In-School Loan Consolidation
What is Consolidation?
A Consolidation Loan allows you to combine one or more of your federal education loans into a single new loan. There are two types of consolidations
FFEL: available from private lenders Direct Consolidation: the federal government is your lender
Only the Direct Consolidation Loan is available to borrowers currently in school!
Why do an in-school consolidation?
Convert variable rate loans to fixed rate loans
new rate is based on weighted average interest rate of underlying loans rounded up to nearest one-eighth of a percent (capped at 8.25%)
ALERT: the ability to ‘lock in’ a fixed rate may go away in the fall!
It’s an opportunity to take advantage of the lower inschool/grace interest rate and still keep your full 6 month grace period
What are some of the other benefits of consolidation?
Combine pre-HMS federal loans with current federal loans to simplify repayment while retaining interest subsidy benefits Gain access to new flexible payment options for Perkins Loans and FFEL Stafford Loans May gain access to an extended repayment period or lower monthly payments Ability to ‘renew’ deferment eligibility
What are the drawbacks?
Perkins Loans loses some special benefits related to teaching, full-time volunteer, etc. Could lose access to FFEL consolidation later What if interest rates go down in the future? Potential loss of borrower benefits on FFEL loans Interest capitalization on unsub loans
Spousal Consolidation
Married couples are eligible to consolidate their loans together, but for most borrowers this is not a good idea
Joint and several liability clause: both spouses liable for the entire loan -- even after divorce
Partial discharge allowed in event one spouse dies or becomes disabled Deferment eligibility harder to establish
Re-consolidation
Borrowers can re-consolidate
Makes sense if you have loans that weren’t included in previous consolidation May enable you to ‘renew’ deferment eligibility
Borrowers can add additional loans to an existing consolidation loan up to 180 days after the loan is originated.
Interest rate is then re-calculated
One possible strategy
If you have HMS Revolving/Wolfson AND Federal Perkins, consider leaving your Perkins loan out of your consolidation loan
Cost of borrowing is the same either way, assuming the standard 10 year repayment You will have to make payments to both Harvard and the Direct Loan Program either way You’ll have the flexibility to reconsolidate later if you wish
Special Cases
Borrowers with outstanding Stafford loans taken out prior to July 1993
Special deferment provisions apply. Contact the Financial Aid Office for details.
Borrowers with Direct Consolidation Loans taken out during the special repayment incentive period (Oct 2000 – Sept 2001)
You must meet special conditions in order to factor the special discount into a new consolidation loan.
What Loans are Eligible
Federal Stafford, Federal Unsub Stafford FFEL or Direct Consolidation Loans
NOTE: You must include at least one Stafford, Unsub or Consolidation Loan
Federal Perkins HEAL LDS, HPSL (eligible for consolidation, but not recommended since they lose interest subsidy benefits!)
What Loans Are Not Eligible?
Institutional Loans
HMS Revolving, HMS Wolfson
Private Loans
e.g., Mass Med Society, Citibank HELP
Primary Care Loan (PCL)
When Should I Consolidate?
After all loans are fully disbursed Either before July 1 or after July 1, depending on what interest rates are doing
We will know the new rates for July 1 2004 by June 1
Before the fixed rate feature goes away??
Changes to federal programs typically go into effect on October 1, but could change sooner
How Do I Consolidate?
Go to loanconsolidation.ed.gov
You will need your FAFSA PIN
Use the Loan Status Look-Up link to retrieve your loan information Use the Application and Promissory Note link to access the On-line Application The process can take up to 90 days, and you are responsible for staying current with the your existing loans until the consolidation has been finalized. (The consolidation loan interest rate is based on rates in effect when the application was received).
For More Information
loanconsolidation.ed.gov
Official Direct Loan Consolidation Site
www.aamc.org/debthelp
AAMC Debt Management Resources, includes a primer on loan consolidation