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Apr 12, 2007

More re selling loans - losing borrower benefits inevitable?

If you consider student loan consolidation, you better be aware of these tricks.

I bet you've been getting tons of email junk about student loan consolidation.
Tell me, did they promise "reduced interest rates"? Yes? OK, but look for the fine print - I guess you’ll find terms that allow the lenders to change - or even take away! - these benefits.

I compiled a list of common tricks loan lenders use to make sure you don’t earn their benefits.

1) “On-time payments” - Many lenders offer discounts for making on-time payments. What they don’t tell you is that 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!

Most lenders give borrowers a “grace period” before they will consider a payment late (typically around 14 days). However, some lenders require payments to be made “by the due date as initially scheduled” in order to qualify for their benefits. This means if your payment is not received by them on your payment due date, you lose your benefits.

2) Managing Your Loans Online - Some lenders may require you to apply online in order to even be eligible to receive their benefits.

Some lenders also require you to receive all correspondence from them electronically to be eligible for their benefits. If they send you an application confirmation via email, and your email address is deemed undeliverable twice in 48 hours, then you may not get the loan benefits. Also, if you ever change you email address without notifying them and their correspondence bounces back to them you could lose your benefits.

3) Automatic Debit - Most lenders offer borrowers an additional interest rate reduction (typically 0.25%) for using auto-debit (ACH) to make their monthly payments. However, some lenders tie the ACH benefits and the other benefits together. You have to use ACH to get the benefits. If you lose ACH then you lose the benefits too.

Sometimes the opportunity to sign up for ACH is limited to 30 days from the signing of the application. If the borrower does not follow up with the lender to get ACH WHILE the application is processing, then they can be outside of the sign up window. ALL benefits lost before they get their first bill!

They are required to sign up to receive their bill via email. In addition every month they must reply to the email acknowledging receipt. If they don’t they lose ACH which causes them to lose their benefits.

Returned emails, NSF in their checking account and failure to notify of a change of address are additional ways to lose ACH, which causes loss of other benefits.

4) Repayment Plans - There are four “repayment plans” that lenders can offer: Standard, Graduated, Extended and Income-sensitive. With a Standard repayment plan borrowers will pay a fixed monthly amount (principal + interest) for the life of the loan. With the other three options, borrowers can start with lower monthly payments by paying interest only for the first two years (Graduated), three years (Extended) etc.

Some lenders require borrowers to be on a Standard repayment plan to qualify for their benefits.

5) Minimum Balances - Some lenders require minimum balances to qualify for benefits (usually $20,000 or more is required).

6) Forbearance/Deferment – These are ways for borrowers to stop making payments for periods of time, such as times of unemployment or if they go back to school.

With some lenders, borrowers can lose their benefits if the apply for deferment or forbearance.

7) Proof of Graduation - Some lenders require borrowers to provide proof of graduation in order to keep benefits.

Early Pay Off - Borrowers can sometimes lose their benefits if they pay their loans off early.