Loan Consolidation

Loan Consolidation (insert school name here) Agenda • Define loan consolidation • Should I consolidate? • Investigate a new loan • Compare consolidation loans • How to apply What Is Loan Consolidation? Loan Consolidation Is... • Refinance existing loans into one loan • Create a single new loan payment • Fixed interest • Up to 30 years to repay Should I Consolidate? • Alternatives • Repayment options • Eligibility requirements • Advantages and disadvantages Alternatives • Deferment and forbearance • Repayment options • Combining multiple loans • Combining multiple payments Combining Loans or Payments • Multiple loans held by one lender – Serialized (combined) – Combined payment is equally applied across loans • Lenders may – Arrange loan purchases from other lenders – Combine billing for loans that are ineligible for serialization • Variation from lender to lender Repayment Options • FFEL repayment options – Standard – Extended – Graduated – Income-Sensitive (ISR) • Direct repayment options – Standard – Extended – Graduated – Income-Contingent (ICR) Standard Repayment FFEL • Term – Up to 10 years Direct • Term – Up to 10 years • Payment – Fixed amount – Minimum of $50 • Payment – Fixed amount – Minimum of $50 Extended Repayment FFEL • Term – Up to 25 years – Must exceed $30,000 Direct • Term – Up to 30 years – Based on principal balance • Payment – Fixed amount – Minimum of $50 • Payment – Fixed amount – Minimum of $50 Graduated Repayment FFEL • Term – Typically 10 years – Varies Direct • Term – Up to 30 years – Based on principal balance • Payment – Initial years pay interest only – Increases over repayment term – No payment more than 3 times another • Payment – Stair-steps – Initial payments are interest only – Increase every 2 years Income Dependent Repayment FFEL Income-Sensitive (ISR) • Term varies • Payment – Adjusted annually – Based on borrower’s gross income – Minimum interest only – No payment more than 3 times another – Mandatory administrative forbearance may be granted for up to 5 years Direct Income-Contingent (ICR) • Term – Up to 25 years • Payment – Based on household income relative to principal – Current year income initially – Prior year income basis after 2 years Eligibility Requirements • FFEL consolidation – in grace or repayment – in default • Direct consolidation – in school – in grace or repayment – in default Typical Advantages • Eliminates multiple payments • Decreases payment • Opportunity to – Lower rate – Lock rate – Secure incentives Typical Disadvantages • Increases – Repayment term – Total amount repaid – Total interest repaid • Fixes rate (variable rates may drop) • Loss of current lender incentives • Deferment, forbearance, subsidy, and cancellation eligibility may change Investigate a New Loan • Determine which loans are eligible for consolidation • Estimate the numbers – Repayment period – Interest rate – Monthly payment • Learn the new terms Eligible Loans www.nslds.ed.gov • Subsidized Stafford Loans • Unsubsidized Stafford Loans • Consolidation Loans • Perkins Loans • William D. Ford Federal Direct Loans • Health Professions Student Loans (HPSL) • Health Education Assistance Loans (HEAL) • Loans for Disadvantaged Students • PLUS Loans FFEL Repayment Periods Loan amounts Less than $7,500 $7,500 - $9,999 $10,000 - $19,999 $20,000 - $39,999 $40,000 - $59,999 $60,000 and higher Maximum Term Lengths 10 years 12 years 15 years 20 years 25 years 30 years Direct Repayment Periods Loan amounts Less than $10,000 $10,000 - $19,999 $20,000 - $39,999 $40,000 - $59,999 $60,000 and higher Maximum Term Lengths 12 years 15 years 20 years 25 years 30 years Interest Rate Monthly Payment Loan Balance No. of Payments 120 180 120 180 120 180 240 120 180 240 120 180 240 300 120 180 240 300 360 120 180 240 300 360 120 180 240 300 360 Term Length Monthly Payment $123 97 184 146 245 194 170 368 291 256 491 388 241 315 736 582 511 473 451 981 776 682 631 601 1,227 970 852 788 751 Total Interest Total Paid (Loan & Interest) $14,718 17,463 22,077 26,194 29,437 34,925 40,899 44,155 52,388 61,349 58,873 69,850 81,798 94,614 88,310 104,775 122,697 141,921 162,274 117,747 139,700 163,597 189,228 216,365 147,183 174,625 204,496 236,535 270,456 $10,000 10 years 15 years 10 years 15 years 10 years 15 years 20 years 10 years 15 years 20 years 10 years 15 years 20 years 25 years 10 years 15 years 20 years 25 years 30 years 10 years 15 years 20 years 25 years 30 years 10 years 15 years 20 years 25 years 30 years $4,718 7,463 7,077 11,194 9.437 14,925 20,899 14,155 22,388 31,349 18,873 29,850 41,798 54,614 28,310 44,775 62,697 81,921 102,274 37,747 59,700 83,597 109.228 136,365 47,183 74,625 104,496 136,535 170,456 $15,000 $20,000 $30,000 $40,000 $60,000 $80,000 $100,000 Terms • Deferment • Forbearance • Repayment incentives – On-time payments – Direct pay Compare Consolidation Loans • FFEL vs. Direct – Overview of benefits – Deferment options • Alternative products Federal vs. Direct Consolidation Interest Rate Available repayment plans Standard Income Contingent Income Sensitive Graduated Extended FFEL WAIR yes no yes yes yes Direct WAIR yes yes no yes yes Federal vs. Direct Consolidation FFEL Direct yes Prepayment without penalty Cancellation upon borrower’s death or total disability Grace period yes yes no yes yes (in-school only) How To Apply • When is the best time? • Are there fees? • How long does it take? • Where can I get more information? Apply…. • When is the best time? – Must be in grace or repayment – Grace period interest rate is lower than repayment interest rate • Are there any fees? – No fees – No prepayment penalties • How long does it take? – Generally 30 to 90 days More Information Federal Direct Consolidation Loan Information Center www.loanconsolidation.ed.gov FinAid!® The SmartStudent Guide to Financial Aid™ www.finaid.org EDFUND www.edfund.org