Student Loan Consolidation - Is it a SCAM?

[lvScRb23]

I'm constantly getting calls and mail from companies trying to get me to consolidate my student loans...is this a scam?

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[dpmd]

Depends on your definition of a scam. These are likely legitimate companies that will consolidate your student loans (I think they are regulated by the government in some way, but I'm not positive). They may offer you good terms and incentives, but may make the incentives hard to keep (by making you forfeit them if you miss a payment, go into deferment or forebearance, or whatever their rules say). They may try to convince you to do things that may not be in your best interest (including your spouse in a consolidation, including perkins without regard to your future potential for cancellation, consolidate well before your grace period is over and not giving you any grace period to make up for it). They probably will not let you know if you will lose any incentives from your current lenders if you consolidate (my direct loan made me repay an incentive they gave when the loans funded, because I didn't consolidate with them-had I realized this I would have left that loan out since it was a pretty small balance I could have just paid off in a few months). If you do some homework to find out the terms, rules, and make sure the numbers work out right for you, you can consolidate without getting ripped off.

 

[Burke]

Student loan consolidation in general is not a scam (although some consolidation companies can use marketing tactics to make you think you getting something you're not like a very low interest rate)

What consolidation does is combine all of your student loans together into one payment and it can also help you lower your monthly payment. This is done by stretching your payment over a longer period of time (for example, allowing you to make payments over 20 years instead of just 10 years). So, if you want to lower your monthly student loan payment then consolidation might be a good option for you.

It is always best to do a federal loan consolidation (vs a private loan consolidation) with your Stafford and PLUS loans. This allows you to change your interest rate from a variable rate (that can go up each year) to a fixed rate (rate won't change from year to year).

 

[okbye]

Spousal consolidations are no longer allowed, that was part of the law changes last July. I've never heard that before about having to repay an incentive dpmd, I'll have to look into that. They may not have told you when consolidating because they may have never come across it, like I haven't. Do you mind me asking what kind of incentive it was?

Your grace period can be retained if you chose. There is a check box on the standard government approved promisory note allowing you to retain your grace period whether the lender mentions it or not. Your loan will be processed but not funded until right before the grace period is up, so your first payment should be due about the same time it would have been if you hadn't consolidated. Perkins forgiveness regulations vary by state, your lender will most likely not know your specific guidelines. You need to find that out for yourself from your state's financial aid office or your school. In general though it requires a couple years of service in a clinic or facility that treats low income patients.

Consolidators aren't regulated in any way but there are very specific laws reguarding consolidation that everyone must follow. You are going to get the same base interest rate from everyone you call, it's a government regulated calculation and no lender can change it. The only difference between lenders is the repayment incentives offered and the level of customer service. Look for the offer that gives you the best overall savings, some lenders will dangle some cash in front of you in the form of up-front rebates but those terms will almost always cost you more in the long run. The lender should be able to give you figures on total interest costs with and without their incentives.

Basically don't let the lender try to talk you into anything. Get the figures from several different companies and decide on that and the level of service you received when you called for information. It should be easy to get an actual person on the phone and their representative should be knowledgable and helpful. There are many options, but with a few phone calls you should eb able to find someone who can give you a good deal.

 

[dpmd]

My undergrad was a Direct Loans school, and evidently they had given me a certain percent off initially that I had to make on time payments to keep. The sticky point was that you are allowed to pay it off early without penalty, but if you transfer the loan to another company (through consolidation) they make you repay it (I could look up my promissory note for the exact rules, but I don't remember where I put it). I'm not saying the company I had consolidated with knew about this and deliberately misled me (they are a pretty good company that has gone the extra mile to fix things that I screw up, and they fix the things they screw up if I call them on it). I would guess there would be no incentive to know about things like that, and no incentive to tell about them even if they did know, so I just recommend that people do what I didn't and look into the rules their current lender has before making any changes (my laziness ended up costing me $104 plus however much interest I accrue on that before I pay the loan off-not a huge deal, but still).