Second Helpings [this article was posted in October 2006]
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 Simpsons 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? Also, don’t forget that you can Exercise your options — Get rid of junk mail.
Yeah, I had a terrible experience with one of the preferred lenders at my school. The original bank I took my Stafford from sold it to another company who operated under two different divisions that didn't communicate with each other (headache #1). Then when I wanted to ask about consolidating the following summer I was told that my loan was now with a 3rd company and they couldn't decide who they had as my caseworker so I couldn't get any help from them (headache #2 & #3). But the loans I have with THE are still there and every time I've called, even before I had loans, they've been MORE helpful than expected. Plus, the LIBOR is way lower than Prime right now, so I'm glad I have my alternative loans with THE, too. I just can't justify going with any other lender. Thanks THE!
I realize that some loans are junk, but how do you know if they are using their money for company use and not benefiting students.
I have been bombarded with numerous snail mail and email of student loan consolidation offers! I have had offers from getting a $2,000 check to a credit card with a limit of $300 as an incentive. They send these student loan consolidation offers like a creditor looking a client who has not paid their bill in two weeks! They advertise heavily and must be paying somebody for the list of student names. They state on the front of these envelopes, the rates are going up again so you need to hurry up and consolidate to lock in the low interest rate given by the government or otherwise you will pay through a higher rate! The advertising printed on the front of the envelope and in the letter they send, t you better do this or else! So here is my advice: Make sure you know everything about this company if you decide to consolidate with them. Just because they are offereing you incentives such as a $2,000 check or a credit card with a limited amount does not tell you how they will treat you down the line when you miss a payment and harrass you to death. Ask around, check the Internet forums, blogs etc and definitely check with the Better Business Bureau to see if you can find out anything. I myself before I decided to go to graduate school was going to consolidate my student loans through Department of Education because I knew they were a reliable governmental source. Now that I am in graduate school, my lender offered me a better deal on consolidating my loans with them so I will be using them. They didn't give me anything extra but I do know they are a trustworthy source. I have checked them out. All I can say is make sure you know who you are dealing with, because you don't want to be scammed or harrassed for a measley $,2000 check or credit card when you may have over $10-50,000 dollars or more that you owe.
I got hundreds of mail from lenders promising excellent service. I even got one today that promised to give me 3% back of my total student loans. However good their offer sounds, it is always wise to ask your school's financial aid counselors about such offers. I asked one of the counselors at our school and she explained the pros and cons about such offers. She also suggested several lending institutions that were proven to have the best lending programs. This helped me choose which institution to loan money from.
I get so much lender spam in the mail that it's pretty much overwhelmed me. Not until recently had I seriously sat down and researched consolidation options, basically because there were so many different types of spam and official looking things that I was turned off by even thinking about the management of my student loans. Down with spam!
I think you should make your post more clear - choose T.H.E.!! It's not clear to me why the financial aid offices are restricted from specifically recommending lenders, because instead of wasting time and doing a lot of research to eventually choose T.H.E. the finaid people could have made it so simple: go with T.H.E. You guys are great!