Borrowing Money to Pay Back College Loans
What of the benefits of College graduation is often a sudden increase in income and with it a credit worthiness that makes borrowing money to pay back College loans tempting.
When a person finishes College and goes out into the work force for the first time as a degree holding earner, there is often a temptation to take advantage of this new credit worthy status. Borrowing money to pay back College loans is one of the things that is often considered. There are opportunities to apply for Federal Consolidation Loans and Private Consolidation loans as well. What are the advantages of doing this and what are the disadvantages?
Often the graduate’s student loans are a mishmash of different loans all with different repayments schedules and interest rates. The student received these loans at a time when they were still a risk to the lender. Although the loans were intended to pay for college expenses, there was no guarantee that the student would complete school. Now, after graduation, the ex-student is qualified for a much higher paying job and this increased income has improved their credit picture.
It follows that they are much less of a credit risk now and should be able to qualify for loans at more favorable interest rates. This is the fundamental concept behind the Consolidation Loan. All avenues of credit are suddenly open to the graduate and the temptation to remove the student loan debt quickly is strong. The bottom line, however, is really what needs to be considered. It takes some simple calculations to determine the exact savings of any type of consolidation. There is a basic flaw in the idea of increasing debt to reduce debt.
In many cases, this is what happens with any type of debt consolidation. You should not be interested in just the short term. It is possible to get certain types of Federal Stafford Consolidation loans when your debt exceeds $60,000 that extends your repayment time to up to 30 years. This results in a smaller monthly payment and appears attractive at first glance, but when you total the amount of interest that will be paid over that period, you see you are actually paying much more in the long term.
The time immediately after graduation and the movement into the work force should be the time that solid financial planning begins. There are so many factors that must be considered and most financial advisors will tell you that it is never too early to begin the process of Estate planning. Now is when you will be making long term investment decisions that will impact your future all the way to retirement and beyond. It is not the time to be hasty in dealing with the College loan debt. Make sure that any path you follow is good for you both long term and short term before you borrow more money to pay off the money you have already borrowed. It could very well be the right move to make, but needs to be a careful one.
