Student Loan Consolidation Hot Topics

Effective July 1, 2008…

Variable rate Stafford loan disbursed prior to July 1, 2006, that is IN GRACE (IG) = 3.6%

Variable rate Stafford loan disbursed prior to July 1, 2006, that is IN REPAYMENT (RP) = 4.21%

Variable rate Parent plus loan disbursed prior to July 1, 2006 = 5.01%

* note that any Stafford and PLUS loan that were taken out before July 1, 2006, and has never been consolidated, will have these new rates

* note that with consolidation, these rates are rounded to the nearest 1/8% which would make them:

3.625% Stafford in grace

4.25% Stafford in repayment

5.125% Parent Plus

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.

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.

Many people consolidate to get the lowest monthly payment possible for their federal student loans. The reason why consolidation gives you a lower monthly payment is because it extends the term of the loan. The chart below shows the maximum repayment term you are eligible for. The term is based on the total of all your student loans.

Now keep in mind that there are no penalties for early repayment, so by making larger payments you may pay off your loan sooner. This is because all additional payments go direct to your principal. Use our calculator to try different repayment scenarios before choosing to consolidate.

Hopefully this blog helps you decide if consolidation is something you could benefit from!

The Student Loan Network: Stafford Federal Student Loans, Parent PLUS Loans, Student Loan Consolidation, Private Student Loans, Education Loans/College Loans

Student Loan Network

You have come to the right blog today if you are just trying to have some basic questions answered on federal loan consolidation. Here are some commonly asked questions I receive at the Student Loan Network about loan consolidation. Enjoy!

Can I consolidate jointly with my spouse?

No, Effective July, 1 2006 a married couple may no longer obtain a Federal Consolidation Loan as joint borrowers. Why not you ask? When married students consolidated their loans together, each spouse became responsible for the full amount of the loan, and the loans could not be separated if the couple got divorced. To avoid such problems, Congress decided to repeal this provision as part of the Higher Education Reconciliation Act of 2005.

My lender told me I have to consolidate with them. Is this true?

Students and parents can consolidate their loans with any lender, even if all of their loans are with a one lender. (The single holder rule was repealed on June 15, 2006, as part of the Emergency Supplemental Appropriations Act of 2006.) This allows you to shop around for a lender that offers a lower rate or better discounts.

How much does federal loan consolidation cost?

There is no application or processing fee for consolidation. Also, no credit or income verification is needed.

What if I forgot to consolidate one of eligible student loans?

You can only add a forgotten eligible student loan to your new consolidation loan if you add it within 180 days of the loan consolidation. If you are within the 180-day period, this won’t require a new consolidation loan.

The Student Loan Network: Stafford Federal Student Loans, Parent PLUS Loans, Student Loan Consolidation, Private Student Loans, Education Loans/College Loans

Student Loan Network

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
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A lesser-known benefit of federal loan consolidation is that it actually improves a borrower’s credit score. It’s true! Here is an explanation on how this benefit works.

Nowadays, most students need to take out a Stafford loan for every year that they are in enrolled in school to help pay for the cost of attendance. Each time they do accept the Stafford loan the school coordinates two disbursements for that academic year: one disbursement for the Fall and then the second disbursement in the Spring. If a student is in school for 4 years and accepts the Stafford loan each year those loans add up to 8 open balances on a credit report. One way to reduce the number of open accounts on your credit report is to consolidate these student loans. Once consolidated, rather than eight open balances on a credit report the computer will see eight loans paid in full and only one new consolidation loan. This is how consolidation improves your overall credit rating.

Apply today for a free, no obligation student loan consolidation quote today.