| When looking for debt consolidation student loans, | | | | nevertheless reduce the total cost of the student |
| you must consider all or as many of the moving | | | | loan is the option of a fixed rate over that of a |
| parts that make up the cost of the money | | | | variable rate. A fixed rate private student loan |
| borrowed. Just like any loans, there are three (3) | | | | consolidation program gives you a predictable monthly |
| general areas where the lender can charge that will | | | | cost. A variable rate adjusts according to typical |
| raise your costs. These areas are the fixed costs, | | | | financial factors, such as the federal interest rates |
| the interest rates, and penalties. Additionally, there is | | | | and economical conditions. In the early years of the |
| a fourth area, promotions, that you must heed in | | | | new millenia, interest rates have been its lowest just |
| order to reduce the total cost of consolidation for | | | | hovering around 4-7%. However, from the 70's to |
| private student loans. | | | | most of the 80's, interest rates were in double digits. |
| FIXED COSTS | | | | Opting for a student loan consolidation with fixed |
| You've heard of these as application fees and/or | | | | rate can avoid the cyclical high's of the interest rate |
| origination fees. These are generally explained as | | | | roller coaster. But you must catch it at the lowest |
| covering the paper work to process your loan. | | | | student loan consolidation rate at that time. |
| Application fees are usually fixed so that a | | | | PENALTIES |
| consolidation for private student loans totaling | | | | Just like many mortgages written in the 90's and |
| $25,000 will have the same fee as a $100,000 loan. | | | | older, some student loans have pre-payment |
| On the other hand, origination fees are a percentage | | | | penalties. These are money that you owe if you |
| of the total loan, typically 1%-3%. In the mortgage | | | | were to pay the loan ahead of schedule. They were |
| industry, the origination fee, also called "points", | | | | industry standard so that the lender does not lose |
| depends on the interest rate. Lower interest rate | | | | money in the transaction. The penalty is typically a |
| means higher origination fees and vice-versa. There's | | | | percentage of the remaining balance. Imagine if you |
| a term in the mortgage industry that you can "buy | | | | paid a 10-year loan in 6 years. There would be a |
| down the interest rate by paying higher points". This | | | | percentage of the 4 remaining years to pay over |
| is one way to lower the monthly payments. | | | | and above what you already paid. |
| Additionally, the origination fee is a major source of | | | | However, as the student loan consolidation services |
| the broker's commission. The student loan industry | | | | get more competitive, many lenders have been |
| seems to have the same mechanics. So it is best to | | | | giving up prepayment penalties to attract credit |
| understand how they work. | | | | worthy borrowers. Hence, when speaking to a |
| Because of the current competitive nature of the | | | | student loan consolidation counselor, you must ask if |
| student loan services, many lenders are discounting | | | | you'll be assessed a pre-payment penalty because |
| the fixed costs. Some are even slashing them off | | | | there are many programs out there that do not |
| completely. So if you're in the market for | | | | have such penalty. |
| consolidation of private student loans, look first to | | | | PROMOTIONS |
| the program with no origination and no application | | | | Lenders are competing for your business. Hence, |
| fees. Make the lenders compete! | | | | they give incentives such as a student loan |
| INTEREST RATES | | | | consolidation credit that could lower the total cost of |
| Another area of cost is the interest rate. | | | | your loan. Typically, these are rebates where the |
| Furthermore, this is where the lender gets most of | | | | lender will write you a check once you finished paying |
| its income for the life of the loan. Again, because of | | | | off the loan. Another popular method is a "no last |
| the competitiveness of the student loan consolidation | | | | month payment" where you don't owe the last |
| services, many lenders give incentives that will lower | | | | month of your bill. Since these are promotions, they |
| the interest rate. | | | | are normally given in a limited window of time. But |
| The most common way to reduce a private student | | | | sometimes, it helps to ask your counselor if the |
| loan interest rate is through an automatic payment | | | | lender he's representing is offering any promotion. |
| plan. In this plan, the lender will deduct the monthly | | | | SUMMARY |
| payments directly from your checking account with | | | | When times are tough economically, you need all |
| your authorization. Since it's done electronically, it will | | | | what you can do to relieve the stresses. One way is |
| be timely. And that leads to a second opportunity to | | | | to take control of your finances, including your debts. |
| reduce the interest rate -- consecutive "no late" | | | | For student loans, the opportunities are there to |
| payments for a stated time period. For example, | | | | save money. But you must know what they are. |
| some lenders will lower your interest rate if you | | | | When looking to consolidate your private student |
| make 48 consecutive monthly payments without | | | | loans, be aware of the costs. If you have to |
| being late. Over the life of the loan, that could be | | | | compromise, understand the advantage you're gaining |
| significant. You must learn these incentives and take | | | | and the benefit you'll be losing. And most of all shop |
| advantage of them. | | | | for the right lender and ask the right questions. |
| Also, not necessarily a rate reduction plan, but could | | | | |