Repaying student loans can be frustrating and confusing at times. Borrowers may have dozens of different federal and private loans spread out among several services. Even if affording the monthly payment isn’t a problem, managing all the loans can be. And if you run into trouble making payments, you may not know where to turn.
Along with the rising number of student loan borrowers an industry of student loan consultants has sprung up. Some of the consultants or companies can offer much-needed insights into your situation and help you navigate a complicated system. Others may do little more than fill out paperwork that you can find and complete online for free.
Learn to distinguish one from another and find out when it may be a good idea to hire a consultant.
Are you interested in consolidating your loans or switching payment plans?
Student loan consolidation — combining multiple loans into a single loan — can take some of the hassle out of tracking and making your monthly payments and may lower your monthly payments. People generally consolidate their student loans in two ways: with a Federal Direct Consolidation Loan or by refinancing their loans with a private student loan lender.
Federal loan consolidation is only available with federal loans, not private loans. It doesn’t require a credit check, but it also won’t save you money because your new loan will have the weighted average interest rate of your original loans. However, federal loan consolidation may offer different benefits, such as qualifying you for a loan forgiveness program or allowing you to lower your monthly payment by switching to a different repayment plan.
Refinancing student loans is essentially taking out a single, large new loan to pay off other student loans. Refinancing requires a credit check, and your approval and new interest rate depend on your creditworthiness. As a result, you may be able to save money by lowering your interest rate. However, if you refinance a federal loan into a private loan, you could lose some of the benefits that federal loans offer, including forgiveness programs, options to temporarily postpone payments and income-based repayment plans.
Another common question may arise when you start to compare the different federal loan repayment plans. Which repayment plan is best for you and how will switching plans affect your monthly bill? Your loan servicer may also be able to explain your options, but won’t necessarily be able to do a complete analysis of your financial situation. A good student loan consultant can help you understand your options within the context of your budget and career trajectory.
Find someone who understands the broader impact of the decision.
If you’re willing to do the research on your own, it can be easy to file the paperwork to consolidate your loans or switch payment plans. But an experienced student loan consultant can help answer your questions and determine the best options for your situation.
“There are a bunch of moving parts that by themselves aren’t terribly difficult to understand,” says Stanley Tate, a student loan attorney with Tate Law in St. Louis, Missouri. “But when you put them all together you might want outside counsel.”
For example, Tate shared how a teacher may qualify for teacher loan cancellation on her Perkins loans. If she were to consolidate the Perkins loans into a Direct Consolidation Loan, the loan will be eligible for the Public Student Loan Forgiveness Program (PSLF) or Teacher loan forgiveness, but not cancellation.
There are other situations when consolidation might not be a good idea. If you default on your federal student loan payments, one way to get your loans out of default is to consolidate them. But if all your loans were already consolidated into a Direct Consolidation Loan this won’t be an option. “You may be taking something off the table unnecessarily,” says Tate.
Look for expertise and a focus on the big picture.
If you’re going to hire a consultant, make sure the person understands the intricacies of different student loan programs and loan types. Tate says a good consultant can, “look at your loans and overall situation and give you a recommendation on what you should do.” You can then do it yourself, or you could hire them to do the work for you.
To find a qualified consultant, look for someone with years of experience or a student loan attorney who understands the financial and legal implications for your choices could be a good idea. Many will offer an initial consultation for free or a nominal fee. Some nonprofit credit counseling organizations also offer student loan consultation services.
In short, you want to pay for expertise, not just help with administrative tasks.
If you see an advertisement for a company offering to get you into a special or limited-time program that can lower your monthly payment, it’s likely best to pass. When, and if, you decide to hire someone to help you with your student loans, make sure the consultant has a thorough understanding of how student loans work, explains your options and why one may be better than the other, and offers (but doesn’t demand) to implement your choice.