Student Loan Consolidation Hot Topics

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.

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Outstanding student loan debt has now grown to more than 500 billion, which is nearly as much as our 675 billion U.S. Trade Deficit. Students are in over their head, and struggling mightily.

According to the Department of Education from 2006 to 2007 the default rate on student loans sky-rocked by 5.2 percent to 6.9, and the 2008 and 2009 default rates are likely to be even higher. For this reason alone federal consolidation makes sense for many students.

If you previously consolidated your federal loans and it wasn’t with the Direct Loan Center, you may consolidate with them now and refresh your deferral benefit. Deferral benefits last for three years. So basically if you are almost tapped out of those three years with your current lender it makes sense to re-consolidate and refresh that benefit until brighter days emerge.

So before you let your your loans slip into default it would be prudent to explore this option first. It may not be the means to an end, but it would certainly serve nicely as the means to a temporary fix.

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Generally speaking you can not consolidate both federal and private student loans together due to the fact that private consumer banking regulations differ from that of federal.

Federal loans are need-based loans that are contingent on your FAFSA details, while private loans take into account your credit history and income.

Here is what I generally tell people who wish to roll both together. There is no way possible to roll a private loan into a federal one, but there is a possibility you can roll a federal into a private. If the lender is willing to do that for you (roll a federal loan into a private) just keep in mind that you will lose your three years worth of federal loan deferment ability and you will be unable to fix your interest rate unless it is obscenely high. Federal loans also hold forgiveness benefits for different professions and circumstances whereas private loans do not.

I never recommend this course of action for anyone, rolling federal into private. The best thing for you is to consolidate each loan type seperately. And remember, it only takes one loan to consolidate. You don’t need to have two or more loans of the same loan type to consolidate. For example, if you have one private loan and one federal loan you may still consolidate each one independently.

Consolidation is simply designed to extend your loan terms and minimize your monthly payment. It pays no mind to the number of loans you have.

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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.

I became a father for the first time earlier this year which was the best moment of my life. Every decision I now make is with Barrett (featured to the right) in mind, which includes going back to school. I’m currently enrolled in classes with the aim of bettering myself, providing a better life for my family, and becoming a more well rounded person. I want to add to our countries GDP numbers. The only problem is my loan volume from school is now skyrocketing upward like a five star Sarah Palin wardrobe.

Did you know the average college graduate carries more than $20,000 in debt? That is a 6% increase year over year. When you combine that with starting salaries for recent grads, which only rose by 3% over that same time period according to the Project on Student Debt, it’s even harder for students to repay those sizeable loans. Of course many students have been unable to land jobs at all and have been forced to place their loans into forbearance where more interest will accrue inflating that total payback number.

It’s really an interesting dichotomy. Go to school and be in debt thousands vs. entering the work force right away with no debt at all. They both have pros and cons but the long term benefits and typical salaries for those with an education will far surpass those without – even when debiting the loan cost from the bottom-line.

To help make those monthly payments more affordable you may want to consider consolidation. Consolidation extends out your loan term and helps minimize your monthly student loan expense. There are also no prepayment penalties so if you have extra money to put toward your loan you can do so at any time.

I know consolidation is going to be in my near future when I graduate. That way I’ll be able to afford my loan payment each month and still buy that new bike for Barrett!

“I can’t pay my bills, help!”  I hear that unwanted phrase at least 10 times a day, and many others who don’t actually say it are thinking it.  I can hear it in their voice.

For those in trouble, and I know there are many as the unemployment rate is holding steady at 6.1%, you have an option for your private loans.  You can defer your loans after you consolidate for up to 12 months with an economic hardship deferment?

To qualify for an economic hardship deferment your student loan payment must exceed 20% of your gross monthly income, and your gross monthly income can not be more than 3X the Federal Poverty level in your state.

Also, as a back-up plan, anyone can qualify for a 12 months forbearance on their private loan consolidation just by requesting it.  You don’t have to “qualify” financially for this.

If you have $10,000 or greater in private student loans and wish to consolidate (click here) now.

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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).

Consolidation is a great debt management tool. It allows you more time to repay your loan(s). You can generally extend your loan terms out to 25 or 30 years from the initial 10-year marker, which means you can dramatically lower your monthly payment.

Another good thing these days are the lower interest rates. When the economy is slumping interest rates tend to get cut. As a byproduct of these rate cuts (lower interest rates) you the consumer benefit, which is why it’s a great time to consolidate your private student loans.

With one convenient low payment, no prepayment penalties, and lower interest rates it is the perfect time to consolidate.

If you are seeking private loan consolidation (click here).

Hello everyone and Happy New Year – welcome to 2008!

Given the lingering holiday spirit, and the age old tradition of new years resolutions, I thought I would take a minute to share a few methods on how to STICK with your new years resolutions.

1) Choose attainable resolutions. For example, if you aren’t already a seasoned mountain climber, you shouldn’t resolve to climb Mt. Everest this year. Also, don’t keep picking the same resolution that you pick each year and never complete. Sometimes lofty resolutions will only promote long term disappointment.

2) Write them down. The best way to ‘not forget’ your resolutions is to jot them down in several different locations. I know some people that set up email reminders or phone reminders each week to help remind them of their goals.

3) Baby steps – establish some goals. Most resolutions represent a final achievement – give yourself a road map and set up goals to reach each achievement. The small little successes along the way will add to your drive and make the final achievement seem more attainable.

4) Accountability (guilt). Share your resolutions with friends and family – that way you’ll have continued year long reminders of your goals. Who knows, you may find out that your cousin is also trying to save more money or give up fried foods.

5) Misery Loves Company. One of my favorites… Since you found out your cousin has similar resolutions, work together to help reach goals. Sharing the burden of a long term achievement with a friend or family member will help motivate you at times of weakness.

6) Keep your eye on the prize. No one said this was going to be easy. Make sure you remember why you started down this path. For example, if you resolved to save more money, what was the original reason? New car? Vacation? Grad school? To help stay focused, go back to steps 3 and 4 and repeat.

7) Rewards. Each time you reach one of your goals along the way, give yourself a small reward. It’s just like training a dog how to sit…

Happy New Year everyone, and good luck with those resolutions!

Just a friendly reminder to all those 2007 spring graduates, August 1st marks the halfway point in your grace period. For those who don’t know, your grace period is the six months after graduation, before your first student loan payment is due. That’s right – you have to pay those back at some point. While I realize the only thing on everyone’s mind right now is warm sunny beach days and evenings filled with BBQ’s, a few minutes of preparation now could save a bundle of cash in the fall.

If you consolidate your federal student loans during your grace period, you will save an additionally 0.6% on your interest rate. That could translate into thousands of dollars in savings. Plus… you’ll get all of the benefits of consolidation; such as a lower monthly payment, lower interest rate with borrower benefits, and repayment plans designed to fit any budget.

So, if you planned on consolidating your loans in the fall when your repayment begins, take a few minutes right now and apply. Give one of our loan counselors a call – they’ll give you an idea of what your lower monthly payment will be, and how much you can save. Call toll-free (877)328-1565.
And have a great summer!