Managing Student Loans

Consolidation loans simply take all your student loans and lump them together, making one payment.

Should you consolidate your school loans? No! Here are just a few reasons why.

1.) Consolidating your school loans ends the grace period (6 months after you graduate). Which means if you return to school you still have to pay the loan, you cannot re-enter into a grace period.

2.) Government loans have more incentives. If you are late, don’t worry about it. It takes around 60-90 days before they will report a late payment, if ever. They are very flexible and just want you to repay the loan when you are able to. If you have difficulty paying the loan you can contact the government agency over the loan and renegotiate.

3.) Although the rates are variable, they do not go above 8%. If you consolidate into a commercial loan you can have outrageous rates if you are late on just one payment.

4.) Sallie Mae and many other college loan programs are being sued for malpractice. In fact, Sallie Mae just settled out of court for $2 million dollars. Most consolidation firms and even student loan corporations are crooks and look for nothing more than a high interest rate.

5.) Some loans have clauses where if you are late on a car payment, water bill, or any other bill reported to the credit agencies will cause you interest on your other loans to rise. You need to beware of this.

6.) You save a few percent if you are lucky but will over burden yourself with one large lump sum. Lets say you have $500 a month in loans broken down into five separate bills of $100 each. Now let us assume you have a horrific month and no money left for whatever reason. But after all expenses you have $400 left in savings to pay bills, you can pay 4 of the loans off and sort out the other loan by calling the funder.

By merging all your loans together you are creating one large bill you might not be able to pay one day and it makes it difficult to pay off your loans. When they are smaller you can slowly pay one off, then the next, and finally till you are debt free. Consolidation is a bad financial move – especially with student loans.

There are too many short cuts, bonuses, and charity with the government – why would you throw a terrific loan away to be hounded by collection agencies, loan sharks, and more consolidation companies. Also beware, many are fraudulent. Never give your social security number over the phone no matter what they say.