Did you know if you’ve previoulsy consoldiated your federal loans with a private lender (such as Sallie Mae) that you can reconsolidate them again with the Direct Loan Center? That’s right. The Direct Loan center will not only take your federal loans but they’ll extend your deferral time by another three years. Your interest rate will remain the same throughout the consolidation process, but that refreshed defferal time may be critical to some students.
The quick answer is check with your consolidating lender as benefits vary, but generally speaking there is a wide array of potential benefits that come equipped with private student loans both pre and post consolidation; benefits that distinguish private student loans from private personal ones. Some notable benefits may include:
- 12 month Economic hardship
- 12 month temporary disability
- Up to 36 months for all active-duty military personnel
- Up to 48 months for in school deferment
- Up to 48 months for medical/dental residents
The borrower benefits that once existed in the world of consolidation are now gone. It’s as if Back to the Future’s resident tough guy Biff Tannen told them to make like a tree and leave (although he used to screw that line up). Regardless, those benefits listened and bolted out of down quicker than Bruce Willis’ character in Pulp Fiction. They are now no where to be found. You can turn over as many stones as you like, but all you’ll find is some moist soil and a few earthworms. So where did they go?
The attractive benefit packages left when all those companies offering consolidation left the market due to the recession. When several companies were in the business of consolidating federal and private loans it was common to hear a borrower receiving a 1% discount after 24 on time payments and a .50 ACH discount on top of that. Now, .25 ACH is basically all that’s available, at least on the federal side.
The rates and benefit plans available to you are all linked to timing. If you graduated in the late 90’s your federal interest rates were consolidated at around 8%. In 2004-05 you were in the 3.5% range, with benefit packages taking you well under 3%. Today many students are stuck around 6-6.8%.
If you have older brothers and/or sisters who graduated a few years ago they will probably tell you what a wonderful rate they got. They are not lying. They just happened to be in the right place at the right time.
Five most recent student loan consolidation blog posts:
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.
Five most recent student loan consolidation blog posts:
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.
Five most recent student loan consolidation blog posts:
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!
Five most recent student loan consolidation blog posts:
The fact the prime and LIBOR index are currently at historic lows does not effect your consolidation rate. That first line probably hit you like ice water to the face on a Monday morning, but I felt it was best to just rip the band-aid. You’re probably thinking how is that possible? How can the economic landscape not be considered when calculating my interest rate? I keep hearing how Obama wants to do more for students. Shouldn’t this be one of his priorities? That would certainly make sense to me, but nothing appears to be in the works to address this matter.
Below are a few reasons the current state of the economy will not effect your consolidated interest rate.
1. Rates change but once per year, each July 1. The Department of Education will examine the 91-day T-bill leading up to July 1, which is influenced by the Fed Funds Rate, and peg the rate at a certain margin level above that. We’re still 2.5 months away from that however.
2. Any federal loan with a fixed interest rate can not be lowered. If you are looking to consolidate and have a collection of fixed interest rates they will not be lowered thu the consolidation process. Consolidation simply takes the weighted average of your current loans rounded up to the nearest eight percent to determine your interest rate.
3. Subsidized and Unsubsidized interest rates are already known through the 2012-13 academic year. So basically you can completely throw what the economy is doing for the next few years out the window as it pertains to any subsidized or unsubsidized Stafford loan, which also includes the Grad Stafford.
The only people that may benefit from the slumping economy are those who still hold variable rate federal loans, which were dispersed before July 1, 2006 and have not yet been consolidated. Those are still subject to the market and will be moving this July.
Five most recent student loan consolidation blog posts:
Applying the basic laws of probability one knows if they flip a fair coin they have an equal chance of it landing on heads or tails. Now suppose I told you I knew for a fact that it was going to land on tails for whatever reason; that knowledge would be quite valuable. Borrowers who consolidate their federal loans have the same preemptive window of knowledge.
Every July 1 the new interest rates goes into effect, and the new rates are pegged at certain margins above the three-month treasury yield in late May. That means you will know what your interest rates will change to in advance of consolidating. The reason this is so important is because when calculating the interest rate on your federal consolidation it is a standard formula. It is the weighted average of all your loans and the interest rates they hold rounded up to the nearest eighth percent and then fixed for the life of the loan.
If you know in advance that some of your interest rates are going down on July 1 it would make sense to consolidate after July 1 to bring down your total weighted interest rate. If you see they are going up you will want to consolidate before July 1.
Keep in mind for those of you who already hold fixed interest rates, the July 1 rate changes will not impact you. The rate changes will only impact those who have a variable interest rate.
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.
Here is my consolidation question of the day!
Question: I only have one private loan so I can’t consolidate, right?
Answer: WRONG! Loan consolidation is viewed as a debt management tool. The purpose is to extend your loan terms to help minimize your monthly payment. Regardless of whether you have one loan or ten you may apply for consolidation.
I guess when you are in the industry you never give this a second thought – it’s just common knowledge that you don’t need more than one loan to consolidate, but many don’t know that.
If you have $10,000 or greater in private student loans and are looking to consolidate (click here).
