Student Loan Consolidation Hot Topics

Due to recent legislative changes, certain federal student loan consolidation borrower benefits will no longer be offered after October 1, 2007 for any new consolidation loans taken out. These benefits include offers such as interest rate reductions for on-time payments and automatic checking account withdrawal. The changes will not affect any federal consolidation loan that has been completed prior to October 1, 2007. The legislative changes are part of a bill titled “The College Cost Reduction and Access Act (H.R. 2669).”

H.R. 2669 contains provisions aimed to increase Pell grants through 2017, gradually cut federal student loan interest rates in half over the next 5 years, and institute several cuts to lenders and guarantors. Other provisions include Title IV loan forgiveness changes, increases for income protection allowances, and Title VIII Partnership Grants.

Borrower benefits will no longer be available due to the lender and guarantor cuts:

• Elimination of “Exceptional Performer” status which allowed lenders to receive higher insurance rates on defaulted loans
• A reduction in the insurance paid by the federal government for defaulted loans from 98% to 97%
• Reduced amount guarantors may keep when collecting on defaulted loans
• Reduced special allowance payments to lenders
• Increased loan fee lenders must pay to the Department of Education(DOE)
• Decreased account maintenance fees paid by the DOE to guarantors

A full summary of all the provisions contained on H.R. 2669 can be reviewed by visiting:
http://www.nasfaa.org/publications/2007/G2669Summary091007.html

In a nutshell, the above listed cuts will shrink lender profit margins for federal consolidation loans. With the decreased margins, lenders will no longer be able to afford offering borrower benefits. If lenders were to continue offering borrower benefits and discounts after the changes take effect, they would have to take a loss on each funded consolidation loan.

A lot more to come - stay tuned.

There has been an increase in the amount of student loan borrowers asking this question over the past month or two - here is a little information that should help.

You cannot consolidate federal student loans while in school, however you should consolidate as soon as you graduate or drop below half time enrollment. This 6 month period prior to repayment beginning is called a “grace period.” During this time, you are not required to make any federal student loan payments. However, if you consolidate during your grace period, you can lock in your interest rate 0.6% lower and still not make any payments until your grace period ends. So, consolidation + grace period = bigger savings.

Already in repayment? No worries - it’s not too late to consolidate. You can still take full advantage of the benefits that consolidation offers even if you have been in repayment for years.

Now onto private student loans. A lot of you probably took out private student loans to help cover the cost of tuition. These loans cannot be combined with your federal consolidation - the rate calculation is completely different, and combining these two types of loans would eliminate all of your federal consolidation loan benefits. We normally recommend that students apply for a private consolidation loan after they have completed their federal consolidation loan process. Federal consolidation can help improve your credit score, and private consolidation is credit based. So, doing one will help the other.

Now that I have thoroughly confused everyone, allow me to summarize:

You can consolidate your federal student loans anytime after you graduate or drop below halftime enrollment. If possible, consolidate during your grace period to take advantage of a lower interest rate. Finally, consolidate your private student loans after you have completed your federal consolidation - it could help you get a lower interest rate.

Now that summer is officially behind us and we are headed into the fall, I thought I would pull together a few cash saving tips to help “bulk up” your savings for the long winter ahead. Over the next few weeks, I will periodically post a variety of money savings tips and ideas that anyone can do to help line their pockets with some extra green.

Most financial advisors will say you need at least 6 months worth of living expenses in a savings account in case the unexpected should happen. I agree with this whole heartedly, but being a realist, fully understand that this is not an easy task. Here are a few starter tips to help achieve that 6 month savings umbrella your parents have been nagging you about since you graduated.

• Sell what you don’t need. You have plenty of CD’s, DVD’s, and old play station games laying around that you haven’t touched in years. Extra MP3 player? Digital camera? Left over CRT monitor? Sell it all - someone will buy it. You started that ebay account for a reason - get to it. Also, instead of buying brand new furniture, buy used. All you need is a can of paint and you can turn that faded oak coffee table into a fresh nouveau masterpiece.
• Keep a spending journal. Write down your daily expenses - big or small.  At the end of the month categorize them -  You’ll be shocked at what you spend the majority of your cash on.
• Build a budget and stick with it. Probably one of the biggest ways to save money is the monthly budget - do it right and you can start saving for that trip to Costa Rica.
• Consolidate your student loans. You knew it was coming… Consolidation is the easiest way to cut your monthly expenses nearly in half.

Stay tuned for more tips in the weeks to come.