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Student Loan Debt Consolidation Warning Signs

[Apr 29, 2009.]


For students and recent graduates stumbling into the high unemployment rates of today’s stagnant economy, student loan debts loom large. Debt consolidation companies may offer to streamline your monthly payments or ease your cash flow. But, they may not always be on the level. Five warning signs highlight whether your prospective lender or consolidator is looking out for you.

Your Debt Consolidation Company Hasn’t Discussed Deferment or Forbearance
If your desire for debt consolidation stems from a cash crunch, your federal student loans may qualify for extended repayment programs. In some cases, you can arrange to skip monthly payments for up to three years while the job market improves. A debt consolidator that doesn’t explore this option with you may not have your best interest at heart.

Your Debt Consolidation Company Wants to Blend Federal and Private Student Loans
Federal student loans provide you with special benefits and repayment opportunities with which private loans cannot compete. For instance, state and federal job assistance programs may help repay portions of your student loans if you work in a specific field or in a particular town. Consolidating your student loan debts with a private agency robs you of those opportunities.

Your Debt Consolidation Company Doesn’t Want You Talking to the Government
Students and graduates holding federal loans may consolidate those loans once under current U.S. Department of Education guidelines. This government debt consolidation policy may also allow you to reset the length of your loan and your monthly payment, allowing you to reset your budget to afford the rest of your bills. Beware of a debt consolidator that doesn’t ensure that you have exhausted that option before proceeding with your application.

Your Debt Consolidation Company Wants Your Checkbook
Turning over the routing and account numbers from your checkbook may seem like an effortless solution to your debt consolidation challenges. Plenty of legitimate lenders and debt consolidation organizations allow you to automate your monthly payments, eliminating the prospect of late fees. However, when debt consolidation companies don’t service your loans directly, the possibility of their own bankruptcy or financial mismanagement looms large. Should you find yourself paying a third party consolidator for any reason, confirm with your creditors that timely payments have been received.

Your Debt Consolidation Company Wants Large Upfront Fees
If it sounds ludicrous to spend more money to get out of debt, it probably is. Legitimate debt consolidation loans may require small fees to cover the cost of a credit check or an application process. When those fees exceed the amount of your monthly student loan bills, experts warn that you might be dealing with a less than honest company. Traditional lenders often merge the costs of servicing your student loan consolidation into the loan principal.

Remember, debt consolidation scams have grown more sophisticated over the years. Some scams may look and feel like legitimate companies. Likewise, some legitimate debt consolidators may fall into trouble of their own, leaving you high and dry. Educate yourself about a company before trusting them with your financial well being.


About Author:

Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.

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