Student Loan Consolidation Hot Topics

Consolidation is used as a debt management tool. Millions of students utilize the consolidation process to make their monthly payments more affordable. How it generally works is that your loan terms get extended whereby reducing your monthly obligation. Prepayment penalties do not exist on the federal side and in most cases there are no prepayment fees on the private side as well. It is definitely an option worth considering. In addition, if you have a federal Perkins loans you may want to volunteer in the Peace Corps or VISTA.

Obama signed a 5.7 Billion dollar measure to boost volunteerism on Tuesday, April 21. The new law authorizes the increase of Americorps to 250,000 from 75,000 by the year 2017. If you have Perkins loans, Up to 70 percent of your loans may be forgiven for your volunteer service. With more positions becoming available it may be something worth exploring.

If you’ve recently tried to consolidate your federal student loans, you may have found it difficult to locate a company willing to help. Some of the biggest lenders in the market are temporarily not offering federal loan consolidation. So what does that mean for you?

Before we discuss your options, lets first look at why so many lenders have stopped offering consolidation. Two different issues are causing the consolidation pause, legislation and credit markets.

Back on October 1, 2007, legislation was passed which contained provisions aimed to shrink the profit margin lenders were getting on federal consolidation loans. The smaller margin allowed for much less profit with zero room for lenders to offer discounts and borrower benefits. It’s important to understand, prior to the October 1st legislation, lenders were taking portions of their own profits and returning it to their borrowers in the form of rebates, interest rate discounts and cash back. Granted, the borrower benefits were a great marketing tool and attracted droves of borrowers to specific programs - but they still helped the borrower save money. Although these changes had a negative impact on many FFELP lenders, the legislation did contain great provisions that would lower interest rates on federal loans over the next several years.

Next we have the credit market crunch - an indirect result of the sub-prime collapse. In order for a lender to consolidate a borrowers federal student loans, that lender has to pay-off the borrowers previous lenders. This requires that the lender have capital available. Now, there are a number of different ways that a lender can do this, (which we won’t get into during this blog) the most common is securing a line of credit with a bank or outside funding source. The outside funding source provides the line of credit with the notion that the lender will be able to package up a bunch of federal consolidation loans and sell them to other investors (securitization). At which point the lender will replenish their line of credit, and be able to write more consolidation loans. For many lenders out there right now, they are not able to secure a funding source, and therefore not able to write consolidation loans. From an investment standpoint, there is a feeling that federal consolidation loans are no longer valuable. I said feeling, because I don’t believe this to be completely true or do I think it will stay this way for too long.

So, the smaller profit margins, coupled with the shaky credit markets have caused a ‘pause’ in the federal consolidation market. And yes, it is a bit more complicated than what I just described, but you get the basic idea of what’s going on.

Now, you need to consolidate your federal loans, but you have no place to go? The Department of Education is still helping borrowers consolidate their federal loans. However, I would wait until after July 1, 2008. For those of you who still have variable rate Stafford and PLUS loans (taken out prior to July 1, 2006), it looks like your interest rate MAY be going down. Not a definite - just a maybe.

Just to point out, the above changes and the federal consolidation pause have not and will not affect private student loan consolidation.

I will be posting more on this topic in the coming weeks - please send along all your questions and comments.

Yesterday a student who is graduating May 2007 phoned in with questions on Bill HR 5 which is also known as the College Student Relief Act of 2007. His last year of school he borrowed a fixed interest rate Stafford Loan. Once he graduates he would like to consolidate his fixed interest rate Stafford loans with a previous consolidation that he did a few years back. His concern was that if the Bill HR 5 passed that his loan rates would never be able to go down with everyone else’s because he has already consolidated all of his student loans into one loan. He was simply confused on the full details of the bill and was looking for some clarification.
In a nutshell, IF this bills passes it will ONLY affect subsidized loans that are issued after 7/1/2007. Anything disbursed before this date will not be affected by the decrease of the interest rates. Personally, I believe that this bill is misleading the public to believe it helps ALL of the student loan borrowers—past and present. This bill does nothing for the current student loan borrowers who are heavily in debt. It will only help out the future students. This student is not the first to phone into the Student Loan Network looking for clarification of this bill nor will he be the last. So the answer is yes he can consolidate all of his student loans upon graduation and not have to worry if he made the wrong decision if this bill is passed.

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

The US House of Representatives voted last Wednesday to cut the interest rate on future federal student loans. The bill will gradually reduce interest rates for only federally subsidized loans. If this bill is passed by both the House and the Senate, interest rates on the subsidized Stafford Loan will be cut beginning this July. These rate cuts will be phased in over the course of five years. So, this year, the interest rate will be cut from 6.8 percent to 6.12 percent. This cut will help lower the monthly cost of repaying student loans for millions of low-income students.

The bill currently awaits Senate and presidential approval.

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

Attention borrowers: if you have returned your student loan consolidation application either electronically or by paper (thank you!) there is one piece of paper that did not get published until after you received your application, the HERA addendum. Please click here to download the addendum (PDF), print it out, and store it with your copy of your application.

It’s been pretty exciting over the last few days. A congressional bill was pushed through congress early Thursday, and sent to the President for signature - a bill that in part will provide more consolidation options for federal student loan borrowers.

Before this law was passed, any student loan borrower with loans from only one lender, was allowed to consolidate with only that lender. This provided zero room for competition. While not every borrower falls into this category, there was a fairly large cross section of borrowers who could not take advantage of the numerous competitive consolidation programs available. Of course the lenders knew their borrowers couldn’t consolidate elsewhere, and offered only minimal money saving borrower benefit packages. But now that’s all changed!

Borrowers with only one lender can now branch out and consolidate with any company they choose (hopefully StudentLoanConsolidator.com). One thing they’ll find when venturing away from their current lenders are greater savings through borrower benefit programs. For example, borrowers can reduce their interest rate by up to .5% if they sign up for automatic checking account withdrawal, and 1% will be reduced if payments are made on-time for 24 months. These benefits account four thousands of dollars in savings that are not readily offered through their current lenders.

In summary, now is a great time for anyone who has federal loans to apply for a consolidation. If you remember from my previous posts, interest rates are set to increase by 35% on July 1, 2006. So don’t get stuck with a higher rate, call the experts at 877.328.1565 or visit www.StudentLoanConsolidator.com and use our fast and secure eSignature progam - the quickest way to get started.

I caught a news blurb from our top financial consultant and host of the Financial Aid Podcast, Christopher Penn:

Due to very recent legislative changes, all borrowers that have loans from only one lender are now eligible for student loan consolidation with the Student Loan Network. Previously, you were forced to consolidate with your sole existing lender, but thanks to the hard work of student advocates, Congress listened and overturned the single holder law - giving you the opportunity to save more money each month with the company of your choice. (thanks for choosing us)

But that doesn’t change the fact that time is nearly up - June 30th is only two weeks away. With the influx of applicants, there will be processing delays. Get on the ball and start your consolidation application today

Please call us here at the office, toll-free, 877-328-1565 with any questions you might have! Or check out www.StudentLoanConsolidator.com

Just an FYI, a peek behind the curtain here at the Student Loan Network. We process lots of consolidation applications every day, and it’s been our experience that the US Postal Service can get a piece of mail delivered in the contiguous 48 states in about 3 days. Oddly enough, 3 days seems to be about the set time, whether you’re sending mail to the next town over or to Los Angeles (we’re in Boston). So, what does this have to do with consolidation?

Well, simply put, we want to provide the best damn service possible to everyone who uses our services. We know there are thousands upon thousands of choices when it comes to student loan consolidation, and we’re tickled that you not only found us, but applied with us as well. That said, we also don’t want to make promises we can’t keep, and today’s low rates expire on June 30, 2006 at 11:59 PM. If we don’t receive your signed application back here by then, we can’t give you the 2005-2006 rates.

If the postal service takes 3 days to get you a piece of mail, and you turn it around that day, it’s another 3 days back to us. Thus, beginning 6 days from the deadline, we won’t be able to send out paper applications in the mail with today’s rates. After June 23, 2006, we will only be able to accept eSignature applications if you want today’s rates to be locked in.

You should probably use eSignature anyway, as it’s faster and more secure than postal mail. But after June 23, it’ll be the only choice for which we can offer today’s rates.

Apply for a student loan consolidation with eSignature now.

As widely reported elsewhere (including the Financial Aid Podcast), the Deficit Reduction Act (DRA) of 2005 was passed on Wednesday, February 1, 2006 by the House of Representatives by a 216-214 vote. The passage of this bill to President Bush’s desk means that the legislation will almost certainly become law quickly.

Consolidation-related highlights of the final law:

If a borrower received a FFEL consolidation loan, they are prohibited from receiving a subsequent Direct Loan consolidation except in very limited circumstances.

The DRA repeals the early repayment status loophole that enabled continuing students to consolidate while they are still in school.

The DRA repeals the ability of married students to consolidate their loans together.

The DRA requires guarantors to pay a 1% guarantee fee to the Federal Student Loan Reserve Fund. This effectively will eliminate most guarantee fee waivers, thereby increasing student costs. The 1% fee applies to the loan balance.

The final legislation does NOT repeal the single lender rule.

The net effect is that for students, consolidating student loans after July 1, 2006 will become more expensive, more difficult, and restrict choice even further. Combined with new student loan interest rates, there is great incentive for students to consolidate loans now, while rates are relatively low and before the legislation has taken effect.

To consolidate, apply online or call the Student Loan Network at 877-328-1565.

Cross posted from the Financial Aid Podcast… Chris here with a detailed summary of Senate Bill 1932. As reported in the press and soon to be news everywhere, Senate Bill 1932 has passed the Senate by a 51-50 vote, with Vice President Dick Cheney casting the deciding vote. For those of you not following the Washington Watch stuff we do on the podcast, here’s what is coming down the road in terms of financial aid changes, beginning July 1, 2006:

1. Stafford Loans will have fixed rates of 6.8%, 1.3% higher than the 10 year average on the current variable loan rates. Bad for students.

2. PLUS Loans will have fixed rates of 8.5%, 2.17% higher than the 10 year average on the current variable rate loans. Bad for students.

3. Elimination of Stafford loan in school interest rates, which currently give a 0.6% discount to students in school or in their grace periods. Bad for students.

4. Increases student loan limits for selected student loans. Good for students. However, does not change aggregate maximums, meaning students will hit maximums sooner, potentially causing them to be ineligible for federal aid for an entire academic year. Bad for students.

5. Allows graduate and professional students to borrow PLUS loans. Good for students. However, those loans will not have any kind of deferment available while students are in school, making them unappealing for students.

6. Establishes a supplement to the Pell Grant for students in high-need areas of mathematics and science, up to $4,000 per year. Good for students.

7. Makes administration of student loan programs discretionary funding instead of mandatory funding. Thus, Congress can zero out the administrative budget of any student loan program, effectively killing it without having to pass politically unpopular votes. Bad for students.

8. Adds a provision for deferral of student loans for active duty military personnel. Good for students.

9. Doubles student loan origination fees. Bad for students.

10. Prohibits students who consolidate their loans with a FFELP lender from reconsolidating with the Direct Loan program. Currently this is allowed and is part of a consolidation program called a “Super 2 Step”, giving students more lender choice. The change in law makes it nearly impossible for students to switch lenders. Combined with the existing single lender rule, students will be locked into loan programs with no hope of changing lenders. Bad for students.

11. Consolidation of student loans for students in school is prohibited. Bad for students.

12. Student loan lenders are not obligated to report student loans to credit bureaus. Bad for students.

13. Allows teachers at private schools to qualify for loan forgiveness. Good for students.

14. Student loan rehabilitation made easier with 9 consecutive payments to pull a loan out of default instead of 12. Good for students.

15. Allows the Department of Education to retrieve IRS tax data on borrowers. Bad for students, especially if you have privacy concerns!

16. Drug related offense ineligibility changed so that you are ineligible for federal aid if your drug offense occured while you were receiving federal financial aid. Good for students.

The net of these changes is that students will be paying more, paying higher rates, and will have far fewer choices when it comes to student loan lenders than ever before. This is bad overall and bad for students, especially those who rely on federal loans for the bulk of their financial aid.

What does this mean for you?

Three things:

1. If you have not already consolidated your federal student loans, do so now. Immediately. Do not delay even a minute. Visit StudentLoanConsolidator.com or call 877-328-1565 to consolidate right now!

2. With loan costs increasing, federal student loans become less competitive contrasted with private student loans. Consider private student loans like Act Education Loans for your education finance needs.

3. Scholarships will become more important than ever as loan programs become more expensive for students.

Cross posted to the Student Loan Consolidation blog!

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