Saturday, August 12, 2006

Lower Your Payments! Consolidate Student Loans Now!

If you're like me and have a big student loan payment to make every month, that sounds pretty good at first. There are a million student loan consolidators out there screaming for your business. Why not take advantage of the opportunity and enjoy the benefits of lower payments? There are some good reasons why you should think carefully before consolidating your student loans.

First of all, in the interest of full disclosure, I'm personally against the whole idea of student loans. I think it's probably the biggest educational scam out there, possibly second only to the cost of school textbooks. Sure, there are some cases in which students may derive a longer term benefit by incurring student loan debt now. For medical or law students, this may make sense. For most students, however, it does not make sense to get into debt to go to college.

Unless you're expecting to be making a fairly large salary immediately after graduating from college, think twice before getting student loans. They may seem like the easy way out if you're just starting school, but it pays to remember that every penny of that money will have to be paid back, with interest.

Duh, you say? I know this is common sense, but we often fail to realize the longer term consequences of getting into debt now. Many students are enticed into thinking there is no other way for them to afford college if they don't get student loans.

In most cases, this is far from the truth. There are many forms of financial aid available that can ease the burden of college expenses. In addition, there are literally thousands of scholarships available if you only spend the time looking for them. It's also important to mention here that you should never pay someone to find scholarships or financial aid for you. It's not necessary. Talk to a financial aid advisor and spend some time googling and browsing federal financial aid sites.

It's also common belief that having a college degree automatically means that you'll be making much more money than you did before. This isn't necessarily true. Yes, having a college degree definitely can increase your earning potential, but it's up to you personally to make that happen. It won't fall in your lap. I can't tell you how many people I've known with college degrees and even graduate degrees who make ends meet by bussing tables or tending bar.

There's no guarantee that you'll make more money after completing college. In fact, probably too many people are going to school to get a four year degree when all they really want is to have a trade or a career to make a living. Some of them might do better going to a vocational school or a two year community college at a much reduced expense. The bottom line is that there are other options. Remember, the real world is very different from the rosy pictures presented by people trying to sell you something (And, yes, they're trying to sell you student loans; it's big business).

Now back to the question at hand: why should you reconsider before consolidating student loans? Several reasons. First of all, you are making a trade off between lower payments now and paying more in the long run. The reason why consolidated payments are lower is usually because they simply extend the term of the loan. This means that you'll end up paying more interest in the long run for the privilege of having a smaller payment now.

Another reason to avoid consolidation is that you may lose some of the benefits of subsidized loans and loan deferments after consolidating. Usually you don't have to make payments on student loans while you're in school at least half time. If you consolidate your loans with a spouse, however, usually only one of you will be the main account holder who will retain the ability to do this. I've experienced this myself and it's ended up costing much more money in the long run.

Multiple student loans may be a pain to deal with, but it can also be a good thing to have several smaller loans rather than one large one. Think divide and conquer. You can concentrate on paying off one at a time. You can't do this with a consolidated student loan. You have one payment to make each month. With multiple smaller loans, you can pay extra each month on the smallest one and pay if off way ahead of time. You'll end up paying much less in interest and having way more control over your debt.

Ultimately, student loan consolidation can make sense in some situations, but it's not the only way to lower your payments. If you're thinking about consolidation, examine your options. Be sure to check out the government programs available for student loan forgiveness in exchange for public service. No, you don't always have to join the military, though that is another option to consider. Some employers also offer help with student loan payments as an incentive.

So, take some time to search for creative ways of reducing the load before taking that leap into student loan consolidation. You can't take it back after you consolidate and the time you spend now can save you a lot of money and hardship in the future.

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