As tuition costs have risen astronomically, the burden of student loans has also increased considerably. It’s not uncommon to have five or six different lenders and over $30,000 in debt by the time you graduate. If you’re struggling to keep up with your student loans, you might be thinking about loan consolidation or loan forgiveness — but are these programs worth it?
Loan forgiveness is a special program that is only open to certain borrowers. For those who are teachers, doctors or in other helping professions, the government might agree to cancel some or all of your loans if you meet all the other conditions for loan forgiveness. Usually, you have to work for five years in an underserved community. Generally, this means teaching, practicing medicine or otherwise contributing to an inner city or other low-income area for five consecutive years. Alternatively, there are also loan forgiveness programs for anyone working in the public sector (county, state federal government, peace corps etc.) where after 10 years and 120 consecutive timely monthly payments all loans are written off.
You won’t have as many choices as to where you work until after your loans have been paid off, and in some cases, you may have to work in areas that have high crime rates. On the other hand, you may help make things better for underprivileged communities — or at least for some of the people living in these types of neighborhoods. Best of all, at the end of the forgiveness period, your loans are canceled altogether, which means you no longer have to pay a dime to the government.
Loan consolidation is a process in which you exchange a lot of small student loans for one large loan. Instead of paying several lenders at various times during the month, you pay one lender every month until your loan is paid off. In order to achieve this, your consolidation lender pays off all of your loans; you then have to pay the consolidation lender back.
Consolidation of student loans has gotten a bad reputation, mainly because most of the time when people consolidate, they also extend the life of the loan. In other words, instead of paying off each loan within five years, consolidation may provide them with one loan that has ten years to pay off. This means you’ll be paying for longer, and if interest payments are high enough, you could end up spending quite a bit of money.
While this is true, it’s only part of the picture. The best thing about consolidation is the convenience. You’ll only have to keep track of one due date and one loan, which can help you keep your finances organized. If you’re the kind of person who often pays late because you can’t keep track of what’s due when, consolidation can actually help you save money. By paying on time every month, you’ll avoid late fees, and your balance will steadily go down.
The Bottom Line
The bottom line is that even though loan forgiveness or consolidation may not be for everybody — both programs have specific requirements — they are the kinds of programs that you should try to take advantage of if you can. Anything that makes it easier to pay your loans back or cancels some or all of your debt is worth looking into. The less time and money you have to spend on student loans, the better.
Looking for more information on student loans? We’ve got you covered. Just head over to our Student Loan directory. There you’ll find everything from budgeting advice to the different types of loans available.