This morning I received an email from a friend of mine. She wanted to consolidate her federal student loans and wanted my opinion on an offer she received. She found this company called Student Zoom. They were going to consolidate all of her federal loans and get her signed up for an income based repayment plan. She was told her monthly payments would be about half. They were will to do all of this for $500. At first sight, it seemed as if the $500 would pay for itself pretty quickly due to the significantly lower payments. She asked me, how does this sound to you?
Student Zoom is exactly the type of company you want to avoid when it comes to dealing with your student loans. The service they provide is something that you can do absolutely free of charge at http://www.loanconsolidation.ed.gov. I’ll be the first to admit that federal student loan consolidation can be tricky, but this company wasn’t doing anything to make the process easier. They were just injecting themselves as an unnecessary middleman and charging $500 in the process. It is like charging a hiker $20 for an unlimited supply of fresh air on his hike. They are simply selling a product that is already free. All they are doing is collecting the exact same information that the federal government would, and just forwarding to the information to the federal government.
For those of you who are more visual, here is a flowchart that shows the standard federal loan consolidation, and the process with StudentZoom.com:
Why Use Student Zoom?
Frankly, there isn’t a good reason… unless you have $500 that you really don’t want. They may make it seem like they provide some sort of preparation service in a manner similar to an accountant who does your taxes. But, the service they offer is nothing like hiring someone to do your taxes. When you hire an accountant, they take your W-2 and your other information and they do the math and fill out your tax forms. They also make sure you are getting all the deductions you qualify for. An accountant adds value to the tax preparation process. The equivalent of what Student Zoom is doing would be to charge money to deliver your W-2 from your employer to your accountant. Guess what? You can do that yourself.
How do you avoid companies like Student Zoom?
Sadly, it is not that easy. These companies are popping up out of the woodwork because it is easy money. As someone who spends an absurd amount of time thinking about and learning about student loans, I will be the first to admit that it can be difficult to separate the legitimate services from the junk.
In the case of student loans, it really pays to shop around and to do your homework. This is especially true when it comes to consolidation. Often, borrowers are combining enough money to buy a house. When this much money is changing hands there will be lots of people out there attempting to get a piece of the action. If you are talking with some business, ask them what they are doing that you couldn’t do on your own. Any idiot can set up a website that looks somewhat professional (I speak from experience on that one). Find people and companies that are actually adding something of value before you part with any of your hard earned money.
If you ever come across something that seems questionable, please contact me. I’m happy to help you decide if it is legitimate or not.