Student Loan Consolidation Hot Topics

So you’re getting ready to consolidate and are wondering what your interest rate will be. That’s certainly a fair question. I mean, when you go out to dinner you don’t pay for your meal before you eat it. You make sure you get what you ordered, that is tastes good, and that the temperature is to your liking. Then, at the end of the meal, you take out your credit card and sign on the dotted line. Why should things be any different in the consolidation world? Don’t sign and then ask questions later. Get the answers you need up front.

Here is an interesting federal consolidation fact. Ten students who graduate from the same university this May could very well have ten different interest rates. But how can this happen?

Unlike in other financial circles federal consolidation interest rates are not tied to one thing in particular, like the Fed Funds Rate. To arrive at your fixed interest rate the consolidation company simply takes the weighted average of all your loans. They look at the interest rate and the amount of each loan, then round up to the nearest eighth percent.

Nowadays undergraduate students are coming out with rates ranging from 3.61% to 6.8%, and end up consolidating for about 5-6%. A lot of grad students carry grad plus loans at 8.5%, which elevates their fixed amount.

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From Student Loan News, Updates and Blog Posts » Loan Consolidation:

Recently, President Obama has been talking about his plans to make college more affordable for families and students. The President’s plan is to increase the Pell grant, and make Federal student loans more accessible to students. Students from Kent State University recently asked Obama about his plans and when exactly those changes would take effect: Student [...]

Read the whole article originally published in: Student Loan News, Updates and Blog Posts » Loan Consolidation.

Generally speaking you can not consolidate both federal and private student loans together due to the fact that private consumer banking regulations differ from that of federal.

Federal loans are need-based loans that are contingent on your FAFSA details, while private loans take into account your credit history and income.

Here is what I generally tell people who wish to roll both together. There is no way possible to roll a private loan into a federal one, but there is a possibility you can roll a federal into a private. If the lender is willing to do that for you (roll a federal loan into a private) just keep in mind that you will lose your three years worth of federal loan deferment ability and you will be unable to fix your interest rate unless it is obscenely high. Federal loans also hold forgiveness benefits for different professions and circumstances whereas private loans do not.

I never recommend this course of action for anyone, rolling federal into private. The best thing for you is to consolidate each loan type seperately. And remember, it only takes one loan to consolidate. You don’t need to have two or more loans of the same loan type to consolidate. For example, if you have one private loan and one federal loan you may still consolidate each one independently.

Consolidation is simply designed to extend your loan terms and minimize your monthly payment. It pays no mind to the number of loans you have.

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From Student Loan News, Updates and Blog Posts » Loan Consolidation:

President Obama is pushing his budget proposal to overhaul the entire education system throughout the U.S. His plan would affect students of all ages with a goal of improving education levels all across the U.S. starting with preschool aged children. In a recent speech to the US Hispanic Chamber of Commerce, Obama began to divulge what [...]

Read the whole article originally published in: Student Loan News, Updates and Blog Posts » Loan Consolidation.

Consolidation may be your key to extended deferral time, after all, consolidation worked out pretty well for the Brady’s, ha-ha.

Of course I make that analogy tongue and cheek. Here in the real world things seldom go that smoothly, which is why the Brady’s serve as our “fictional” gold standard. Still, we can aspire to be Brady-like, right? We all want that “sunshine day.”

Well, get those sunglasses ready because I may be able to help your plight during these challenging times with a helpful tip that many of you are completely unaware of.

First off, what sparked this blog was the countless queries I’ve received on this topic. I have never fielded more calls and/or emails asking if there is anyway to defer a student loan beyond the standard three year eligibility period. The unemployment rate is now up to 8.1%, according to the latest U.S. Bureau of Labor Statistics report, which means more defaulted student loans are on the horizon unless borrowers are able to deferred them longer.

So how can you add another three years of deferment time? Well, if your loans have not yet been consolidated with the Department of Education’s Direct Loan center than you can transfer your loans to them (re-consolidate) and that will refresh your three year deferment benefit. That’s it. So if you are currently will Salle Mae, Suntech, Chase, etc just re-consolidate your loans with the Direct Loan Center.

Keep in mind that reconsolidating will not impact your interest rate, and if you have a borrower benefit through your current lender that will not be carried over to the Direct Loan Center. However, if your primary goal is to give yourself more time to pay back your loans until the economy recovers, this is probably your best bet and will serve the purpose.

Now everybody’s smilin – sunshine day.

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The collateral damage which stems from not repaying money you owe to your school is worth far more than dollars. You can be certain the school will withhold your official transcript if you don’t pay up, which could pose major problems down the road.

Withholding your transcript would hamper your ability to transfer to another school, receive your diploma, and would most likely hurt your credit as it would be turned over to a collections agency. Also, if a potential employer calls to verify you graduated from that institution the school may not release/confirm the details with them, which certainly would not bode well for you. In this market employers can basically pick and choose their candidates, and that one strike against you could be your undoing regardless of how well your interviewed went.

It’s also good to know, however, that while the “official” transcript will be withheld you can still obtain a copy of your transcript. No institution can deny an individual access to his or her educational records.

Of course this can all be avoided if you pay your bill, but I know many are struggling right now. What I would suggest doing is consolidating your federal loans, if you haven’t already, and then deferring. You can defer federal loans for up to three years. This would at least serve as a temporary band-aid to your payment woes.

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One common illusion students have is that consolidation reduces student debt. Well, the truth of the matter is it does NOT reduce debt at all. In fact, it only makes matters worse by increasing your total loan volume in the end.

The primary purpose of consolidation is to extend out the loan term and reduce the monthly burden in that manner.  It’s the same principle as having a 3yr / 36 month car loan vs. a 5yr / 60 month.  The person with the 5 year loan term will have a lower monthly payment but will be paying back more money in interest over the life of the loan.

The reason a student should consider consolidation, however,  is if they can either not afford their current monthly payment on their loan(s) or are aware that the variable interest rate on their federal loan(s) will be increasing.  If the interest rate is going up it would then benefit you to lock in your current rate.

Keep in mind that variable Stafford loan rates change each July and are pegged at certain margins above the 91-day T-bill in late May. In the past Stafford loans were awarded at variable rates, but moving forward for the foreseeable future all federal loans will hold fixed rates.

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