Student loan debt is the second largest consumer debt passed only by mortgage loan debt. So how different are these two? Both are considered a part of normal life, so how do they compare?
How Is Interest Set?
Private lenders continuously set and reset rates based on movements in the secondary markets, where bundles of loans are bought and sold. Rates for a conventional 30-year fixed-rate mortgage fluctuate along with the 10-year Treasury yield.
Congress sets federal loan rates each spring off the 10-year Treasury note. Private lenders have their own formulas. Student loan interest rates are typically higher than those of 30-year fixed-rate mortgages.
Can You Refinance to Take Advantage of Lower Rates?
Yes, through many banks and credit unions.
Yes, but be warned: Few private providers offer these services, and when you refinance federal loans, you forfeit key consumer protections.
Can You Discharge Your Loan in Bankruptcy?
Not without proving “undue hardship” to a bankruptcy judge with challenges from the lender, a high bar.
Is There Recourse Against Bad Loan Servicing?
Yes. If the mortgage servicer applies payment improperly—thus breaking the law—you can sue.
Not much, because there are no consistent industry standards for student loan servicers.
Can the Loan Grow Bigger Over Time?
Not really, due to rules forbidding servicers from setting too-low payments, causing interest to add up.
Yes. That can happen with income-based repayment plans and in other circumstances. When unpaid interest is added to principal, debtors pay interest on interest.
Always be careful about any debt you my pull into your life, and be sure to do your research.
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