Consolidation Loan Basics
Eligibility
Applying for a Consolidation Loan
Repayment
Consolidation Loan Basics
How do I benefit from a federal consolidation loan?
- Lowers your payment ! The federal program was specifically designed to help students avoid default and give you more options and flexibility with your payments. That frees up your money for other things (such as a car payment or mortgage payment). And..there are no prepayment penalties so if you find you have some extra money burning a hole in your pocket you can send it in to the principle on your student loans.
- Gives you ONE payment ! Simplifying your life with one loan and one payment instead of trying to keep track of all the lenders and servicers holding your loans.
- Locks your low rate ! We haven't said good bye to low interest rate days completely yet! Your current rates are variable , which means they go up or down on an annual basis. The interest rate on a Federal Consolidation loan is a fixed rate. Which means your interest rate will stay permanent for the life of the loan. Fixing your rate now while they are low will protect you from the upcoming changes. Currently the interest rates on federal loans are still 2-3% lower the historical average so..hurry up and lock your rate!.
- Looks better on your credit report ! Having one consolidated loan instead of all the disbursements you took out showing on your credit report looks much better and can improve your debt to income ratio.
- It's FREE ! Consolidation is a FREE benefit you have with federal loans. And you maintain your other federal benefits; deferment, forbearance, and death and disability.
What is a federal consolidation loan?
- A consolidation loan allows a borrower to take all of their variable rate loan disbursements (which are often with different lenders) and combine them into ONE loan with a FIXED interest rate for the life of the loan. Consolidation is a benefit you have with federal loans that saves you money and makes your life easier.and it's FREE!
What does a consolidation cost?
- It's FREE ! Consolidation is a FREE benefit you have with federal loans. And you maintain your other federal benefits; deferment, forbearance, and death and disability.
What's my rate? Should I shop around?
- The interest rate on a federal consolidation loan is the weighted average of the interest rates for the loans to be consolidated, rounded up to the nearest one eighth of one percent, and not to exceed 8.25 percent on Stafford loans or 9% on PLUS loans.
- The rate is determined by the government once a year and changes every July 1 st . Which means you don't have to shop around for rates (like a mortgage loan). All the rates and terms are federally mandated and will be the same no matter who you consolidate with.
- The rates are dependent on what type of loans you have and when they were taken out. The easiest way to find out what your rate will be is to call us and we will pull up your loans on the National Student Loan Data System and tell you what your rate is and also help you figure out what payment plan would work best for you. You don't even need to know a thing about your loans.we'll take care of it for you and walk you through the process.
Do I have to give up my grace period?
- When you drop less than half time or graduate you enter your "grace period" which gives you some breathing room before you need to start making payments. The grace period is 6 months for a Stafford Loan, 9 months for a Perkins loan, and does not exist on a PLUS loan.
- You only get one "grace" period per loan and it can't be renewed. For example, if you are graduating May 1 st , your grace period will end 6 months later on November 1 st and your first payment will be due in December.
- There is an added benefit for those students who are top of their loans. Your interest rate is .6% lower when you are in grace , which means if you get your paperwork in early, you will lock your interest rate before the rate increases when you hit repayment.
- There are some circumstances where you can lock your interest rate at the lower "grace" rate without losing your grace period all together. It's important to call of us with questions about your grace period. Depending on your loan balance, that .6% reduction could save you thousands of dollars in interest on your loan.
SPRING 2006 GRADS AND PARENTS WITH NEW PLUS LOANS: YOU NEED TO GET YOUR PAPERWORK IN AS SOON AS POSSIBLE!
Eligibility
Am I eligible to consolidate?
- Must be graduating during this academic year or dropping below half time. If you are a parent, your PLUS loans must be fully disbursed.
- Loans must be in repayment or in deferment.
- Not in default on a federal student loan
Which student loans can I consolidate?
Not all loans may be eligible for consolidation. Private loans from banks, schools or family cannot be consolidated. Loans from the following programs are eligible for FFEL Program consolidation:
- Federal Parent Loans for Undergraduate Students (PLUS)
- FFEL Subsidized Stafford loans
- FFEL Unsubsidized Stafford loans
- Federal Insured Student loans (FISL)
- Federal Guaranteed Student Loans (GSL)
- Federal Supplemental Loans for Students (SLS)
- Auxiliary Loans to Assist Students (ALAS)
- Federal Perkins Loans (formerly National Defense/Direct Student Loans-NDSL)
- Health Professions Student Loans (HPSL)
- Heath Education Assistance Loans (HEAL) *
- Loans for Disadvantaged Students (LDS)
- Nursing Student Loan Program loans (NSLP)
- Federal Direct loans
- Direct Subsidized Stafford loans
- Direct Unsubsidized Stafford loans
- Direct Subsidized Consolidation loans
- Direct Unsubsidized Consolidation loans
- Direct Parent Loans for Undergraduate Students (PLUS) loans
- Direct Parent Loans for Undergraduate Students (PLUS) Consolidation loans
What if I'm going back to school? Can I consolidate new loans?
- Yes, you can apply for another consolidation loan that will combine your old consolidation loan with your new education loans.
- Also, if you forgot to include a federal education loan during your original consolidation process, you can include that loan in the new consolidation loan as well.
I thought once you consolidated, you couldn't reconsolidate?
Currently the program allows borrowers who have already consolidated the opportunity to reconsolidate their existing loan in order to earn "borrower benefits" they do not currently have. This window of opportunity to put your loans in a better situation and save money in interest is quickly closing. (Should I take the red out completely??) Unfortunately this was one of the pieces that passed in the Deficit Reduction Act of 2005, S. 1932, which was narrowly approved Feb. 1 by congress. Passing by a two-vote margin of 216-214. $11.9 billion is being cut from the student loan program and students will be paying the price with higher rates and less options.
Call us NOW to see if we can help guide you through the entire process and get you in a better position with your loans.
Other helpful sites to learn more:
Applying for a Consolidation Loan
How do I start the process?
CALL US! You have several options here. You can complete a federal consolidation application by mail or on-line. Either way, it is easier to have someone guiding you through it. Contact us and we will walk you through it step by step. The federal forms look harder then they really are! It should take no more than about 10 minutes.
Call 800.861.5038
When is the right time to apply?
- Each loan you wish to consolidate must be in the grace period or repayment status (i.e. not in an in-school status) to be included. You may save money by applying for consolidation while in your grace period. Stafford loans disbursed after July 1, 1995, have two interest rates attached to them -- one for in-school, grace period, and deferment status and the other for repayment status. After entering repayment on these loans, your interest rate will increase. By consolidating during the grace period, we will use the lower, grace period interest rate to calculate your new consolidation loan rate. Therefore, consolidating prior to entering repayment is beneficial.
- Remember that interest rates change each July 1. Consider what the trends are when applying near this date. If rate were set today (Feburary 2006) , they would be about 2% more than they are, so the faster you act, the more peace of mind you will have knowing you just saved yourself a lot of money in interest.
Are there any fees?
- There are no origination fees or any other kind of charges for obtaining a Consolidation loan. There are also no penalties for prepaying or paying the loan earlier than scheduled.
What happens next/How long will it take for my application to process?
- Applications are typically processed within 30 to 90 days. If the application is approved, the consolidating lender will pay off the full amount of the original loans and send you a disclosure statement and repayment schedule for the consolidation loan. This packet will include a listing of your total debt, the new interest rate, and terms. Until your new consolidation loan is in repayment status, you MUST continue to make regular loan payments on each of your current loans. Payments on your consolidation loan will begin within 60 days of the time your consolidating lender pays off your underlying loans.
What if I don't know my loan information?
- Not a problem! Just call us and we will pull up your loan information and give you a list of all of your education loans, including Type of loan (Stafford Subsidized, Stafford Unsubsidized, etc), Lender, Interest rate, and outstanding loan balance.
Repayment
How long is repayment for a consolidation loan?
The amount of time it takes to pay off your consolidation loan really depends on you. The actual term (length of repayment) is based on your total education debt -- not just the loans you are consolidating. If you have more education loans than the ones we are consolidating, we consider that debt when determining your repayment term options.
The maximum term is based on your total education loan debt. Check out the chart below to see what repayment terms are available for you
Maximum Term:
- $10,000 - $19,999 (15 years)
- $20,000 - $39,999 (20 years)
- $40,000 - $59,999 (25 years)
- $60,000 or more 30 years
So even if you take the longest possible term, with the lowest possible monthly payment, you can always pay more. (By paying more, you pay the loan off sooner, which results in you paying less interest over the life of the loan.)
Can I pay off my consolidation loan early without penalties?
- Absolutely! You can pay off your consolidation loan any time you want and you will never be penalized with extra fees.
What repayment plan options will I have?
- You will have the same repayment plan options you did before consolidating: standard, graduated, and income-sensitive. The difference is that you can extend the repayment term for these plans.
After consolidating, your new payment will depend on several factors including:
- the amount being consolidated
- the length of the repayment term
- the interest rate of the consolidation loan, and
- the consolidation repayment plan you select
Call us and we help set you up on the payment plan that is right for you!
What if I can't make my payments?
- You have a lot of options and flexibility with the federal loan program. If you are not in a position to make payments on your loans, you have the option of doing a forbearance or deferment which will suspend your payments and not affect your credit report. Call us and we will review your situation and point you in the right direction.
Will I still have deferment and forbearance options?
Yes. Both deferment and forbearance options are available after you consolidate.
A deferment allows you to temporarily postpone payments of your Consolidation loan. Deferments are not automatic; you must meet eligibility criteria, apply, and receive approval from your lender. During periods of deferment on subsidized consolidation loans, the principal payments are postponed and interest is billed to the government. When unsubsidized consolidation loans are deferred, only the principal payments are postponed and you are responsible for the accrued interest. The three most common reasons for deferment are:
- Returning to school at least half-time
- Unemployment
- Economic hardship
If you don't qualify for a deferment but are having difficulty repaying your loans, you may be eligible for a forbearance. Forbearance is the temporary postponement or reduction in your monthly payment. During this postponement, interest accrues and you will be billed by your lender quarterly. You have the option to pay the interest or allow your lender to capitalize the interest at the end of the forbearance period. If you capitalize the interest on your loan, your monthly payment and total repayment amount will increase.
Have questions? Call us!
Will my new loan come with repayment incentives?
- We want to reward you for being on-time with your payments! Your interest rate will be reduced 1% after 36 on-time payments. Your interest rate will also be reduced .25% when you enroll in "auto-pay" -and have monthly payments deducted from your personal banking account. These incentives will save you thousands of dollars over the term of your loan!