Loan Consolidation: Tips for Borrowers and Congress
Give Students a Break! Keep the Fixed Rate!
Whether you are leaving school or planning to continue in
college, for the next several weeks, you have a rare opportunity
to lock in one of the lowest interest rates ever on your student
loans (or, in the case of parents, your PLUS loans), which
can save you thousands of dollars in repayment. If you wait
to consolidate after July 1st, the average undergraduate borrower
with $19,000 in loan debt will pay $2,100 in additional interest
on a ten-year loan, due to the higher rate.
loan interest rate will increase by almost 2 percentage points
on July 1st, 2005 so consolidating now is one of the smartest
choices you can make. ACT NOW! Dont wait till June 30th,
as the lines will be jammed!
What is student loan consolidation?
How do I consolidate my loans? What advice
do you have for borrowers?
How much will I save by consolidating?
Is consolidating now definitely right for
action to stop Congress from eliminating the fixed
rate benefit in consolidation!
on consolidating your student loans? Contact the Department
of Education at 1-800-557-7392 or visit http://www.loanconsolidation.ed.gov
is student loan consolidation?
- Students and parents who have at least one loan through
the federal government's Stafford or PLUS programs can lock
in a low fixed interest rate by refinancing their variable-rate
loan(s) into a consolidation loan.
of consolidation: Not only can you get the advantage of just
one loan payment each month, but most importantly right now,
when you consolidate, you can lock in a fixed interest rate
that will not change for the life of your loan repayment.
Interest rates are at a historic low right now-by consolidating
before July 1st, you can lock in an extremely low rate. The
rate today for borrowers in school or in grace is 2.77 percent
and the rate after June 30th, 2005 will be 4.7 percent. The
rate for borrowers in repayment is currently 3.37 percent
and is going to rise to 5.3 percent after June 30th. The current
PLUS interest rate is 4.17 percent, which will rise to 6.1
do I consolidate my loans? What advice do you have for borrowers?
- First steps: Contacting your lender is the first step. If
you have a Direct Loan through the Department of Education
or if you are attending a school that is participating in
the Federal Direct Loan program, whether or not you have taken
out your Stafford loan there, you can call 1-800-557-7392
or apply at http://www.loanconsolidation.ed.gov. If you have
bank-based loans, you can contact any of the companies that
own or service your Stafford loan(s). As long as you have
loans with more than one company, you can also choose to consolidate
with the Department of Education OR with any company that
provides consolidation loans. If you don't know who owns your
loans, you can find out by visiting http://www.nslds.ed.gov/SAStatic/PrivAct.asp.
still in school: If you have at least one Direct Loan, you
can consolidate with the Department of Education (see contact
info above) and maintain your grace period, whether or not
you are continuing or leaving school. If you have only bank-based
loan(s), you must obtain the cooperation of your lender to
place your Stafford loans in "repayment status"
that will be deferred while you're in school. Then you should
apply for a consolidation loan at the "in school"
interest rate (2.8 percent) You may be forced to forfeit your
grace period, although your lender may agree to maintain it.
When you finally do leave school, the consolidation loan that
you are making now will go into repayment without a grace
period, but if you are unable to start payments, you can apply
for an "unemployment deferment," an "economic
hardship deferment," (both of which will maintain your
interest subsidy) or a forbearance (interest will accrue).
- If you
have multiple lenders: You can shop around and choose to consolidate
with any bank or company that provides consolidation loans
or with the Department of Education (see contact info above).
Terms and conditions can vary-some lenders will reduce your
interest rate even further if you opt to pay directly through
your electronic checking account or if you have a certain
number of on-time payments. Promises of discounts that are
not spelled out in the language of the promissory note may
not be enforceable during the entire repayment period.
back quickly: You should generally pay off your student loans
as quickly as you can, as the longer your repayment term is,
the more interest you pay overall. You should also take into
account other debts you may have, like credit card, and prioritize
paying off your highest interest rate debts. Like a credit
card balance, you can always pay more than the minimum amount
due each month; student loans do not have any pre-payment
delay! The terms and conditions on consolidation loans do
not vary dramatically from company to company, so the most
important thing is that you apply for consolidation right
away. The deadline is June 30, but you should apply before
then to beat the rush of applications. As long as your application
is received by June 30, your lender must honor locking in
the lower rate, but you should verify the rate with your loan
the lowest interest rate: Many lenders will offer interest
rate reductions for borrowers who set up electronic payments
through their bank accounts, as well as for a certain number
of on-time payments. Ask about whether your lender offers
these benefits or others.
- If you
have private education loans: It's not a good idea to take
out a non-federal consolidation loan in order to include both
your federal and non-federal loans, since private loans carry
higher interest rates generally and you will typically lose
the fine print: Like any loan or credit agreement, read the
terms and conditions of your consolidation loan carefully.
You should know any of the benefits or interest rate reductions
to which you may be entitled, and you should never be charged
any fees to consolidate your federal student loans. When you
receive the new promissory note for your consolidation loan,
read that carefully, as well, to make sure everything you
were promised is included.
false advertising: Some student loan consolidation companies
market their materials to look like official Department of
Education documents. If you're ever unsure, or to verify the
authenticity of your materials, call the Department of Education's
loan consolidation center at 1-800-557-7392.
much will I save by consolidating ?
- The average undergraduate student borrower with $19,000
in student loans would save nearly $2,100 by consolidating
before July 1st as opposed to later in the year. For those
who never consolidate their loans, repayment could be even
more expensive, as interest rates are projected to continue
increasing in the future. Borrowers without fixed-rate consolidation
loans will be subject to the variable rates that change on
July 1st of each year, up to the cap of 8.25 percent for student
and to 9 percent for PLUS borrowers.
- To figure
out your own savings, you can go to www.finaid.org/calculators
and click on their 'Loan Payment Calculator.' By entering
the current interest rate on your loans-2.77 for borrowers
in school or in their grace period or 3.37 for borrowers in
repayment-as well as your loan balance and repayment length,
you can view your repayment amount. You can calculate the
repayment amount you would have after July 1st by adding 1.93
percentage points to your current interest rate and going
through the same process.
consolidating now definitely right for me?
- If you have a low loan balance: Consolidation will save
high-balance borrowers more than low-balance borrowers, but
all borrowers will save. Most bank-based lenders require a
balance of at least $7,500 to consolidate. Check with the
company that owns your loan. Direct Consolidation loans are
available to any eligible borrower, regardless of balance.
- If you
have a Perkins loan, Nursing Student Loan, or any other Fixed
Rate Loan: Consolidating these loans is generally not advantageous,
as the interest rate on Perkins loans is fixed at 5 percent,
which would increase your consolidation rate. Because many
of the federal fixed rate loans have good deferment and cancellation
benefits, in most cases you should not include them in a consolidation
loan. For example, consolidating a Perkins loan requires you
to give up possible loan forgiveness, your in-school subsidy
if you're still a student, and your 9-month grace period.
If your lender says that you are not going to qualify for
a consolidation loan unless you include a Perkins loan, for
example, check with the Federal Direct Consolidation loan
help desk (contact info above).
- If you're
in school: If you have a Direct Loan, you are not required
to give up your grace period if you consolidate while in school.
Consolidating your bank-based (FFEL) loan while you're in
school may require you to give up your six-month grace period,
although some lenders are maintaining these. However, the
savings that you would incur by consolidating now at such
a low rate may be worth it for you to start repayment immediately
after graduation. In addition, you may be eligible for an
unemployment deferment, underemployment (economic hardship),
or a forbearance of all or part of the payments, which would
allow you to delay starting repayment. It's always a good
idea to pay at least the interest as it comes due, if you
have the means to do so. If you have a subsidized Stafford
loan or a Perkins loan, consolidating those loans while in
school is usually not a good idea, as you would likely lose
that subsidy. You should check with your lender to inquire
about their terms and conditions for in-school consolidation.
can I stop Congress from eliminating the fixed rate benefit
- Call and write your members of Congress! Unfortunately,
there are two bills right now that would eliminate the ability
of borrowers to lock in low, fixed rates through student loan
consolidation, H.R. 609, sponsored by Congressman John Boehner
(R-OH) and H.R. 1293, sponsored by Congressman Rob Andrews
(D-NJ). Ask your members of Congress to oppose these bills
and to support maintaining the fixed rate for student borrowers!
Press Release: Student
and Consumer Groups Give Advice to Student Borrowers on Congress
on Consolidation 6/7/05