Student Loan Consolidation Hot Topics

As of July 1, 2008, the interest rate on all NEW subsidized Stafford loans will drop to 6.0%, a reduction of 0.8%. Bear this in mind next year when it’s time to consolidate your student loans!

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.

That’s right - you can’t hide from it anymore. If you graduated this past spring, the chances are your grace period is over and you have to start paying back your student loans. This is not the end of the world for you, just the beginning of a long relationship with your loan servicer. (Technically, the relationship started 4 years ago…but who’s counting)

You have some options. First and foremost, examine your monthly budget, and include your new student loan payments. If you can afford to make the payments, don’t defer or put your loans into forbearance just to save money. When you put your loans into forbearance or deferment, interest will continue to collect on your none-subsidized federal loans, which gets capitalized once you go back into repayment. This basically means that your total payback amount will increase. Not to mention, deferment and forbearance are intended to be used during financial hardships. If you use them up now when you can afford to pay, you won’t have them in the future when you may actually need them.

Still, you can afford the monthly payments, but now you have much less cash lying around. Consider consolidation - you can cut your monthly payment nearly in half. And, there is no penalty for extra or early repayment. So, when you claw your way to the top of the corporate ladder, and land that high paying fluff job, you can payback your remaining loan balance without being penalized.

Finally, don’t forget to consolidate your private student loans. They’re probably going into repayment right about now as well. And if you have a lot of private student loans like me, then consolidating those will also help that monthly budget stay fit. Just like federal consolidation, private consolidation will combine all of your private student debt and lower your monthly payment, without any penalties for extra or early repayment.

Yes - it’s time. You’ve been thinking about this moment on and off since the beginning of summer. In between sipping cheap beer and having a well deserved good time, the thought of paying back your enormous student loan debt is now slowly solidifying into a general state of panic. Soon enough, the bills will start rolling into your mailbox. In between the magazine subscription requests and credit card offers, you’ll find those thick white envelopes packed full with your repayment coupons.

According to the Project on Student Debt, a nonprofit geared to help student borrowers, nearly 75% of borrowers graduating from a 4 year degree program have, on average, $19,000 in student loan debt. This amount does not take into consideration any graduate program debt.

One of the biggest hurdles for recent graduates is adapting to post college life - financially and socially. It’s a difficult time (albeit fun time) compounded by the need to find a good job, the possibility of moving to a new city, the cost of moving, general living expenses that were previously covered while in school, and of course student loan payments.

While many borrowers will be able to make due during this transitional period, either by consolidating or deferring their loans - some borrowers will not be able to pay, and eventually end up delinquent or even in default. Going into default can hurt credit even more then filing for bankruptcy for credit card debt. At a time when establishing good credit and building a sound financial foundation is critical, a mark like that on a credit report can have long term negative effects.

So…what to do now? The debt isn’t going anywhere, so you’ll you just have to get used to it and learn how to manage it.  That’s really the point I am trying to get across - manage your debt, don’t ignore it. There’s a reason why you get 30 consolidation offers in your mailbox each week - consolidation is a helpful tool that can really lower your monthly student loan payments. It’s not THE answer, but simply one of several tools that you can use in order to help free up some extra cash. The same holds true for deferment. While it doesn’t stop interest accrual on some of your loans, it does provide relief if you can’t make your monthly payments.

Stay tuned for more helpful information about dealing with post college life.

A common misconception with student loan consolidation is that lenders charge some sort of fee if you consolidate your loans with their company. There are NO fees to apply or receive a Federal Consolidation Loan. This is because federal regulations do not permit lenders to charge borrowers a fee. It costs you nothing to set this up AND there is no credit check. Students with bad credit or no credit can apply. You do not have to give any guarantee of income.

Applying for student loan consolidation is a fairly straightforward process. The borrower is required to fill out an application form. The eligibility specifications are the following:

Borrower must have over $10,000 is federal student loans.
The borrower must be out of school or under half time.
Loans must not be already consolidated.
You can not be in a default status on your student loans.

Once an application has been accepted, a statement containing all the important information such as payment plan, payment schedules, etc. is sent. To learn more or apply, contact a Student Loan Network Counselor toll-free at 877-328-1565 or apply online.

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

Student Loan Network

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

The other day I spoke to a lovely woman who has been teaching for a few years in a low income area. While teaching, she went back to school to get her Masters degree to help raise her salary and keep her credentials. After a few years of teaching in a low income area she made a salary of $32,000. Her student loans equaled $50,000.

My suggestion to help manage her student loan debt was to consolidate her federal student loans. I explained to her that if she did not consolidate her monthly payment for her student loans would be about $570 a month for 10 years. It’s obvious that a monthly payment this high is just not possible to manage on a teacher’s salary. By consolidating it would stretch her repayment term to 25 years however there are no early repayment penalties. Her monthly payment once consolidated could be as low $276 a month.

With all of her big plans and obligations like rent, utilities, car payments, and beginning savings, she won’t have to worry about how to make her loan payments once she consolidates. No she is free to pursue her dreams without a dark cloud hanging over her head.

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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