Should I get a U.S. Dept. of Education Special Direct Consolidation Loan?

May 19, 2012 2:30 PM

Should I get a U.S. Dept. of Education Special Direct Consolidation Loan?

I currently have 3 student loans of varying amounts with fixed interest rates in the 5-6% range. I keep getting emails from FedLoan Servicing, who owns one of my loans, offering a Special Direct Consolidation Loan.

I am not going to summarize the terms of the loan here, for fear that I would miss out on something important. Instead, here it is straight from the source: http://studentaid.ed.gov/PORTALSWebApp/students/english/specialconsolidation.jsp

On the surface it seems good. I would get a tiny interest rate reduction, and it would be convenient to pay one lender instead of three. I have also read some unsavory reviews of ACS, who bought my loans from Wells Fargo. Maybe I'm naive, but I feel like the Department of Education is less likely to screw me over.

Is there anything I'm missing? I am pretty ignorant of financial stuff, so I don't trust myself that it's a good deal.

posted by scose to Work & Money (7 answers total)

A couple things my wife appreciates having consolidated her loans with the DoE: (1) The Public Service Loan Forgiveness (PSLF) Program offers forgiveness if you work a certain number of years in selected public service occupations. (2) Direct loans offers a selection of repayment plans that you can chose, including income-based programs that may lower your payments, and you can change those plans as your circumstances change.
posted by audi alteram partem at 2:46 PM on May 19, 2012

Oops. Reading that page, I don't know if the repayment options are the same for the Special consolidation as for the traditional. But it's something to look into. The PSLF still applies.
posted by audi alteram partem at 2:49 PM on May 19, 2012

I consolidated my loans through the DoE 14 years ago and my experience has been the same as audi alteram partem's wife. The extended repayment and income based options were invaluable as both myself and Mr. theBRKP have had periods of unemployment/underemployment in the past and were still able to make the payments. I have zero complaints.
posted by theBigRedKittyPurrs at 3:37 PM on May 19, 2012

You can do this and I agree that the servicing from DoE is great---but that won't guarantee you anything anymore. My federal loans were consolidated to them years ago and just recently were sold to a new servicer. So now I have a big consolidated bill to a private servicer for my private loans and a second payment to a separate private servicer for my federal loans. This is something relatively new I think that the feds are doing, where they farm out the student loans to other servicers---ACS is one, MOHELA is another, and there is at least one other I can think of who I won't mention because I used to work for them. So if you get a rate reduction, I'd do it anyway but it won't guarantee that you will never be dealing with ACS anyway.

One other thing---forbearance terms and whatnot should be the same, regardless of servicer. The reason you hear bad things about ACS is because a lot of what they service is private--and private student loans can get nasty. Federal repayment, in my experience, is just a million times more flexible about repayment and that should be part of the terms. I mean, in theory of course.
posted by supercapitalist at 4:20 PM on May 19, 2012

What kind of Fed loan do you currently have? I rather regretted consolidating subsidized Direct loans with unsub'd, because the whole bundle then became unsubsidized. So the deal was in their best interest more than mine (shocking, I know)--but it's not a terrible deal, even still. But all my loans were federal, not private, so the situation was a bit different than yours.
posted by lily_bart at 4:37 PM on May 19, 2012

I'm not a CFP, but it looks like a good deal. It seems you can still target extra payments at the high rate loan if you desire, and if you plan on taking advantage of PSLF, rolling in your other loans is a good deal (if you can reduce your payments to make it worthwhile). And the quarter percent discount is nice.

As far as servicing goes, DoED had a nice site, but they outsourced their website or something recently, and the new servicer's site was annoyingly not integrated -- you had to set up new accts, passwords, direct deposit etc. They do have a landing page widget that shows the principal / interest split on the past few monthly payments though which is nice since my accounting software always gets it wrong =/
posted by pwnguin at 12:51 PM on May 20, 2012

Also subsidized vs unsubsidized is of little importance unless you manage to trigger a grace period or deferment.
posted by pwnguin at 12:53 PM on May 20, 2012