Student Loan Consolidation Hot Topics

… and I’m not talking about New Year’s Eve parties, folks. I’m talking student loan consolidation. Here’s the deal. Last year, the Department of Education announced the interest rate change for 2005 at the end of May, and urged everyone to file for consolidation prior to the deadline of July 1, 2005. Well, consolidation takes time - anywhere from 30 days to - in rare cases - 180 days, depending on the number of loans you have, how complex your portfolio is, etc.

A lot of borrowers rushed in on June 29 to file for consolidation, and the Department of Education was left with a quandary - people had applied for consolidation prior to the deadline, but there was no way in the world those consolidations would be done before July 1. So they set up an amnesty period - if you applied for a consolidation prior to July 1, 2005 and submitted a substantially completed application - meaning all your personal information needed to consolidate - then you could get the lower interest rates even if your consolidation hadn’t completed by July 1, 2005.

This year, it looks like we’re in for record increases again. Currently, students in school are paying an interest rate of 4.7% - which will go up to 6.8% on July 1, 2006. Parents with PLUS loans are current paying a rate of 6.1%, which will jump to 8.5% on July 1, 2006. Both rates are being set by the Department of Education as mandated in Congress’ Budget Reconciliation Act of 2005. However, because this Act is designed to lower the federal deficit by making it harder for students to consolidate and raising interest rates, there’s a good chance the Department of Education may not be allowed to offer an amnesty period this year like they did last year.

What does that mean for you? Get an application for consolidation filed now. Right now. Get it done now, soon, ahead of the crowd, because if you wait until the last minute - or even the last month - your consolidation may not complete in time to beat the deadline. Do it now, and you’ll be ahead of the pack.

Incidentally, if you wonder what the rate increases will mean to you as a student or parent, here’s a sample. Let’s say you owe $30,000 in federal Stafford loans. At today’s in school rate, you’d pay $314/month ($194/month if you consolidate!). After July 1, you will pay $345/month ($230/month if you consolidate). The difference between the best case scenario - consolidating in your grace period today ($194/mo) and the worst case scenario - not consolidating and letting your loans go into repayment at the new rates ($345/mo) is a hefty $151/month, or $1,812/year.

If you’re a parent, the deal gets even worse. $30,000 in PLUS loans today would cost you $335/month ($217/month after consolidation) and after July 1, 2006 will cost you $372/month ($260/month after consolidation). The gap between consolidating today and doing nothing tomorrow is $155/month or $1,860/year.

Consolidate today, unless you really like giving extra money to the government for no particularly good reason - click here or call 877-328-1565.

Cross posted from the Financial Aid Podcast… Chris here with a detailed summary of Senate Bill 1932. As reported in the press and soon to be news everywhere, Senate Bill 1932 has passed the Senate by a 51-50 vote, with Vice President Dick Cheney casting the deciding vote. For those of you not following the Washington Watch stuff we do on the podcast, here’s what is coming down the road in terms of financial aid changes, beginning July 1, 2006:

1. Stafford Loans will have fixed rates of 6.8%, 1.3% higher than the 10 year average on the current variable loan rates. Bad for students.

2. PLUS Loans will have fixed rates of 8.5%, 2.17% higher than the 10 year average on the current variable rate loans. Bad for students.

3. Elimination of Stafford loan in school interest rates, which currently give a 0.6% discount to students in school or in their grace periods. Bad for students.

4. Increases student loan limits for selected student loans. Good for students. However, does not change aggregate maximums, meaning students will hit maximums sooner, potentially causing them to be ineligible for federal aid for an entire academic year. Bad for students.

5. Allows graduate and professional students to borrow PLUS loans. Good for students. However, those loans will not have any kind of deferment available while students are in school, making them unappealing for students.

6. Establishes a supplement to the Pell Grant for students in high-need areas of mathematics and science, up to $4,000 per year. Good for students.

7. Makes administration of student loan programs discretionary funding instead of mandatory funding. Thus, Congress can zero out the administrative budget of any student loan program, effectively killing it without having to pass politically unpopular votes. Bad for students.

8. Adds a provision for deferral of student loans for active duty military personnel. Good for students.

9. Doubles student loan origination fees. Bad for students.

10. Prohibits students who consolidate their loans with a FFELP lender from reconsolidating with the Direct Loan program. Currently this is allowed and is part of a consolidation program called a “Super 2 Step”, giving students more lender choice. The change in law makes it nearly impossible for students to switch lenders. Combined with the existing single lender rule, students will be locked into loan programs with no hope of changing lenders. Bad for students.

11. Consolidation of student loans for students in school is prohibited. Bad for students.

12. Student loan lenders are not obligated to report student loans to credit bureaus. Bad for students.

13. Allows teachers at private schools to qualify for loan forgiveness. Good for students.

14. Student loan rehabilitation made easier with 9 consecutive payments to pull a loan out of default instead of 12. Good for students.

15. Allows the Department of Education to retrieve IRS tax data on borrowers. Bad for students, especially if you have privacy concerns!

16. Drug related offense ineligibility changed so that you are ineligible for federal aid if your drug offense occured while you were receiving federal financial aid. Good for students.

The net of these changes is that students will be paying more, paying higher rates, and will have far fewer choices when it comes to student loan lenders than ever before. This is bad overall and bad for students, especially those who rely on federal loans for the bulk of their financial aid.

What does this mean for you?

Three things:

1. If you have not already consolidated your federal student loans, do so now. Immediately. Do not delay even a minute. Visit StudentLoanConsolidator.com or call 877-328-1565 to consolidate right now!

2. With loan costs increasing, federal student loans become less competitive contrasted with private student loans. Consider private student loans like Act Education Loans for your education finance needs.

3. Scholarships will become more important than ever as loan programs become more expensive for students.

Cross posted to the Student Loan Consolidation blog!

Technorati tags
loan cheney budget reconciliation deficit republican 2005 vote congress financial

Welcome back everyone!

Thanks for joining us for day two of Back to the Basics: Consolidation 101. Federal student loan consolidation, like other forms of bill consolidation is first defined as a program that combines several outstanding loans into one new loan. The initial benefit is obvious - writing one check or making one payment each month. However, federal student loan consolidation has additional benefits not seen with other forms of consolidation.

To understand some of these benefits, let’s first take a look at federal interest rates. Your Stafford and Plus loans are set at a variable rate that changes each year on July 1st - This rate change is based on the Treasury bill. For an in-depth look at how these rates are calculated, please visit: studentloanconsolidator.com/consolidation/student-loan-consolidation-rates-andbills.php
If your Stafford loans were disbursed prior to July 1, 1998, they’re at a variable rate of 6.10%. Stafford loans that disbursed after July 1, 1998, and in repayment or deferment, fall in at 5.30% variable. Stafford loans disbursed after July 1, 1998 and currently in their grace period (6 month window post enrollment when repayment is not mandatory) have a variable interest rate of 4.70%. Finally, Plus loans regardless of disbursement date are set at 6.10% variable.

Ok…now the good news - Federal consolidation locks your interest rate and removes it from the inherent risk of annual increases. In addition, federal consolidation lowers your monthly payment by up to 60% - freeing up money to pay for other necessities. Because your closing out multiple loans, and creating only one new loan, federal consolidation helps to improve your credit score by decreasing your open lines of credit.

Finally, federal consolidation offers borrower benefit packages. Consolidating lenders offer discounts for borrowers such as a .25% interest rate reduction for signing up for automatic checking account withdrawal, and a 1% discount for making on-time payments. These benefits can easily put lots of extra cash in your pocket. For example, if you consolidate $20,000 in student loans, you would save $3,472 during the 20 year repayment term of that loan. Also, there is no early payment penalty - so you can pay extra each month, shortening the overall term of repayment.

Let’s review:

- Locks in your interest rates, avoiding rate increases
- Reduces your previous monthly payment up to 60%
- Makes paying bills each month easier - one payment to one lender
- Helps to improve your credit rating
- Saves additional money just for making automatic payments on-time.

Tomorrow: Repayment options

As always, call the experts at the Student Loan Network at 877.328.1565, or visit our website: StudentLoanNetwork.com.

Hello everyone!

A special thanks to Christopher Penn from the Financial Aid Podcast for his guest post yesterday. We’ll be keeping a close eye on any changes that may come out of congress regarding the proposed legislation.

Now to shift gears for a moment - For the next few days I’d like to cover some basic information regarding student loan consolidation. I have been posting a lot of valuable information about consolidation and federal interest rate fluctuation, but recent findings have lead me to believe that many students and federal borrowers do not have a solid understanding about either.

In a recent survey conducted by the Student Loan Network, surveying college students and recent graduates, 26.9% of students who received federal aid do not know what consolidation is. 50.1% of students surveyed only had a basic understanding of consolidation. While it’s not the sole responsibility of financial aid departments to educate departing students about consolidation and potential federal rate changes, only 16% of the borrowers surveyed received any such information from their school.

What does all this mean? When it comes to consolidation and loan repayment, federal borrowers aren’t always provided with the most up-to-date useful information. Understanding the importance of consolidation and changing interest rates can save thousands of dollars during your repayment. So for the next few days, I will post current relevant information about consolidation, federal interest rates, and repayment options. I will try and tie everything together so you, the federal borrower and faithful reader can make the right decisions when it comes to repayment and consolidation.

Tomorrow: federal Student loan Consolidation 101.

As always, if you need information right away, or you just want to know what options are available, call the Student Loan Network at 877.328.1565, or visit our website: StudentLoanNetwork.com.

Hi everyone!

Chris from the Financial Aid Podcast with a guest blog entry here on StudentLoanConsolidator.com. As many of you who listen to the Financial Aid Podcast know, legislation in Congress was just voted on and approved in the House of Representatives to make some pretty drastic changes in student loan interest rates and consolidation. Here are some of the major changes:

PLUS Loan Interest rate increase. Currently, PLUS loans have a variable interest rate which, over the last 10 years, has averaged about 6.33%. The new legislation makes the PLUS Loan a fixed rate loan at 8.5% - a significant increase over the average and the current rate of 6.1%.

Stafford Loan rate increase. Stafford Loans are currently variable rate loans with a 10 year average of 5.53%. The new legislation would transform these into fixed rate loans of 6.8%, another significant increase.

Student Loan Consolidation increase. Another rate increase. Currently, consolidation is based on the weighted average of all loans put together. On average, student loan consolidation of Stafford Loans would be the 10 year average rounded up to the next nearest eighth of a point, or 5.625%. The new legislation also makes student loan consolidation a fixed rate of 6.8%.

The message coming out of Congress is pretty clear: the budget will be balanced on the backs and the wallets of students. As such, it is urgent that you consolidate your student loans now, while you can, before this legislation is finalized.

Consolidate today by visiting StudentLoanConsolidator.com/apply or by calling the Student Loan Network at 877-328-1565.

Oh, and don’t forget to vote in 2006 for the mid-term elections. We’ll probably publish a list of who voted to increase your student loan interest rates and then you’ll know who not to vote for next year.