Student loan consolidation is a great way of making payments on your current student loan easier and breaking them down into smaller, more flexible payments.
Student loan consolidation requires you to withdraw a larger loan to pay off multiple smaller loans.
Unfortunately, many companies posing as legitimate student debt consolidation companies take advantage of visible agitated students looking for a way out to their loan. These companies usually pose as non-profit organizations that are then transferring funds to organizations working towards profits.
While these scammers do all that is possible to cover up their tracks there are still many things that you can look out for in order to identify whether or not you’re being targeted by a student debt consolidation scam.
Who Contacted First?
The most telling feature of whether or not a company is a scam is the very first time that you were contacted. If the company has contacted you out of the blue, then chances are you’re being targeted. Make sure that you’re the one who contacts the company looking for a loan consolidation solution.
One great way of making sure that the process goes over smoothly is to contact your current lender and ask them whether they have any student loan consolidation schemes.
Don’t Be Pressured Into Anything
Be wary of companies that are pressuring you into making premature decisions or signing off on something that you’re uncomfortable with. Make suet to read all the details in fine print before making any legal agreements.
Be Skeptical of Guarantees
If your student loan consolidation company is making unlikely and outrageous guarantees then you may be in for a scam.
Keep In Touch With Creditors
The only way to ensure that everything is going according to plan is by keeping in touch with your previous creditors. Ask them for updates regarding the payments that have been made by the debt consolidation company and ensure that all previous outstanding debts have been paid off.
Fees to Look Out For
Even if student debt consolidation schemes aren’t a scam, there may be some hidden costs within your bills in order to inflate the amount that you owe them. These fees and charges may be as follows;
Percentage of Total Debt
The student debt consolidation scheme will charge you a percentage of the original debt for repaying your previous credits. This percentage is usually 18% but may vary according to the company.
Charges Saved
The amount of money that you save on consolidation can also be taken into account and the company may demand a percentage of the saved amount. This number may go up to 25%.
Sign Up Fees
This fee is charged to the applicant for the sign-up and consolidation process. This is typically a onetime payment which must be made when the credit is transferred from the previous creditor to the student debt consolidation company.
Monthly Fee
The monthly fee is charged to the applicant in addition to the flat fee. This is usually a service charge for consolidating the student loan.
Another fee that you need to look out for is ‘voluntary fee’. The applicant is not legally bound to pay off this amount but is often pressured by the loan consolidation company to pay it off.
While hidden charges aren’t scams, it’s good to be wary of them. Make sure to keep constant communication and ensure that previous debts are paid before making any new payments to the student loan consolidation company.
Sources
http://www.nbcnews.com/business/consumer/consumer-group-says-student-loan-debt-relief-firms-misleading-borrowers-f6C10382388
http://www.ehow.com/how_5727311_avoid-student-loan-consolidation-scams.html
http://money.howstuffworks.com/personal-finance/debt-management/debt-consolidation4.htm
http://www.finaid.umich.edu/Home/TypesofAid/Loans/FederalLoanConsolidation.aspx
