A new study from the Federal Reserve and The Brookings Institution finds that students in higher education have the ability to refocus on their degrees and save up enough cash to pay for a $2,000-a-year home mortgage.
“Many students and graduates have taken a risk on a student loan, and those risks have largely paid off,” said Elizabeth Borenstein, the study’s lead author and the director of the Center for College Affordability and Productivity.
“With higher-education borrowers, the financial risks are less significant, so they are able to refit their student loan portfolio and refinance to a higher-quality home.
We found that students can refinance on a modest cost and are less likely to default on their student debt.”
These findings show that student borrowers can refocus their portfolios on their degree, and that their loans are a strong investment that can pay off for years to come.
“According to the Brookings report, the average annual debt load of a new student loan is $27,500.
If the loan is forgiven at 10 percent interest, that’s $1,800 in cash.
If the student can refiger their loan to a lower-cost loan and refinish their credit, they can save $2.5 million in the next three years.
But, the report also notes, “Student borrowers who refinance are also likely to have higher delinquencies, particularly if the new loan is a consumer-finance loan.
For example, in a one-year period of default, a student borrower with a consumer loan could lose more than $8,000 in total.
A new student borrower who refinances will be better able to maintain a higher credit score and be able to afford a new home.
“The report found that a new, low-interest, consumer-driven student loan can cost less than $1.20 in interest, while a new low-rate consumer-credit loan can bring down the loan’s cost to less than a dollar per day.
It’s important to note that the report does not include any student loan refinancing plans that are available to borrowers under the Consumer Financial Protection Bureau’s (CFPB) Direct Loan program.
But the Brookings study does point out that borrowers who use a low-cost credit card may have a better chance of refinance than those who use traditional bank accounts.
Borenstein said that refinancing the student loan could be one of the best options for borrowers because it would also give them the financial security they need to pay off their student debts.”
For students who want to reframe their financial situation, refinancing may be a good option.””
Refinancing can also help you to reduce the risk of defaulting on a higher interest rate, which reduces the amount that you owe on the student loans.
For students who want to reframe their financial situation, refinancing may be a good option.”
Aboriginal students have the option of refinancing their education loans, as well.
According to the Education Finance Center, a nonprofit that works with communities to improve student financial futures, a recent study by the University of Minnesota found that Indigenous students were more likely to refinancethe loan than non-Indigenous students.
“For some students, this may not be possible because they have family members in low-income households,” said Dr. Roberta Williams, a spokesperson for the Education and Research Finance Center.
“In other cases, students may be able refinance the loan if their family has a significant amount of debt.
However, we do not have data on whether refinanced loans are more popular among Indigenous students.”
According the Brookings researchers, the higher the loan debt, the more likely it is that a student will default.
And the higher their loan debt is, the greater the likelihood that the borrower will be defaulting.
The Brookings study found that refinances are more likely if a borrower’s income is below $40,000, with lower-income students being more likely than higher-income borrowers to refine their loans.
And higher-incomes borrowers tend to have the greatest likelihood of refitting.
“A higher income may increase a borrower, but it also decreases the likelihood of them refinance, and this makes refinance more likely for borrowers with high loan debt,” Borenfield said.
The report concluded that students have a unique opportunity to refashion their financial future with lower loan debt and lower debt burdens.