Consolidation Loans
Presented by:
Wachovia Education Finance
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What is a Federal Consolidation Loan?
What is a Federal Consolidation Loan?
Combining one or more existing FFELP and/or Direct Loan(s) into one new loan with: • • • A Lower Monthly Payment A New Fixed Interest Rate An Extended Repayment Period (up to 30 years)
Consolidating comes with no additional fees and your Consolidation Loan can be prepaid at any time with no penalties.
Why Consolidate?
Reason 1: To Lock In a Low Fixed Rate
Federal education loan interest rates changed every July 1 for loans you have borrowed prior to 7/1/06. The interest rate in repayment will be 7.14% for July 1, 2006 to June 30, 2007. Federal education loan interest rates will be fixed at 6.80% for loans disbursed on or after 7/1/06; however, if you have existing loans, it makes sense to consolidate while rates are low and lock in the lowest possible rate.
Why Consolidate?
Reason 2: To Lower the Monthly Payment
Your monthly payment can be reduced by 50%, and in some cases even more. This helps many new graduates who have other bills to pay.
Why Consolidate?
Reason 3: To Make Repayment Easier
Once you consolidate, you’ll receive one monthly statement. This is a great benefit if you have multiple loans and/or multiple lenders.
What types of Federal Loans can be consolidated?
Stafford Loans PLUS Loans for Parents PLUS Loans for Graduate Students Direct Loans Federal Supplemental Loan for Students Federal Perkins Loans Health Professional Student Loans (HPSL) Nursing School Loans (NSL) Loans for Disadvantaged Students (LDS) Federal Insured Student Loans (FISL) Existing Consolidation Loans
What types of loans cannot be consolidated by the Federal Consolidation Loan?
Private Loans (Loans that are not federally insured.) The Private loan is also referred to as an Alternative loan. This is a consumer loan – much like a car loan but held under education regulations. Federal Loans in Default (Unless specific rules are met that allow consolidation.)
How does consolidation work?
1. The lender that consolidates your education loans pays off your existing loans. 2. Once this happens, your old loans are paid in full and cannot be consolidated again. 3. Your new consolidation loan will have a new fixed interest rate, a single monthly statement, and new repayment terms. 4. You will have a choice of repayment options, Standard, Graduated, Income-Sensitive, or Extended (for balances above $30,000). 5. After you consolidate, you will have 10 to 30 years to repay your loan, depending on how much you owe.
How is the new fixed interest rate determined?
Your new interest rate is the weighted average interest rate of the loans that will be consolidated (rounded up to the nearest 1/8 of 1.00%) and cannot exceed 8.25%. A weighted average is determined by assigning a "weight" based on the proportion of debt you owe at each interest rate. There is no fee for consolidation.
Loan Example
Outstanding loan balances and interest rates $3500 (7%) $3200 (5%) $5500 (4%) = $12,200
Step 1
Multiply the outstanding balance of each loan by the interest rate: $3500 x .07 = $245 $3200 x .05 = $160 $5500 x .04 = $220
Loan Example
Outstanding loan balances and interest rates $3500 (7%) $3200 (5%) $5500 (4%) = $12,200
Step 2
Add the results of all calculations made under Step 1: $245 +$160+$220 = $625 Divide this sum by the total outstanding balance: $625÷$12,200 = .05122 or 5.12%
Loan Example
Outstanding loan balances and interest rates $3500 (7%) $3200 (5%) $5500 (4%) = $12,200
Step 3
Round the result of Step 2 up to the nearest eighth of one percent, not to exceed 8.25%
5.12% is rounded up to 5.25%
Repayment Options*
• Standard/Equal Payment • Graduated-2 and Graduated-5 • Income-Sensitive
There is no penalty for prepayment regardless of the plan selected.
Repayment options
Standard / Equal Repayment Option
Term • Up to 10 years Payment • Fixed • $50 minimum
Graduated-2 & 5 Repayment Option
Term • Typically 10 to 15 years.
Payment • Initially interest only payments are made for the first two or five years • Increases over time, regular principal and interest payments begin in year three or six.
Income-Sensitive Repayment Option
Term • Varies based upon income
Payment • Interest only minimum • Based on borrower’s monthly gross income • Adjusted annually • Requires the borrower to supply copies of his/her tax form each year for income verification.
Extended Repayment Plan
Term • Up to 25 years Payment • Fixed or graduated • Interest only minimum • Principal must exceed $30,000
Loan Consolidation Repayment Example
Interest Rate: 6.8 % Loan Amount: $ 11000 Repayment Plan Term (in Months)
Initial Monthly
Total Payments (Interest + Principle) $ 15190.80 $ 17577.00
Standard 120 Extended 180 Graduated
$ 126.59 $ 97.65
180
$63.29
$19259.28
Is a minimum balance required?
This federal program does not require a minimum balance. However, many lenders set their own required minimums (usually $7,500 to $10,000). Wachovia has NO minimum balance requirement.
Are all Consolidation Loan lenders the same?
No. Many lenders offer unique borrower rewards programs. For example, students who consolidate at least $10,000 with Wachovia can lower their new fixed interest rate by 1.25 % after just 24 payments (most lenders required 36 months). Wachovia’s program includes:
When should you consider consolidating?
Normally, students consolidate while in repayment or during their six-month grace period before repayment begins. Remember, Stafford Loans disbursed prior to 7/1/06 have interest rates that are 0.60% lower prior to repayment. By consolidating during the grace period, you can lock in the lowest possible fixed consolidation rate. Once your Consolidation Loan application is received, your loan should be disbursed in 4 to 6 weeks.
Can I consolidate while I’m still enrolled?
Due to Federal Regulation changes, In-school consolidation is not permitted after 7/1/06.
How do you know which lender to consolidate with?
Prior to 7/1/06, if all of your loans are with one lender, you must contact that lender first to request consolidation. After 7/1/06, this is no longer a requirement. If you have loans with several different lenders (or if your primary lender doesn’t offer consolidation), you may choose your own lender. To locate your eligible loans, access the National Student Loan Data System, otherwise known as NSLDS at www.nslds.ed.gov To access NSLDS you must have a Personal Identification Number. To request a PIN, visit www.pin.ed.gov
Is there any reason NOT to consolidate?
Yes. You may choose not to consolidate for these reasons: 1. To Avoid Higher Interest Expenses: Although your monthly payments will be smaller, you will likely end up paying more interest over the life of your extended repayment period. 2. To Retain Your Grace Period: Perkins and Stafford loans disbursed prior to 7/1/06 come with grace periods before repayment begins (9 months for Perkins, 6 months for Stafford). Consolidation payments begin 30 days after disbursement. 3. To Keep Other Borrower Benefits: Most private lenders offer attractive repayment benefits for Stafford and PLUS loans. These specific benefits no longer apply after consolidation.
What if I have trouble making payments after Consolidation?
Contact your lender or loan servicer immediately. Just like with your other federal loans, your Consolidation Loan comes with deferment and forbearance options that can temporarily postpone your payments when necessary.
How can you learn more?
Contact your primary lender or contact Wachovia’s Consolidation Center at 888-953-4987 or visit www.wachovia.com/education
Additional Helpful Websites
www.bankrate.com – Bank rates
http://www.fes.org/calculator/consolidationframe.htm?site=nslp -
comparison calculator including Stafford, Income Sensitive and Graduated Repayment. Compare how much interest you will pay over the life of the loan.
http://www.nasfaa.org/publications/2006/gen0613.html
forgiveness applications and deferment forms
- loan
www.annualcreditreport.com – Annual FREE credit report
Questions?
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Thank you for your time!
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