Consolidating Private Student Loans

Every graduating college senior with any educational debt should know that consolidating their student loans is going to be one of the most important things they do after they leave school. No matter how small your student loans are you’ll find a major difference in your total repayment amount if you use a consolidation program to lower your long term interest rate even a couple of percentage points.

What many college seniors may not know is that there’s a big difference between consolidating private student loans and consolidating federal student loans. With federal student loans you’re guaranteed certain benefits by law – things like a fixed and unchanging interest rate, no fees, and an automatic rate reduction if you complete your consolidation during the six month grace period that starts when your full-time student status ends. Private student loans don’t carry any of these guarantees, and that makes them less appealing, which means they’ll have to work harder to convince you to give them your business.

Unfortunately, some private student loan consolidation companies resort to less than ethical marketing practices to get you to hurry up and complete their process. Here are some things to watch out for:

• direct mail pieces and/or websites that use very official looking seals and logos in an attempt to look like an official branch of the government
• gift cards or other bonus incentives designed to entice you to work with a company without having first checked out their credentials and without fully assessing the quality of their consolidation loans
• telemarketers or direct mail pieces that ask for personal information such as your student ID, your social security number, etc in order to ‘pre-qualify’ you. Never give out any such information without knowing very well the trustworthiness of the company you’re communicating with.

There are plenty of legitimate and credible business out there who can help you consolidate private student loans, but you need to be willing to go through a couple of months of due diligence to make sure you’re working with the best one for you. Investigate them thoroughly, and don’t forget to use resources like the Better Business Bureau, and the Consumer Protection Agency in your research.

Consolidate Private Student Loans

The time just before and just after college graduation is chaotic to say the least. You’re making plans for graduation, double-checking your transcripts, polishing your resume, interviewing for jobs (hopefully), and looking forward to starting your life as a full-fledged grownup. But along the way, don’t forget to consolidate your private student loans. It’s one of the most important financial moves you’ll make as you start your professional life.

I remember when I went through this process – without the consolidation my interest rate was going to be something like 6%. After consolidating my private student loans was around 2%. Let’s do the math. If  you graduate with $20,000 in loans, your situation could look like this without consolidating:

$20,000 to be repaid over 10 years with 6% interest creates a monthly payment of around $222. By the time you pay off the loan you’ll end up having paid over $6,600 in interest on your education.

The same loan balance and repayment period with a 2% yields a payment of around $184 and costs you only just over $2,000 in interest over the life of the loan.

Now, if you took the extra $38 per month and saved it at 5% interest during that same ten years, you’d end up with over $5,700 in savings. So you save $4,600 in interest and you get to have an extra $5,700 in a savings account. That’s a swing in your favor of over $10,000. Are you starting to understand why it’s so important to consolidate your private student loans?

Here’s how it will work. Your loan payments aren’t going to be due until six months after you’re no longer a full time student (hopefully that means six months after graduation, right?). During those six months you’re going to get plenty of offers in the mail offering you great deals on student loan consolidation loans. Do not accept the first one. In the age of the internet, take the time to research the companies that are contacting you. Check them out with the Better Business Bureau, and see if you can find any reviews on third party sites written by their current customers. You’re going to be married to these people for a long time, you want to make sure they’re above board and they’ll take care of you.

Also look for a consolidation company who will give you a further interest break if you set up your payments on your bank’s bill payer. Not only will that save you some interest, it will protect you from messing up your interest rate and your credit by making payments late or not at all.

Now, go enjoy adulthood! You’ve worked hard to graduate and get where you are, now keep progressing and enjoy your life.