PostHeaderIcon I used VSAC (from Vermont) for loan.I consolidated and got 24.15% interest which doubled my school debt.Wrong?

This debt is both from unsecured and secured Stafford loan VSAC obtained for me. Can I reverse the consolidation back to my old rate (near 7%) ? My debt jumped from 25,000 to 50,000 (unless I pay back fast).

One Response to “I used VSAC (from Vermont) for loan.I consolidated and got 24.15% interest which doubled my school debt.Wrong?”

  • NotAnyoneYouKnow says:

    I’m not quite buying that 24.15% interest rate – are you sure about that one? But anyway..that’s not really the issue.

    Your situation is a perfect example of why consolidation sounds so attractive, but almost always turns out frighteningly dangerous.

    The sales pitch for a consolidation is “CUT YOUR MONTHLY PAYMENTS!!!!” – and as you’ve probably discovered, that’s exactly what a consolidation loan can do. But it’s HOW they cut your monthly payments that isn’t quite as attractive – and I think that’s often lost in the fine print.

    There are only 3 ways a consolidation loan could possibly “cut your monthly payment” – they could either:

    Cut your interest rate significantly (nope)

    Forgive a big part of your debt, so that you never have to pay it back (don’t you wish)

    Stretch your payments over a long, long, long period of time (bingo!)

    If you’re not loan savvy, that idea of stretching your payments may not sound so scary – but that’s only because you’re not taking into account how interest accrues on a loan. The longer you take to pay – and the less of a dent you make in your loan balance each month – the faster the interest grows.

    A consolidation loan works exactly the way you’re describing – your monthly payment obligation probably went down a pretty good amount, but by the time you’re done paying this loan, you will have paid tens of thousands of dollars more – and all of that money is accumulated interest.

    Bad news – you can not reconsolidate a consolidated loan – unless you have at least one new loan to roll into that consolidation package. Congress changed the consolidation rules back in 2005 to specifically prevent students from doing this (the additional loan thing is a little bit of a loophole).

    Even so – you’re not going to save any money with a consolidation loan – no matter what the interest rate. Consolidation loans are sold as the borrower’s best friend, but the reality is that they are far more advantageous to the lender.

    Double check that interest rate – that seems practically criminal. But I don’t think you’re going to find that consolidating those loans will turn out to be a financially advantageous decision.

    Good luck to you.

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