If you are a soon-to-be or recent college graduate, you’re probably receiving a lot of mail about student loan consolidation. Many times, these pesky mailers promise reduced interest rates and great offers, but hidden in the fine print you’ll often find terms that allow the lenders to change or even take away these discounts. Below are common tricks lenders use to make sure you don’t earn their discounts.
On-Time Payments - Many lenders offer discounts for on-time payments. However, to keep the discount, you have to continue making on-time payments until the loan is paid off, which could equal up to 30 years of on-time payments! If you ever make a late payment, you could have all of those great discounts added right back onto your loan.
Most lenders give borrowers a “grace period” before considering a payment late, but some lenders require payments to be made “by the due date, as initially scheduled.” This means if your payment is even one day late, you lose your benefits.
Managing Your Loans Online - Some lenders may require you to apply online to receive their benefits. They might also require you to receive all correspondence from them electronically. If your email address is deemed undeliverable twice in 48 hours, or if you change your email address without notifying them, you could lose those benefits.
Automatic Debit - Offering a discount for using auto-debit to make monthly payments is a common benefit offered by lenders. Most lenders offer this in addition to other benefits. However, some lenders require you to use ACH (automatic clearing house—another term for automatic debit) to get any benefits at all. Also, you may have to sign up for ACH within 30 days of signing the application. If you do not follow up with the lender to get ACH while the application is processing, you could lose your benefits before you get your first bill!
Repayment Plans - There are four “repayment plans” that lenders can offer: Standard, Graduated, Extended and Income-sensitive. Some lenders require borrowers to be on a Standard repayment plan in order to qualify for their benefits. Make sure you can afford to pay the Standard fixed monthly amount before agreeing to this just to get the benefits.
There are a few more small but important requirements that could cost you your benefits. Some lenders require minimum loan balances to qualify for benefits (usually $20,000 or more). Also, paying off loans early may seem like only a good thing, but some lenders may penalize you for this by taking away your benefits.
There are some genuinely good benefits out there. Be sure to research your options before you make lifetime financial decisions. Also, understand what you need to do to earn the benefits and what you need to do to keep the benefits. Last but not least, read all the details and ask the important questions before choosing a lender.