LOAN CONSOLIDATION UPDATE:
IMPORTANT CHANGES! If you’ve borrowed a student loan, you may be getting deluged with ads for loan consolidation. You are receiving this information for 2 reasons. First, interest rates are going to increase on July 1. Second, a number of lenders are allowing students who are in school to consolidate their student loans.
Borrowers who consolidate by June 30, 2005 can lock in an interest rate of approximately 2.85% on outstanding loans. We expect interest rates for student loans to rise July 1, to about 4.6%. Locking in at a lower interest rate now can save you money, especially if you have borrowed heavily for your education. But loan consolidation is complex.
These are some things to be aware of:
Your student loan lender is the best source of information about loan consolidation. To consolidate your loans while in school, you must contact your student loan lender and ask to have your loans placed into repayment. As soon as consolidation is completed, since if you are still in school, you should ask your lender to place your consolidation loan into an “inschool” deferment. If you are interested in this, you must apply now. After June 30 the interest rates will change, and you will not be able to lock in the lower interest rate.
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If you speak with your lender, ask them:
Can I lock in interest rates and still keep my grace period after I leave school? What will my estimated payments be with and without consolidation (so you can compare) What are the pros and cons of in-school consolidation? What are the benefits you are offering if I consolidate? What current benefits will I lose if I consolidate? Can you have this process completed in time to lock in the current rates by June 30? How will receiving an in-school deferment on a consolidation loan affect the terms of my repayment? Does it affect the on-time payments?
Loan consolidation is a federal student aid program, but it has many of the elements of a commercial loan transaction. Most important is the need for you, the consumer, to be
knowledgeable about the terms and conditions of the transaction. Because of the complexity of loan consolidation the Financial Aid Office cannot offer advice or make a recommendation. What we can provide you is a list of issues you should think about and questions you should ask when considering loan consolidation. 1. If you borrowed from more than one lender, check with each to determine what benefits or repayment incentives they offer. For a list of your lenders, go to www.nslds.ed.gov. If your loans are all with a single lender, then you are required to work with that lender unless they do not offer loan consolidation. Some lenders will attempt to get you to consolidate with them, rather than your current lender, but this would be very time-consuming and would likely not be completed by June 30. 2. Since you will be consolidating your old loans and borrowing new loans at the same time, working with your current lender may limit possible confusion that could delay your financial aid. This is one factor you may wish to consider when making a decision. 3. Many of the lenders who aggressively advertise consolidation loans offer “borrower repayment incentives”. When you speak with a lender, be sure to confirm if you will be eligible for those incentives. Most incentives are based on repayments being made on time for 36 or 48 consecutive months. In-school deferments, or deferments for residency training, may immediately disqualify you from these incentives. 4. Make sure you know what benefits you will be giving up. For example, consolidation loans do not have a forgiveness provision for teaching math, science or special education in a high-need school. This would be a huge benefit to lose. Also, consolidation loans are not required to give you a grace period after you graduate before repayment begins. Some lenders are offering this as a borrower repayment incentive. 5. If you have a Federal Perkins Loan, you should probably not include it in consolidation. The interest rate on a Perkins Loan is already fixed at 5%. If you are considering being a teacher, Perkins Loans also have a forgiveness provision for full-time teachers in many schools around the country. The forgiveness opportunity will be lost in consolidation. 6. You will have to decide what you want to do with any new loans you borrow after you have consolidated (i.e. loans for 2005-06 and future years). If you choose to add those loans to your consolidation, the lender is required to compute a weighted average interest rate, based on the amount of loans at the old rate of interest and the amount of loans at the current rate of interest. Be sure to ask your consolidator how this process works. Also note that you will have to continue to use the same lender for any additional loan consolidation.
7. If your total Stafford loans are less than $7,500 and you have more than a year left in school, it may not be a good idea to consolidate your loan. 8. If you graduated in May, 2005 or earlier, you should consider consolidation If you think loan consolidation makes sense for you, contact your lender at their customer service number for additional information. Explain that you are still in school, and get answers to the questions listed above.
Your lender is the best source of information about loan consolidation.