|
If you have a school loan, chances are you have been contacted by a college loan consolidation company. Student loan consolidation has become a very profitable business and new companies are cropping up every week. They offer lower monthly payments and even an instant cash rebate check for refinancing with their company, but is college loan consolidation really a wise choice? Common sense tells you that anyone who offers to pay you cash to borrow money has a hidden agenda.
What most consolidation loan officers will not tell you is that consolidation will extend your loan period to the maximum number of years allowed under the law. Your school loan that would have been paid off in three years will now continue for fifteen years or more. By extending the life of your loan and your interest rate, the consolidation company can offer you lower monthly payments. The catch is that you will now be paying nearly double the original amount of your loan once your contract terms are met.
For some graduates, loan consolidation is a good idea. If the financed dollar amount is only a few thousand dollars and the graduate is having a hard time finding steady work, consolidation can lower the payments until the graduate can get settled financially.
Most student loans will allow a period of deferment for those who are suffering financial hardship and should be considered before consulting a consolidation company. This deferment period is limited, but it may be a viable option to avoid consolidation. Using a deferment for an extended period of time will only lengthen the life of your loan and raise your monthly payments. If you can only afford to pay the interest of your loan, most lenders will agree to work with you for a few months rather than file for deferment status. Most graduates are better off sticking to their original loan agreements with the initial lending company. Every time that your loan changes hands, you may find yourself loosing money.
If your financial condition leaves you no option other than a student loan consolidation, make sure that you get the terms in writing before signing any paperwork. It is important to review and understand your loan terms before agreeing to a loan consolidation. When you are shopping for a consolidation company, do your homework. Check your better business bureau and ask around to see which companies have a good reputation and which ones are known to be shady. An online search may not be enough. Ask your current loan officer if there is a consolidation company that they recommend. Getting locked into a long term loan with a disreputable company can be avoided by taking the time to do a little research.
Communication between you and the original lending company is crucial. If you are having problems paying your student loan, call your lender and be honest with them. You may be surprised at how helpful they will be. After all, they want you to pay off your loan, not be buried under payments that you cannot make.
|