Loan consolidation rule changes
June 25, 2005 4:36 PM Subscribe
Re: Student loan consolidation and possible changes occurring on the 1st of July. Can anyone set me straight on this? All I can find is that there "might" be rate hikes and there are "possible" rule changes. What do these changes entail? My future-wife is submitting her application today. Will she meet the deadline if her application goes in-work before the 1st?
You might want to double check on this, but I've heard that the "rate hikes" and "rule changes" are quite possibly a scare tactic.
posted by Jon-o at 5:40 PM on June 25, 2005
posted by Jon-o at 5:40 PM on June 25, 2005
Here is some hard and impartial information on the Jul. 1 rate changes (which look pretty certain).
posted by advil at 6:11 PM on June 25, 2005
posted by advil at 6:11 PM on June 25, 2005
Well, if they're federal loans (ex. Stafford), then the government is doing the rate changing on July 1st based on Treasury Bill rates, and it's no scare tactic. (From educaid.com: "These interest rates are variable (subject to change) but are capped at (will never exceed) 8.25%. The interest rates are adjusted each year on July 1 as mandated by the Department of Education.")
Also see:
Federal student loan rates seem likely to go up in July
posted by sellout at 6:12 PM on June 25, 2005
Also see:
Federal student loan rates seem likely to go up in July
posted by sellout at 6:12 PM on June 25, 2005
I just consolidated with the gub'mint, and locked my loans in at 2.5% (I'm still considered to be in school, so I was able to get the low rate). My freaking savings account gives me better interest than that. I say consolidate -- rates really can't go anywhere but up from here.
posted by zsazsa at 7:05 PM on June 25, 2005
posted by zsazsa at 7:05 PM on June 25, 2005
We did our consolidation app online via the Dept of Education's Direct Loan Servicing and got our approval by mail in about 10 days. Very happy to be locking in at no more than 4% but perhaps as low as 3.25%. And the thing that surprised me is that the 10 year repayment period starts over, although we are going to continue with our current payment amount to get it over with on schedule (about 4 years left).
posted by SashaPT at 7:09 PM on June 25, 2005
posted by SashaPT at 7:09 PM on June 25, 2005
Rates will definitely go up on July 1st, as others have already said. Whether you can get those pre-July 1st rates if you apply now depends on your lender, as some lenders will guarantee the rate at the time of application, while others give you the rate at the time of approval, which will likely be after July 1.
A (not-so-)brief primer on student loan consolidation. Any loans that are guaranteed by the government (Stafford, Perkins, etc.) can be consolidated into one loan. The rate for the new consolidation loan is fixed at the rate you are currently paying for your loans (not exactly, but close enough for government work). For loans that already have a fixed rate, like Perkins loans, this isn't a big deal. But for Stafford loans, it is, because they are variable rate loans, and the rate for those loans is at its lowest point ever. Not only that, but the rate is guaranteed to go up on July 1, because the rate is changed each year on July 1, using the rate for 90-day T-bills at the end of May + 1.7%. As the rate for T-bills went up from last May to this year, consolidation rates will definitely increase, so that is why everyone is recommending consolidation before July 1. (There is also the possibility that congress might change the rules regarding consolidation soon, but that's not certain, which is probably the basis for describing it as scare tactics, Jon-o.) One last reason to consolidate is that the time in which you can pay is often extended, thus resulting in lower monthly payments.
Now, even though the rate is fixed by the government, there are still certain issues that make loan consolidation more complex than it seems. The first hurdle is that you have to be eligible for loan consolidation. If your loans are in repayment or in the grace period, you can consolidate. It used to be the rule that you couldn't consolidate if you're still in school, but that rule has recently been changed. In any case, the next hurdle is to determine who you can consolidate with. If your school is a direct program lender (i.e., they directly loan you the money and are funded by the department of education), then you have to consolidate with the government. The other type of school aid program is through a FFELP program (i.e., the funds are provided by a private lender). If you have FFELP loans, then you have to consolidate through your existing lender unless you have loans from more than one FFELP. While theoretically, the FFELP lender can decline to consolidate your loan, freeing you to get it consolidated somewhere else, since it's a guaranteed money-maker for the loan consolidator, they'll never decline. (The other way you can choose your lender is if you consolidate your Perkins loan with your Stafford loan. Basically, what happens is the lender you choose consolidates the Perkins loan by itself, then uses that loan as the other FFELP loan to take the Stafford loan away from your FFELP lender. The drawback is that then your rate is the weighted-average of the Stafford loan rate and the Perkins rate (5%) -- but see what I got from my consolidator below. You also lose the special loan forgiveness/deferment provisions of the Perkins loan.)
Because it's a guaranteed money-maker for consolidators, consolidators are aggressive in seeking out people's loans. One of the ways they do this is by providing incentives for you to consolidate from them as opposed to someone else. These incentives are called borrower benefits. The most common borrower benefits are to give you 0.25% off your interest rate if you make payments through automatic withdrawal and a certain percent rate cut (typically 1% or less) after a certain number of timely payments.
If you are talking to a lender about consolidating through them, here are some good questions to ask.
1. Do you sell your loans? This is important because the lender they sell to might not be obligated to continue any borrower benefits you receive. Plus, it's a hassle to track your loan through different lenders.
2. When do you lock the rate? At this point, you need to look for a lender willing to lock in the rate when you apply, not when they approve.
3. What are your borrower benefits?
4. Can I still keep my grace period and/or deferment, and if so, will that affect my borrower benefits? If you are still in school or just graduated and in your grace period and it is important that you put off starting payments as long as possible, this is a key question to ask.
Apologies if I sound like a shill, but if you're looking for a place to consolidate at, I consolidated through a student-founded organization called Graduate Leverage who has managed to secure several additional borrower benefits not found anywhere else. In addition to the rate cuts for timely payments and electronic payments, Graduate Leverage was willing to also consolidate my Perkins loans at the Stafford loan rate (so they dropped the rate from 5% to 2.875%, not including the additional borrower benefit rate cuts). Additionally, they agreed to not sell my loan to anyone. Finally, they agreed to contractually bind themselves to the other borrower benefits (which is important because otherwise there is no guarantee that they wouldn't change the borrower benefits at a latter date -- not a big worry in any case, but it closes that potential loophole). I definitely recommend them to everyone looking to consolidate.
posted by EatenByAGrue at 10:38 PM on June 25, 2005
A (not-so-)brief primer on student loan consolidation. Any loans that are guaranteed by the government (Stafford, Perkins, etc.) can be consolidated into one loan. The rate for the new consolidation loan is fixed at the rate you are currently paying for your loans (not exactly, but close enough for government work). For loans that already have a fixed rate, like Perkins loans, this isn't a big deal. But for Stafford loans, it is, because they are variable rate loans, and the rate for those loans is at its lowest point ever. Not only that, but the rate is guaranteed to go up on July 1, because the rate is changed each year on July 1, using the rate for 90-day T-bills at the end of May + 1.7%. As the rate for T-bills went up from last May to this year, consolidation rates will definitely increase, so that is why everyone is recommending consolidation before July 1. (There is also the possibility that congress might change the rules regarding consolidation soon, but that's not certain, which is probably the basis for describing it as scare tactics, Jon-o.) One last reason to consolidate is that the time in which you can pay is often extended, thus resulting in lower monthly payments.
Now, even though the rate is fixed by the government, there are still certain issues that make loan consolidation more complex than it seems. The first hurdle is that you have to be eligible for loan consolidation. If your loans are in repayment or in the grace period, you can consolidate. It used to be the rule that you couldn't consolidate if you're still in school, but that rule has recently been changed. In any case, the next hurdle is to determine who you can consolidate with. If your school is a direct program lender (i.e., they directly loan you the money and are funded by the department of education), then you have to consolidate with the government. The other type of school aid program is through a FFELP program (i.e., the funds are provided by a private lender). If you have FFELP loans, then you have to consolidate through your existing lender unless you have loans from more than one FFELP. While theoretically, the FFELP lender can decline to consolidate your loan, freeing you to get it consolidated somewhere else, since it's a guaranteed money-maker for the loan consolidator, they'll never decline. (The other way you can choose your lender is if you consolidate your Perkins loan with your Stafford loan. Basically, what happens is the lender you choose consolidates the Perkins loan by itself, then uses that loan as the other FFELP loan to take the Stafford loan away from your FFELP lender. The drawback is that then your rate is the weighted-average of the Stafford loan rate and the Perkins rate (5%) -- but see what I got from my consolidator below. You also lose the special loan forgiveness/deferment provisions of the Perkins loan.)
Because it's a guaranteed money-maker for consolidators, consolidators are aggressive in seeking out people's loans. One of the ways they do this is by providing incentives for you to consolidate from them as opposed to someone else. These incentives are called borrower benefits. The most common borrower benefits are to give you 0.25% off your interest rate if you make payments through automatic withdrawal and a certain percent rate cut (typically 1% or less) after a certain number of timely payments.
If you are talking to a lender about consolidating through them, here are some good questions to ask.
1. Do you sell your loans? This is important because the lender they sell to might not be obligated to continue any borrower benefits you receive. Plus, it's a hassle to track your loan through different lenders.
2. When do you lock the rate? At this point, you need to look for a lender willing to lock in the rate when you apply, not when they approve.
3. What are your borrower benefits?
4. Can I still keep my grace period and/or deferment, and if so, will that affect my borrower benefits? If you are still in school or just graduated and in your grace period and it is important that you put off starting payments as long as possible, this is a key question to ask.
Apologies if I sound like a shill, but if you're looking for a place to consolidate at, I consolidated through a student-founded organization called Graduate Leverage who has managed to secure several additional borrower benefits not found anywhere else. In addition to the rate cuts for timely payments and electronic payments, Graduate Leverage was willing to also consolidate my Perkins loans at the Stafford loan rate (so they dropped the rate from 5% to 2.875%, not including the additional borrower benefit rate cuts). Additionally, they agreed to not sell my loan to anyone. Finally, they agreed to contractually bind themselves to the other borrower benefits (which is important because otherwise there is no guarantee that they wouldn't change the borrower benefits at a latter date -- not a big worry in any case, but it closes that potential loophole). I definitely recommend them to everyone looking to consolidate.
posted by EatenByAGrue at 10:38 PM on June 25, 2005
Oh, and if you still have questions or want advice on whether a certain consolidator (including the one I recommended) is a good one, talk to your financial aid office. Even if you've already left school, they'll probably be willing to help you out (especially since the summer is probably an otherwise slow time for them).
posted by EatenByAGrue at 10:41 PM on June 25, 2005
posted by EatenByAGrue at 10:41 PM on June 25, 2005
If anyone is still checking this thread, you can check out the status of your loans on NSLDS, an official government website.
posted by EatenByAGrue at 6:00 PM on June 26, 2005
posted by EatenByAGrue at 6:00 PM on June 26, 2005
Hey, I second EatenByAGrue's advice on Graduate Leverage - I'm not a shill either, I just met some of the people who started it, and it's by grad students, for grad students, and their only interest is helping you get the best loan information and products. I'm not sure what they could do for you at this point, it might be too late to slide under the deadline, but give it a go.
posted by rkent at 6:18 PM on June 26, 2005
posted by rkent at 6:18 PM on June 26, 2005
This thread is closed to new comments.
posted by sellout at 5:24 PM on June 25, 2005