If you have education loans you have probably been bombarded with phone calls and mail from companies trying to get you to consolidate your loans. Let's face it---students have high debt and there are a lot of predatory companies out there who would love to get their hands on that money! So, if you want to consolidate who do you trust?

Some things that may help you determine who is just out for your money---

1. The best place to start is with people who are not in the business for money.

Who might that be? Nonpofit lenders! Every state has the ability to designate a nonprofit lender for its residents. These nonprofit lenders are required by the state to give their profits back to the state, often to fund education.

Also, because nonprofits are state-funded or use "tax exempt" money---they have a lower cost of funds which often translates into lower cost loans for borrowers.

There are some great benefits and significant loan savings out there for you. Just make sure you understand exactly what you need to do to earn the benefit and then what you need to do to keep the benefit.

2. Some lenders make false promises. If you see a lender advertising any of these tricks below you can be sure they are not looking out for your best interest:

“In-Grace” Reduced Interest Rate
Some lenders offer a reduced interest rate during a borrower’s "in-grace" period. You save 0.6% on your interest rate if you consolidate while you are still in school or in your grace period (six-month period between when a borrower leaves school and a loan becomes due).
The federal government sets the interest rates on Stafford and PLUS loans. Stafford in school/in grace rate is 4.7%. When your loan goes into repayment the federal rate is 5.3%. The difference between these two rates is 0.6%. As you probably figured out---this is not a deal someone is offering you--- it is something you are entitled to receive from the federal loan program!

Fine Print
Many lenders offer benefits such as: If you make 24 on-time consecutive monthly payments you can earn and interest rate reduction. The exact terms of the offer are usually in fine print. Be careful you understand what you have to do to earn and keep the benefit. In some cases the lender reserves the right to change or take away the benefit if you are even one day late on a payment at any time until the loan is paid in full! This could mean 10, maybe 20 years of payments!! Some lenders even require that all communications have to be done electronically. If at any time an e-mail is returned as invalid they reserve the right to take that benefit away!

Remember, read the fine print, ask questions and get it in writing!

Some useful websites:

Student Lending Works
EFC (for a list of state designated nonprofit lenders)