In School Loan Consolidation What is Consolidation A Consolidation Loan

							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