Who Should We Use for Private Student Loan Consolidation?

Question:

Dear Steve,

My son’s student loans are now due through Sallie Mae (not federally funded). Seven loans totaling just under $40,000.00. The interest rate for each loan varies from 7.25% to 9.625%. We are looking to consolidate into one loan with one monthly payment. We have received a lot of mail offers and wonder if you know of a reputable loan consolidation business?

We have received offers from Navient, Splash Financial, Laurel Road, Citizens, and earnest.

Any suggestions or advice for a reputable consolidation loan company or bank?

Thank you!

Julie

Answer:

Dear Julie,

It is never a good idea to consolidate federal student loans into a private student loan, but that is not your situation.

You indicated these are not federal student loans, so let’s consider logical points before consolidating these loans.

Many companies out there want your private student loan consolidation business.

Selecting the best company for you should come down to research and math.

There is no shortage of companies that want your business.

Here are the most important points to pay attention to:

  1. Interest Rates: You need to know what the actual interest rate will be before you can make any decision. Teaser rates or promotional rates are a gimmick. Find out the interest rate that will be charged over the majority of the loan. Avoid adjustable-rate loans.
  2. Length of the Loan: A low monthly payment can be manufactured by extending the length of the loan. So if you are shopping by monthly payment alone, you can wind up paying a significant interest. Look for a length of loan that is tolerable. When comparing the cost of different offers, make sure the loan length is the same. Don’t compare a five-year loan to a ten-year loan.
  3. Special Features: Ask the lender if there are any special features available if you become disabled or unable to make the payment. Private loans often do not offer any disability forgiveness or payment holidays. Know what you are getting yourself into.
  4. Hidden Fees: Does the loan offer contain any hidden fees that will increase your cost of borrowing?

Not Special

A private student loan consolidation is not a particular type of loan. For example, you could go to your local bank or credit union and ask if they would be willing to consolidate the private student loans into a new consumer loan.

With this strategy, you are approved for a loan that will cover the cost of all the open private student loans and then use a portion of that approved loan to pay off the individual student loans.

You will then wind up with one loan and one monthly payment.

Never Forget

Don’t forget the offers arriving in the mailbox are marketing messages generated by data that indicates you have private student loans. These are sales messages and not necessarily smart offers for consolidation.

Sincerly,

You are not alone. I’m here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don’t give up.

Damon Day - Pro Debt Coach