Step 1: Determine what you want out of consolidation
– If you want to pay your loan off early look for a principal reduction
– If you want 20 years (or more) to pay off your loan, look for an interest rate reduction
Step 2: Find the best principal or interest rate reduction. Nonprofit lenders are a good place to start. They have a lower cost to operate which translates into better savings for you.
Step 3: Make sure the discounts are PERMANENT
Step 4: Find company’s offering additional discounts for using auto-debit (also ask what you must do to sign-up for and KEEP your auto-debit discount!)
My son recently graduated and asked me to help him with his student loans. He was thinking about consolidating them to get a fixed interest rate and lower payments. I have heard horror stories (some right here in this message board!) about people getting tricked and trapped by predatory lenders, so I wanted to make sure this didn’t happen to my son.
In my research I found an excellent resource: Student Lending Works. This company is a nonprofit lender out of Ohio. Ultimately they gave my son the best deal —they lowered my son’s interest rate by 1.75% — but more importantly, they really educated me and my son about what to watch out for when consolidating.
Here are some of the things I learned:
1) Many lenders will advertise “special benefits” such as a 0.6% discount for consolidating while you are still in your grace period. The truth is, there is nothing “special” about such benefits. They are already yours
Other consolidation benefits that lenders must give you by law:
– Fixed interest rates
– No fees
– No credit checks
– No prepayment penalties
– Rates that are 0.6% lower if you consolidate while in your grace period
If you get an offer from a lender advertising any of these as “special benefits”, watch out! Most lenders that advertise these benefits are trying to hide the fact that they don’t provide substantial benefits of their own.
2) “On-time” Payments
Many lenders offer discounts for making on-time payments. What they don’t tell you is that to keep the discount you have to continue making on-time payments until the loan is paid off which could equal up to 30 years of on-time payments! Avoid these lenders and look for one that offers permanent benefits. This is why I liked Student Lending Works. Their discounts are permanent.
3) Managing Your Loans Online
Applying for your consolidation loan online is one thing but some lenders also expect you to conduct all correspondence with them electronically. If this is the case, watch out for tricks in the fine print. If your email is deemed undeliverable twice in 48 hours, you may lose your benefits!
Also, If you change your email address without notifying the lender and their correspondence bounces back to them you may lose your benefits.