When the government shares the risk with the financial institutions lending 'government' student loans, this can help you avoid the need for short-term student loans at that time and result in you getting the money you need at the best interest rate possible.
Although the student runs a risk of debt with both options, government loans represent the least risk and offer greater opportunity for postponing payments.
Most student loan debt is not bankruptable, so it actually carries more risk than a mortgage. Student loans cannot be dismissed in bankruptcy, so if they are at high interest or variable rate or if there is any issue of being unable to pay the premiums (e.g. loss of job), then they should be higher priority.
Concerns have surfaced over the Department of Education's role in overseeing lenders and schools that participate in the largest of the federal government's student loan programs, the Federal Family Education Loan Program.
Student loans present a greater risk to loan providers, so they raise the interest rate and fees of student loans according to the credit score of the applicant. The risk premium was designed to compensate financial institutions for the high number of student loan defaults. They suggested that students in financial difficulty should be seeking assistance under the debt relief provisions of the student loan program while coping with student loan garnishment before resorting to bankruptcy.
Lenders, on the other hand, want to have their interests protected and remain concerned that increased levels of student borrowing and higher student debt loads will lead to more bankruptcies and greater loan losses.
To avoid ending up as a bad credit risk, wrecking the monthly budget, and sacrificing peace of mind, many graduates would benefit by consolidating their student loans. Again, the interest rate is likely to be better than the rate you can secure from a private lender for student loans, since the government takes much of the risk of default, thereby subsidizing your low rates.
Consolidating your student loans can help you lower your monthly payment and lock in an interest rate, so you are not exposed to a potential rise in rates which could affect your payment greatly. As time passes, managing student loan debt can seem insurmountable as life changes, and buying a home, affording transportation, raising a family, come into the game of life along with the requisite cash flow.
Another thing you might consider, once you are employed, would be to look for a bank loan with a better interest rate (or a more amenable repayment schedule) and use that to pay off the student loans.
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