Student Loan Consolidation Hot Topics

There are many dirty little secrets in the consolidation world. As previously discussed consolidation is not always a wise move, in that it merely extends your repayment terms, and thus, the amount of money you owe.

Another downside to consolidation is connected to your borrower benefits. Many students consolidated their federal loans a few years ago when borrower benefit packages were prevalent, but that is not the case today.

My buddy Jason consolidated his loans in 2003 and was offered a .50 ACH and 1% rate reduction discount after 24 consecutive months of on time payments. If he wanted to reconsolidate his loans today with the Direct Loan Center he would lose his 1% rate reduction and reduce his ACH discount to .25.

Just be sure to weigh the pros and cons while looking at every possible angle. And remember, just because you’re out of school doesn’t mean the homework stops. It is just as important as ever.

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For many the pain of student loans lasts far longer than the pain of a failed marriage.

At one time it was in vogue for a married couple to do a spousal consolidation with their federal student loans. After all, your two worlds were merging together, why not student loan debt too? It just seemed to make sense. But the problem was the loan could only be listed under one name, which means if you did the spousal consolidation only one person was going to be legally responsible for repaying the full weight of the debt, for better or worse.

So if John and Jane Doe got married, did the consolidation, and had the loans listed in John’s name that would mean that Jane was in the clear with the impetus to pay off the loans solely falling on John. That’s probably why the Department of Education changed the rule.

Spousal consolidation is no longer an option. But trust me when I say it wasn’t right for you with 41% of marriages ending in divorce.

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Would you notice if your consolidated lender changed hands? Do you even know who your lender is now? The reason I ask is because the student loan industry has been turned upside down over the past 18 months, which I’m sure you all know, and many lenders have sold off their portfolios to other lenders. As a result millions of students are no longer with the lender they consolidated with.

What I want you to do is make sure your borrower benefits carried over if you are one of the millions whose lender changed. I personally know two people who discovered that their new lender was not applying their 1% discount which they had earned after 24 months of consecutive payments with their previous lender. It is worth the time to check. If it has happened to two of my friends I know there are many others who are in the same boat and don’t even know it.

If you find out they were giving you the shaft come back and leave a message telling me how awesome I am!

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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.

If you are looking to consolidate your Federal loans now..you may want to wait a few months….but only if you have loans from before July 1, 2006. Here’s why…

Stafford loans taken out before July 1, 2006 are variable rate loans (assuming they have never been consolidated)…and these variable rate loans are reset every July 1. This July 1st the rate may be decreasing, in which case you would want to wait to consolidate until this rate change occurs. The rate should be announced sometime in June…so you will know before it happens.

If you just graduated and all of your Stafford loans were borrowed after July 1, 2006, you can consolidate whenever you would like, as your rate will always be 6.8%. This is because the rate changed from a variable rate to a fixed rate on July 1, 2006. All of your loans are already fixed in at 6.8%…consolidating them will not change the rate, but it can lower your monthly payments.

Parent PLUS loans are Federal based loans taken out by a Parent on behalf of a child. Here are some quick facts about the loan before I touch on the consolidation of these loans:

1. These loans are taken out by the parents in their names, and can NEVER be transferred to the students name when they graduate

2. The student has no obligation to repay this loan

3. The payments on these loans start right away… they are not deferred because the child is in school (this is not the case with Stafford loans).

4. A parent plus loan is not a joint loan between 2 parents… even if the parents are married, only one parent applies for the loan and the loan will be under that parent’s name and associated Social Security number.

A typical college student is in school for four years. Let’s assume a parent will be borrowing 4 plus loans in total; one for each school year. The loan is typically applied for in the summer time… and half of it is disbursed for Fall semester, and the 2nd half will be disbursed at the start of spring semester. The loan payments will not begin until the loan is fully disbursed, so spring semester is when the parent will receive their first bill.

The following year, the parent repeats this process, and spring of their child’s Sophomore year they want to consolidate the 2 loans together. I say spring because you cannot consolidate a loan that is not fully disbursed. So to apply for a loan consolidation for your 2 loans..you simply fill out a Consolidation Promissory note with the company of your choice. Your loan payments will then be paid back to the company you chose, instead of your initial lenders for the loans.

Let’s add another child to the mix… many times parents have multiple children in college at the same time. Let’s say Dad and Mom have two children, Ben and Molly. Ben is a freshman at College X and Molly is a Junior at college Z. Dad has borrowed a plus loan for Molly for each year she has been in school. He wants to do the same for Ben. Dad CAN consolidate his PLUS loans together even though they are for 2 different children. However, if mom applied one year, with her Social Security Number, her PLUS loans cannot be combined with Dad’s PLUS loans. So keep that in mind when borrowing - it should be the same parent every year, unless you have no plans to consolidate.

One last fact about the PLUS loan is that its forgiven if: the parent that borrowed it becomes deceased OR the child that it was taken out for becomes deceased. Post any questions you may have about this loan.

It is about the time of year when recent graduates are wondering whether or not to consolidate their Federal student loans. It is a big decision for multiple reasons. It is not only a long term finance plan, but it is not a reversible decision either. People call in every day asking if they can reconsolidate their Federal Student Loans. The answer to this is simple; if you have new Stafford loans to add in to the consolidation, then you can combine your previously consolidated loan with your current Stafford loan(s). However, this is in no way changing the rate of your previously consolidated loan. The way that the rate is determined is through a weighted average. So for example:

You consolidated some loans in 2002:

$23,000 fixed in at 3.5%

You went back to school and took out:

$18,500 Stafford loan at a fixed rate of 6.8% (this rate is set by the Feds, and can change every July 1st)

$10,000 grad plus loan fixed at 8.5% (this rate is set by the Feds, and can change every July 1st)

You are now thinking about consolidating these all together:

• $23,000 @ 3.5%
• $18,500@ 6.8%
• $10,000@ 8.5%

Your rate is formed by taking the weighted average of your loans:

Step 1: 23,000 x 0.035 = 805

18,500 x 0.068 = 1258

10,000 x 0.085 = 850

Step 2: 805 + 1258 + 850 = 2913

Step 3: 23,000 + 18,500 + 10,000 = 51,500

Step 4: (2913 / 51,500) * 100 = 5.656

Step 5: round to the nearest 1/8^th = 5.75%

So because you have a portion of your loans at a lower rate, and a portion at a higher rate, the interest rate is weighted on those portions. Under no circumstances can you reconsolidate a federal loan that is already consolidated. That amount of loans will be at that interest rate for the life of the loan. So, now we know how the rate is determined - should you consolidate your loans? The example above does not take into account that most student’s Stafford loans are at a variable interest rate that is reset every July 1^st. So for someone that has a Stafford loan that was disbursed Jan 2006 and this person just graduated, their rate is 6.54%…this rate, if not locked in by consolidating, will change July 1^st. It could be higher, and it could be lower. Here is a list of pros and cons for Federal Loan Consolidation. As with any financial decision, every situation is different, so it is always smart to relate this information to your specific loan portfolio.

Based on this list, the people who choose to consolidate are usually the people who cannot afford to pay their minimum monthly balance. The average college graduate graduates with about 20,000 in loans - .this is a payment of about $231/month; so the biggest aspect to consider is can you see yourself making a payment of $231/month for 10 years? Or would it make your life easier now to consolidate, pay $154/month, with the hopes of paying down the principal in the future, so you are not taking the allotted 20 years to pay it off. In my personal and professional opinion, if you aren’t rolling in the dough - it makes sense to consolidate now because you can always pay more in the future - when you have it.

Helpful Sites

Student Loan Network
Private loan Consolidation
Add me as your friend!

While we at the Student Loan Network are very student-centric, always advocating for higher education, smart student financing, and consolidation - many customers ask what sort of advice can we provide once school is over? You’ve completed your degree program, consolidated your loans - now its time to find a job! It was a natural move for the Student Loan Network to put together yet another useful resource for students and young professionals: The Edvisors Education Job Center

The Edvisors Education Job Center has thousands of job postings, resume and portfolio submission options, location and profession based stats, advanced degree program listings, and so much more. Vist The Edvisors Education Job Center!

It has always been our goal to provide useful resources to students and parents in higher education - now we can help them put their education to use.

StudentLoanConsolidator.com
StudentATM.com
StudentLoanNetwork.com
Gradloans.com
ActEducationLoans.com
FinancialAidPodcast.com

Good Monday morning everyone. I received an email over the weekend from one of our consolidation customers that I thought did a good job of highlighting some of the different benefits of consolidation you don’t normally hear about.

Dear StudentLoanConsolidator.com,

I’d like to thank you for helping me consolidate my rather large amount of student loans - I haven’t felt this relieved since I graduated high school. I decided to write this thank you letter today because for the first time since graduating college, I actually have spare time. Spare time to continue looking for a better job, spare time to email friends and family, spare time to clean my apartment, and see my girlfriend. No longer do I have to work a second job on the weekends just too barely pay my bills. And the best part… I actually have money now! Though it may not be a whole lot, its certainly more then what I had before consolidating. Every dollar I earned before had to be saved for my bills. Most important though…NO MORE STRESSING OUT! It’s impossible to function properly when all you worry about is not being able to keep up with bills. How does anyone expect to find the right job under such stress?

Anyway, thanks so much for your help. While it did take awhile for the entire process, it was easy to do and has already made my life so much easier.

Regards

So, whether it’s to save money, relieve stress, or free up time for friends - consolidation can help. Find out how much you can cut your bills by, call our veteran consolidation specialists at 877.328.1565. Or www.StudentLoanConsolidator.com.