It’s easy to get a student loan these days. It’s harder to find a lender that won’t sell you to the highest bidder.
Is your inbox full of student loan spam? Is your quality time with the Simpson’s being interrupted by some lender yakking in your ear about debt reduction? Is your mailbox so crammed full of flyers about interest rates that you can’t even open it? Well, you’re not alone.
But who are these lenders? Where did they come from? And why are they suddenly so interested in you?
It’s simple: the rise and fall of interest rates made the student loan industry a lucrative market for new business. The last few years have seen a dramatic influx of brand new lenders, all competing for a piece of the pie. There is certainly no shortage of students needing money (don’t you know it), and considering that Stafford loans are guaranteed by the government, it’s not a very risky business venture. Problem is, there is so much more to being a lender than just, well, lending. There’s collection, servicing, repayment plans, correspondence, the list goes on. And because these things take time and money, many of these new companies end up selling off their loans to larger, more established lenders, who can handle the servicing aspects. Selling and transferring loans makes for messy paperwork, but it also leads to late or missed payments for students who don’t know who their lender is anymore. And that’s not good.
Missing one payment can cost you a lot of money. As you are probably aware, repayment incentives are many times linked to consecutive “on-time” payments. Fancy words that mean – you can’t mess up, not even once, not ever. With that in mind, if you miss one payment or are late on a payment, these incentives are null and void. Think how easy it could be to have a missed or late payment. You need to send in your student loan payment late because you need to fix your car, your roof, or even yourself. You’re out stamps, you just wrote you last check and your new ones haven’t arrived, OR you sent it to the company you THOUGHT was your lender, but instead they sold them to someone else. Because usually these incentives are interest rate reductions, that one month glitch in your checking account could mean up to 30 years with no reduction or incentives. (Fact: the most common missed payment is the first one.)
You have options when it comes to lenders. Obviously, just look at your mailbox. You have LOTS of options. It’s important to choose carefully—the right lender can and will save you time and money. Good lenders have the resources to serve your account throughout repayment (years and years of repayment). Credibility counts, so be sure to ask:
- How long have they been in business?
- Do they sell loans to other lenders/servicers?
- Have they been recommended by someone of authority, like your school’s financial aid office?
- How lenient are their repayment incentives?
Even though they might look and sound the same, lenders can be very different, and those differences matter.
So, next time you pull a wad of student loan mailers out of your mailbox, think about where this company’s money is going: to pay for glossy marketing pieces, or to give you the best service?
It is good a read this article because I get many advertisments like that and I tought it was just me, I thought they illegaly gt my information. I don't even read those letters, I just throw them away. Waste of paper and trees.
How come companies CAN write "final notice" or "contact us immediately about your student loan" on their advertising materials? Consumers should be able to sue for such misleading marketing!
Another problem with those "reduced rate after 36 consecutive payments" deals is that if you pay your loan back faster than that, you don't receive any benefit. No, not everyone can plan to pay off their student loans in two years, but it can happen if you get a good job and budget well.
I was so happy to find this BLOG. I have been getting really tired of all the solicitations that I have been receiving for consolidating my student loans. The last one I received had "Final Notice" stamped on it. I thought I was late on a payment or needed to send in additional information and was almost panicing while I opened the letter. Here it was just a SPAM.
It was just nice to read why this has been happening so much.
Private loan consolidation is typically not a good debt management decision because the interest rates and benefits of private loan consolidators are usually not as good as those offered by your original private loan lender.
Here’s a suggestion: consider minimizing the payment on your federal loans (i.e., Stafford or federal consolidation) by extending your repayment term and requesting interest-only payments for the first third of that extended term. Making minimum payments on the federal loans may help you free up the funds you need to pay off those higher rate private loans. Most repayment calculators will be able to show you the "cost" of lowering your payment by extending your repayment term. You can also change the interest rate to see the impact it has on total loan cost.
How can I find a reputable company for consolidating private student loans? And how can I find out how much more I will pay in the long run if I consolidate now to pay less monthly and the new interest rate is higher?? HELP!!!