Shoveling out over $1,000 a month in student loans often makes
me wonder-- why are the lenders not helping students eliminate debt?
From personal experience, the biggest issue with my student loans are my
private loans, it is often very difficult to lower monthly payments with
private lenders, even when you have never missed a payment. Currently, the only
options available to lower monthly payments on private loans is to extend the
length of your loans (not ideal when you’d rather pay them off as soon as
possible), apply for deferment (postpones loan payments), apply for forbiddance
(will accrue interest that will be added to loan balance), or attempt to
negotiate with lender to lower interest rates. While a lot of student
loans tend to have federal student loans, more than $8 billion consists of
private loans. Private loans are made outside of the federal student loan
program and tend to be slightly more expensive and lack options to lower
monthly payments including income-based repayments and consolidation similar to
federal loans. Exploring repayment options for students with private loans
could allow debt repayments more manageable and affordable.
According to a recent report by the Federal Reserve Bank of
New York, 31% of people paying back student loans were at least 90 days late at
the end of the fourth quarter. So what can the government do to assist the
student debt crisis? The federal government is currently looking into ways to
help lessen the burden with private student loans—which may include the
potential of refinancing to lower interest rates. Being able to refinance loans
at lower market rates, would dramatically help those students who were
unfortunate enough to get nailed with a 9.5% interest rate on several loans
(bad year to start college). One method that could be used to lower interest
rates was expressed by Rohit Chopra, the Consumer Financial Protection Bureau
student loan regulator, would be to apply a risk level that would be
available in certain situations. For example, a loan made to a college freshman
would be one level of risk requiring a certain interest rate, and that risk
level would decrease after the student graduates, obtains a job and
demonstrates ability to make payments regularly. This method would help those
borrowers who have obtained employment are making good money be able to
refinance and lock in a better interest rate.
Are there any options available now to lower monthly
payments on private student loans? Not many. While it is possible to
consolidate private loans through credit unions, most consolidation services
still require a cosigner. If you have a cosigner available, consolidation would
be an option, some credit unions even let cosigners walk away from the loan
obligations if the borrower has made on-time payments for 12 consecutive
months. For me, I am trying to avoid having my parents cosign another loan
(putting 4 kids through college takes a toll), at this time I am waiting it out
and hoping the government will begin to work with students who have private
student loans. I am looking forward to see how the refinancing method plays
out; do you feel that it would make sense for the federal government to offer
refinance options for private student loans?
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