Consolidated Loans In America

Consolidated Loans In America

Private lenders once played a larger role in the student loan market than they do today.  In the past, students submitted the Free Application for Federal Student Aid (FAFSA), to the Department of Education, before being referred to private lenders for loan fulfillment.  In other words; the Federal Government would determine your eligibility for subsidized loans, and then a private credit union, bank or loan servicer would provide the funds.

Debt is a way of life for Americans, with overall U.S. household debt increasing by 11% in the past decade. Today, the average household with credit card debt has balances totaling $16,748, and the average household with any kind of debt owes $134,643, including mortgages.

While “don’t spend above your means” will always be sound advice, NerdWallet’s annual survey of household debt and its costs makes clear that increasing debt loads aren’t just a case of lifestyle creep. The rapid growth in medical and housing costs is dwarfing income growth, making it challenging for many families to make ends meet without leaning on credit cards and loans.

But this doesn’t mean Americans are doomed to be indebted for life. Careful spending and steady debt eradication can go a long way toward getting people to financial freedom.Bank of America was active in that market, providing financing for participants in the Federal Family Education Loan Program (FFELP).  Stafford Loans, and other government-subsidized initiatives, including consolidation loans, were among BOA’s stable of student assistance programs.  Today, regional and national banks extend attractive private student loan products, but they are no longer included in the federal financial aid process.Educatioon Reconciliation Act of 2010 made fundamental changes in the way student loans are administered.  Subsidies for banks that gave student loans were eliminated, and the student loan program took on a self-funded model.  By cutting out the middleman – the private lender – the Department of Education administers funding with greater efficiency, thus expanding educational opportunity among borrowers.

All loans issued after July 1st, 2010 are part of the William D. Ford Federal Direct Loan Program, which distributes aid directly from the DOE. Federal Loan Consolidation remains an option for students, and BOA does offer a portfolio of student-oriented financial services that meet a variety of educational needs.

Pre-Consolidation Considerations:-Loan consolidation allows students to package existing educational debt into a single government loan. If you have multiple outstanding federal student loans, including Stafford, Perkins and PLUS Loans, it might make fiscal sense for you to utilize consolidation. But participation does not always guarantee a rosier outlook.  Some candidates are better off sticking with the status quo.  Ask these questions to help determine whether or not consolidating is your best option:

    -How many lenders hold your student loans?
    -What types of student loans do you have?
    -What are your interest rates?
    -Are monthly payments difficult to meet?
    -Are you still within your grace period?

Federal Consolidation Loan:-Federal Consolidation allows some students to realize better interest rates and structured repayment that is within reach.  For qualified participants, a single monthly payment eliminates the need to pay each loan individually, and the repayment terms of the loan can be extended for as long as 30 years.Students in the market for this type of loan should pay close attention to how total repayment costs might be impacted. Consolidating and extending the repayment schedule of your loans adds more interest, which has the potential to add considerable costs to your total debt obligation. If you are struggling to make monthly student loan payments, consolidating your student debt might be required to protect your credit.  By extending the life of your loan repayment, your monthly payments are made smaller, but borrowers must weigh these benefits against the higher amount of interest that will be paid over the course of the loan.Consolidating extends student loan repayment up to 30 years, and it also provides opportunities for borrowers to add fixed interest rates to outstanding loans. Variable interest terms that come with some student loans are subject to fluctuations, so locking a fixed rate makes sense. Direct Consolidation changes are irreversible. Once you consolidate, it is as though your original loans are off the table, and you are starting with a clean slate.  Before you consolidate, make sure that positive features of your original loans are not lost during the transition.

Private Student Loan Consolidation:-Students that need assistance beyond federal loans and scholarships seek private student loans.  The Bank of America Student Program Consolidation Loan gives borrowers the flexibility to roll multiple private education loans into one consolidated loan.  Eligible loans include those that were used for expenses like textbooks and computers.

A single, consolidated monthly payment offers relief from high interest rates and reduces administration costs on multiple loans. The minimum consolidation loan is valued at $10,000. Borrowers with 48 consecutive on-time payments earn a .78% interest rate reduction and an additional .25% is discounted when participants enroll in an automated withdrawal payment program.

Key findings:-Why debt has grown: The rise in the cost of living has outpaced income growth over the past 13 years. Median household income has grown 28% since 2003, but expenses have outpaced it significantly. Medical costs increased by 57% and food and beverage prices by 36% in that same span.How much debt we have: Total debt is expected to surpass the amounts owed at the beginning of the Great Recession by the end of 2016.Americans will soon owe more than they did in December 2007 — but that doesn’t mean another recession is looming.

The cost of debt:-The average household with credit card debt pays a total of $1,292 in credit card interest per year. This could increase to $1,309 after the Federal Reserve voted on a rate hike of a quarter of a percentage point.After adjusting for inflation, household debt has grown 10 percentage points faster than household income since 2002. However, this gap has gotten significantly smaller since 2008, when the difference between debt and income was 38 points.After years of rapid growth, education costs have stopped outpacing income — growing 26% since 2003 , compared with 28% income growth.And while student loan debt has grown 186% in the past decade, this growth has also slowed in recent years. Between September 2015 and September 2016, student loan balances increased by just 6.32%, the lowest annual growth since we started tracking the numbers in 2003.In addition to the apparent plateauing of education costs, it’s possible that student loan growth has slowed because of lower college attendance, specifically in the for-profit sector. There’s been a steep decline in enrollment at four-year for-profit institutions: 13.7% between fall 2014 and fall 2015.
This isn’t totally surprising. Several for-profit colleges have closed due to pressure by the Department of Education and stronger regulatory scrutiny, and others are losing students as the economy rebounds and their potential students now have more job opportunities. In addition, the number of for-profit colleges that can award financial aid has declined.For-profit schools are, on average, more expensive than public universities, and students who attend are more likely to take out loans. Students are opting instead to either attend nonprofit colleges or universities or be in the workforce, both of which likely contribute to lower overall student loan balances.

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