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How Do I Consolidate My Student Loans

Violet Said:

When should I consolidate my student loans and who should I consolidate with?

We Answered:

Why exactly do you think you need to consolidate? it isn't going to get you a better deal. Consolidation has been drilled into grads and it really offers no benefits. The federal loans you have are on a 10 year payment plan. If you try to consolidate them you might (and I stress might) end up with a slightly lower interest rate, but it may not be a fixed rate like the one you have. And it will lengthen the time you pay on them. You'll go from 10 years to repay to 30. Meaning you'll be paying on them until roughly you retire. You end up paying more money in interest over the life of the loan. And if you have federal and private loans, you can't consolidate them together.

Some folks go on and on about only having one payment. But with auto bill pay, who cares? Honestly. It doesn't take more time, besides, your loans will likely end up being sold to the same place when you graduate. (Sallie Mae) and you will only have to make one payment to them.

When I graduated with my Master's degree, I owed 22K. Sallie Mae bought all my undergrad and grad loans and I only made one payment for 10 years to pay it off.

THEY split my payment up to get the correct amount to the correct loan. Simple and easy. If I'd consolidated, I'd still be paying on them.

Wilma Said:

What is the best bank to consolidate student loans with?

We Answered:

are any financial institutions consolidating right now? i thought all that was put on hold because of the economic worries.

Anthony Said:

I want to consolidate my student loans. How do I go about that?

We Answered:

Okay, Artsty - let me see if I can explain this so that you can follow it easily.

First of all, I'm assuming that you are receiving statements from one or more loan companies every month. If not, you must at least be receiving a statement from one (or several companies) in January of each year - that's when they send you a summary. The first thing you'll need to do is find all of these statements and look them over.

Many of the actual lenders may not be contacting you directly, because it's very common for lenders to use another type of company, called a "loan servicing agency" to help them stay in touch with you. The largest loan servicing agency, and one that you're almost certainly dealing with is a company called "Sallie Mae". Check and see if you have correspondence from Sallie Mae.

When you have found as many of the statements as you can, you can call the customer service number on your statements for more information, particularly about your loan balances.

You should also have copies of the "Promissory Notes" that you signed every time you agreed to a new loan. The lenders are required to send you a copy, and you should have kept these in a very safe place, because these are the legal contracts that you signed - the terms of the loan(s). Each promissory note will tell you how much the loan is for, and they'll also tell you how much you will eventually have to pay back on each loan.

As for consolidation - this is a very complicated lending question that I would REALLY REALLY REALLY recommend that you discuss with a knowledgeable financial advisor. Your mom and dad are fine if they know a lot about loans and interest rates and repayment schedules and things like that, but if they're also a little intimidated by loans, you should make an appointment to speak to a family friend, or an accountant, or a loan officer at your bank.

Consolidation loans are promoted with the "pitch" that they make your life easy by allowing you to take a bunch of loans from different lenders and gather them all together into a single loan with just one lender and one payment. They are also "sold" with the suggestion that consolidation can save you a lot of money by lowering your monthly payment.

Whether a consolidation loan is right for you depends on a lot of factors that the consolidation lenders don't always tell you about in their ads and emails. You asked me to keep this simple, so I won't go into a lot of detail about what those factors are.

Just keep a few things in mind:

Consolidation loans do not cut your monthly payments because they are "nicer" loans. Consolidation loans cut your monthly payments because you will make many, many more payments over a longer period of time.

Suppose you owed me $100 and promised to pay me back $50 a week this week and $50 a week next week. Your car broke down and you had some other bills due, and you come back to me and say that you can't pay me the $50 this week - is there any way we can make another arrangement?

"Oh, absolutely." I say. "Let's do this. Instead of paying me $50 the next two weeks, you can pay me $10 a week for the next 15 weeks.".

You think "Wow, only $10 a week. That's much better than $50. I can afford that!".

But look what's happening - I'm not just being 'nice'. You're only going to pay me $10 a week now, but you'll be paying me $10 a week for the next 15 weeks. What's that mean? It means you'll be paying me back $150, not the $100 that you originally owed me.

I did you a "favor" by letting you pay me less, but we stretched it out over more weeks, and you wound up paying me a lot more for the "privilege".

That's how a consolidation loan works - your payments will go down, but you'll pay the loan for a lot longer and you'll almost certainly wind up paying a lot more in the end.

That's why I say - get some good advice - make sure you understand just how much it's going to cost you to make lower payments for a longer time. Then decide if the consolidation loan is worth it for you.

It might be, but it might not.

Good luck!

Jacqueline Said:

How do I consolidate student loans from different lenders?

We Answered:

It's never a good idea to consolidate student loans because you are already getting the lowest loan rate available. Just pay off the smallest loan by adding payments to it and pay the minimum on the other loans... then pay off the next smallest loan until they are all done.

Even if you got the same rate by consolidating, you lose, let me explain: It will increase your loan payment. This is not good b/c you will be less likely to add extra payments this way... all extra payments go on the capital... not the interest. Also, there are often hidden charges for consolidating... so check that out first. If the payment is less, then you also have a problem because that means that they have extended how long you have to pay your loa, therefore charging you more interest... banks love that!!!! Do you want to keep your money or give it away????

If you had to consolidate, I'd choose ING as your bank of choice. Good Luck!

Adam Said:

Should I and how do I consolidate my student loans?

We Answered:

wow - a lot of questions. let's start with the easy ones, first.

Student loan interest IS tax-deductible. The maximum amount you can claim each year is $2500. If you paid more than that, you can not deduct anything over $2500.

(Can I assume that your starting salary won't be in excess of $55,000? If you do make more than $55,000, you won't be able to take the full deduction for student loan interest.)

Do you have to be employed full-time in order to consolidate? No.

Should you consolidate your students loans? Ah, now that's the tough one.

Here's what the Department of Education has to say about consolidation loans:

Always Consider the Cost

"You should keep in mind that although consolidation can simplify loan repayment and lower your monthly payment, it also can significantly increase the total cost of repaying your loans. Consolidation offers lower monthly payments by giving borrowers up to 30 years to repay their loans. So, you'll make more payments and pay more in interest. In fact, in some situations consolidation can double your total interest expense. If you don't need monthly payment relief, you should compare the cost of repaying your unconsolidated loans against the cost of repaying a consolidation loan. You also should take into account the impact of losing any borrower benefits offered under non-consolidated repayment plans. Borrower benefits, which may include interest rate discounts, principal rebates, or some loan cancellation benefits can significantly reduce the cost of repaying your loans.

Once made, Federal Consolidation Loans cannot be unmade. That's because the loans that were consolidated have been paid off and no longer exist. Take the time to study your consolidation options before you submit your application. This checklist has been designed to help you determine whether and how you should consolidate your loans."

I hope that helped, good luck!

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