If you have a student loan, you probably get about 5 offers a day offering to consolidate your loan and lower your montly payments. But it is nowhere near as confusing as they make it out to be, and to be honest, one company over another will not save you any money.
Here is what happens: when you consolidate your loans, they calculate a weighted average of your interest rates from all your loans, and apply this rate to the new consolidated loan. This rate will be the same no matter where you go. Some companies offer you a .25% or 1% reduction in that rate if you do electronic, automated payments and/or if you pay on time for a consecutive number of periods. These offers you do want to take advantage of, so do choose a company that offers it.
The sneaky part is this: by consolidating, they can extend the time you have to pay the loan back, which lowers the monthly payments...however they will be making more money on you!!
The longer it takes for you to pay the loans back, the more money you will pay in interest.
Let's say your interest comes out to 6%, and you have a $10,000 loan, spread over 10 years. If you pay the minimum payment, $111.02 per month for ten years, the lender makes approximately $8,000 from you. $8,000!! To me, that's way more than I'd like to give someone for not doing too much. But it gets worse. Let's say they spread you consolidate the loan and spread it over 15 years instead. Sure, your payment goes down to $94.92, but.... the lender makes $11,130.09 on you!! That's $3,130 more than if you paid it over ten years!
I know it's hard to juggle rent, school loans, and car payments. But don't just pick the easiest option for "right now" because you'll end up paying for it later. Whenever you can, pay extra money towards your loans - it'll save you money in interest expense in the long run. If you do decide to consolidate your loans so you don't have to pay three or four different companies a month(which is fine!), make sure you don't accept their offers to lower your monthly payment by extending the repayment period.
Student Loans: Weeding through the mail
Labels:
expenses,
repayments,
student loans
2 comments:
What do you think about going for a masters (in particular, Financial Engineering) right after undergraduate school? Is it a good idea or not?
Dear anonymous,
I believe that going back to school for more expertise in your field is never a bad thing. The market agrees, and that's why you'll make more money if you obtain higher degrees. I can't say I know all that much about financial engineering, but it sounds like something you'll want some first-hand experience in before going back to get your masters. Personally, I want to work a few years before getting my MBA just because I think practical, real-world experience is important to have before imersing yourself too quickly into loads of theory. In fact, many graduate schools require applicants have 2 years of experience before applying because they find these students have a different perspective on the material and in the long run is more beneficial for the student.
To be more concise, I think that it isn't a horrible idea to get your masters right after undergrad, but I'd advise to get some real-world experience first.
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