I Want to Consolidate My Student Loans. How Do I Go About That?

First of all, I’m assuming that you are receiving statements from one or more loan companies every month. If not, you must at least be receiving a statement from one (or several companies) in January of each year – that’s when they send you a summary. The first thing you’ll need to do is find all of these statements and look them over.

Many of the actual lenders may not be contacting you directly, because it’s very common for lenders to use another type of company, called a “loan servicing agency” to help them stay in touch with you. The largest loan servicing agency, and one that you’re almost certainly dealing with is a company called “Sallie Mae”. Check and see if you have correspondence from Sallie Mae.

When you have found as many of the statements as you can, you can call the customer service number on your statements for more information, particularly about your loan balances.

You should also have copies of the “Promissory Notes” that you signed every time you agreed to a new loan. The lenders are required to send you a copy, and you should have kept these in a very safe place, because these are the legal contracts that you signed – the terms of the loan(s). Each promissory note will tell you how much the loan is for, and they’ll also tell you how much you will eventually have to pay back on each loan.

As for consolidation – this is a very complicated lending question that I would REALLY REALLY REALLY recommend that you discuss with a knowledgeable financial advisor. Your mom and dad are fine if they know a lot about loans and interest rates and repayment schedules and things like that, but if they’re also a little intimidated by loans, you should make an appointment to speak to a family friend, or an accountant, or a loan officer at your bank.

Consolidation loans are promoted with the “pitch” that they make your life easy by allowing you to take a bunch of loans from different lenders and gather them all together into a single loan with just one lender and one payment. They are also “sold” with the suggestion that consolidation can save you a lot of money by lowering your monthly payment.

Whether a consolidation loan is right for you depends on a lot of factors that the consolidation lenders don’t always tell you about in their ads and emails. You asked me to keep this simple, so I won’t go into a lot of detail about what those factors are.

Just keep a few things in mind:

Consolidation loans do not cut your monthly payments because they are “nicer” loans. Consolidation loans cut your monthly payments because you will make many, many more payments over a longer period of time.

Suppose you owed me $100 and promised to pay me back $50 a week this week and $50 a week next week. Your car broke down and you had some other bills due, and you come back to me and say that you can’t pay me the $50 this week – is there any way we can make another arrangement?

“Oh, absolutely.” I say. “Let’s do this. Instead of paying me $50 the next two weeks, you can pay me $10 a week for the next 15 weeks.” You think “Wow, only $10 a week. That’s much better than $50. I can afford that!”.

But look what’s happening – I’m not just being ‘nice’. You’re only going to pay me $10 a week now, but you’ll be paying me $10 a week for the next 15 weeks. What’s that mean? It means you’ll be paying me back $150, not the $100 that you originally owed me. I did you a “favor” by letting you pay me less, but we stretched it out over more weeks, and you wound up paying me a lot more for the “privilege”.

That’s how a consolidation loan works – your payments will go down, but you’ll pay the loan for a lot longer and you’ll almost certainly wind up paying a lot more in the end.

That’s why I say – make sure you understand just how much it’s going to cost you to make lower payments for a longer time. Then decide if the consolidation loan is worth it for you.

It might be, but it might not.

Good luck!

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