student Loans for Tuition
Taking out multiple student loans may be the only way that students get the funds required for their education. However, these loans do come due and when this happens there are a number of cons:
- Monthly minimum payment amounts are higher – compared to one loan that covers the total tuition amount loaned, having multiple loans with varying interest rates means that the minimum payment amount is higher, which can affect the budget of new graduates.
- More interest is accumulated – Interest incurs on each of these loans individually on a variable basis when a graduate has more than one private loan. Overtime, having multiple student loans will cost borrowers more.
Fortunately, there are college debt solution options for students that can help them financially.
Consolidation Student Loans
Credit Unions are beginning to back loans that help students in consolidating their debt. This is important for those looking for a college debt solution as they are struggling with their finances. The typical process with these student debt consolidation loans is as follows:
- Students must apply for the loan – the government does not back these loans. As a result, to obtain a student loan, a credit check must be completed to determine that borrowers have good financial standing for a student consolidation loan.
- The lender will pay off the old student loans and issue a new loan – the new lender will pay off all existing student loans and provide one new loan for the total amount. This will then lower the interest, and the monthly minimum payment amount for the borrower.
- The borrower may be able to pay the loan off faster with no prepayment penalty – if budget allows the borrower to pay a larger amount monthly to cover the loans, then they may be able to pay off more than the minimum amount required with the new loan. This gets the debt off their plate faster!