Consolidating Student Loans Means Relief for Graduates

Today's graduates are leaving college with a lot more than a diploma. The average student loan bill is over $24,000 thanks to a sharp increase in tuition that has outpaced inflation since 1990. How are grads balancing their budgets these days?

When Christine began college, she was one of the tens of thousands of students that year that paid for college with a student loan. Paying out of pocket wasn’t an option, she says, and neither was passing up college out of fear of repaying a loan.

“At the time, there wasn’t much difference from my perspective between $5,000 and $50,000” she says. “I figured that by going to school I’d be investing in myself and would be able to pay it back, no problem.” It wasn’t until 6 months after graduation, when the student loan payment was due, that she realized that her $22,000 debt would cost her $257 a month; a large chunk of her starting salary budget.

Christine’s story isn’t uncommon. Rising tuition costs and loan repayments have created student loan payments that are beyond the budget of new grads on a starting salary. At first, she was able to defer the loan, but once the deferment ended, her income didn’t qualify for forbearance. “I didn’t know about student loan consolidation until I got a letter in the mail,” she says. “At first I dreaded opening it because I thought it was someone asking for money—but now I’m really glad that I did.”

Source: "Trends in Student Aid 2005" Copyright © 2005, the College Board, www.collegeboard.com. Reproduced with permission.

The solution was a student loan consolidation that extended her payments to 20 years instead of 10 and offered a low fixed interest rate as opposed to the variable rate of non-consolidated student loans. The $257 a month payment became a $122 payment; a manageable amount for Christine’s budget.

“Now I’m able to put aside some money each month for a down payment on a home,” says Christine. “If I hadn’t consolidated there is no way I would have been able to afford to save.” So while colleges and universities have had to boost their tuition rates in order to cover costs, Congress and the Federal Student Loan Consolidation program have continued to ensure that paying for college is still an option for anyone with the desire to seek higher education.