In School Loan Consolidation What is Consolidation A Consolidation Loan
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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 in-
school/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
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