College Loans Consolidation

mrxalex319 says:

The loan rates are only dropping on those federal Stafford loans that you took out that have a variable interest rate associated with them. Any loan that was disbursed after July 1, 2006 has a fixed 6.8% rate, and that rate is not changing.

If you have variable rate Staffords from prior to July 1, 2006, then yes the rate is going to drop and by consolidating them after July 1, 2008 you can lock it in as a fixed rate loan at just over 3% less than your current rate. Pretty good deal.

The hard part is finding a lender as most FFELP lenders have abandoned the consolidation ship. Your best bet is to consolidate those loans through the government's Direct Lending program with a Federal Consolidation loan.

https://www.dl.ed.gov/borrower/BorrowerWelcomePage.jsp

This is the website for the govt's site. Keep in mind that if you include other fixed rate federal loans that the calculation for your new fixed rate will be done on a weighted average. You should speak to a loan rep about this process and its affects, or only process variable rate loans in the consolidation.

SummerBreeze says:

First, I need to clarify a few misconceptions in your question:

1) Interest rates on Federal Stafford Loans change EVERY July. They are set by the Federal government based on the 91-Day Treasury Bill. This July, they *will* be going up — but his is true for all lenders, not just Sallie Mae.

2) Rates don't "vary from 2.75% to 4.75%." The current rate on all Stafford Loans for all students currently in school (or for students in their grace or deferment periods) is 4.7%. In other words, the Stafford Loan that you got as a Freshman is at 4.7%, the loan you got this year is at 4.7%… and that kid sitting next to you in Bio? His Stafford Loan is at 4.7% too (even if he borrowed with Citibank).

NOTE: the student who graduated last year and consolidated last June probably has a different rate than you. This is because he consolidated before the 4.7% took effect on July 1, 2005. It's too late to get the rate he got, so take any advice he gives with a grain of salt.

OK, so, the reason that you are hearing about those OTHER rates (as low as 2.7%) is because there are *tons* of companies competing for your business, so they are all are offering additional benefits (rate reductions, principal balance reductions, etc.) to students who consolidate with them. For your own sake, be cautious. There are a lot of disreputable lenders out there. In fact, the lender that offered you that rock-bottom interest rate is probably the least reputable of all. The really great, reliable lenders don't have to sell their souls to get your business. The best way to find out if a lender is reputable is to ask your Financial Aid Office — they know which companies are good and which aren't (and they often have solid working relationships with the lenders' representatives).

For your reference, Sallie Mae is the #1 Consolidation lender (i.e they do the most business). Citibank is a distant #2. These companies are on top because they rarely (if ever) sell your loans, they offer good customer service, they are technologically advanced, and they've been in "the business" for ages. For a list of other consolidation leaders, try this link: http://www.finaid.org/loans/biglenders.phtml ("consolidation" is kind of toward the bottom of the page). Most of these are reputable. Any of the top 6 would be good.

There are a few other things you might want to consider:

First, you need to make absolutely sure that you're getting a "Federal Consolidation Loan." Some companies have their own, sketchy version of consolidation that has nothing to do with the federal gov't. Basically, they take your nice, safe Stafford Loans and turn them into private loans with questionable terms. If you don't get a Federal Consolidation Loan, then you won't be entitled to any of the protection or benefits of the Federal Student Loan program. To protect yourself, make sure the application you complete says "Federal Consolidation Loan" at the top like this one: http://www.salliemae.com/apply/borrowing/pdf/SMARTLOAN_consol_app.pdf

Second, I know that "borrower benefits" are attractive — and I fully support getting the best ones for my students. But make sure that you're weighing the monetary benefits with the qualitative benefits. When you consolidate, you're committing to a very long relationship with a single company. That company that offered you 2.7%… Ask yourself: have you ever heard of them? Do you know anyone who has used them successfully? Are you sure that you want the 3% rate loan with the no-name company? Or would you rather have the 3.5% rate loan with a lender you know and trust. It's up to you to decide, but before you do, make sure you know how much your overall payments would really change with that half-percent reduction. Try a "loan repayment calculator" like this one: http://www.finaid.org/calculators/loanpayments.phtml

Third, by all means, look into the companies with the really great-sounding benefits. Make sure you've read the "fine print": ask them how you earn the benefit, when it takes effect, and how you can potentially lose it. A lot of [good] lenders offer "principal reductions," but it's important to note that these reductions often don't take place right away and if you don't make ALL your payments on time, you may become ineligible. NOTE: this is a very good reason to set up auto-debit (so you never miss a payment).

Fourth, there are NEVER any fees to consolidate. If you're working with a company that has fees, RUN — it's a telltale sign that they are one of the "bad" companies.

Finally, yes, these consolidation offers are very similar to credit card offers… except this is a much bigger decision. Unlike with credit cards, you can't just "drop" your consolidation lender. It's becoming near-impossible to reconsolidate, so make sure that you pick someone you trust. (Consider going with the lender you have now, since your school probably helped you pick them, right?)

EDIT: sunshine_today is sort of correct in telling you to be wary of most of the offers that you receive in the mail. However, you will also receive legitimate mail from your lender that you should not ignore. With a *true* Federal Consolidation Loan, there are no "teaser rates" — there are benefits that you either do or do not qualify for. Nor are there any variable rate Federal Consolidation Loans — Federal Consolidation Loans are FIXED RATE loans. Period. (That's the whole point of consolidating!)

ylh says:

ylh:

I'm not going to comment specifically on your chances of being approved for a consolidation loan. If your credit is generally good, and your cosigner offers the security that the lenders are looking for, you certainly have a reasonable chance of being approved – but – as I'm sure you know, the lending market is REALLY REALLY tight right now, and many applicants with good credit are being turned away.

What I did want to comment on is the consolidation process in general. I just want to make certain that you recognize that loan consolidation has a "dirty little secret" – and that's all the extra money that you'll wind up repaying on your loan.

There is only one technique that consolidation loans can use to lower your monthly payments – and that technique is s-t-r-e-t-c-h-i-n-g your repayment term. You don't know have to know much about loans to understand what that means – the longer you stretch your repayment, the more interest you pay on your loan.

For the sake of argument, let's assume that you are hoping to consolidate $30,000 of private loans that will enter a 10-year repayment at 8.9% interest. Right now, you would be looking at 120 payments of $378.41 a month.

Consolidate that $30,000 into a 20-year loan at the same interest rate, and your payment drops to $267.99 a month – a savings of $110.42 a month. I'm sure you could put that extra $110 to good use.

But here's the catch – over 10 years, your total payments will be – $45,408.36. How's that compare to 20 years, where your total payments will be $64,318.53?

What's the privilege of cutting your monthly payment by $110 going to cost you? $19,000.

Wow – that's the list price on a Honda Civic, a Mini or a Pontiac G5.

Make that same deal on your government loans, and you're looking at another $15,000 in extra interest. That's quite a lot to pay.

Before you consider consolidation, take a look at your lender's other options, including Income Contingent Repayment, extended repayment, graduated repayment, and the brand new Income-Based Repayment. Do the math, and see which of these might make the most sense for you.

Don't be in a hurry to consolidate – that's just one of several options available to you, and it will prove to be a very costly one.

Good luck to you – graduation's not far away!

golfingjake says:

That's the 64 million dollar question. A consolidated loan pays off your existing student loans with variable interest rates and makes a new jumbo loan with a fixed rate.

Of course, the monthly payment for a consolidated loan will be lower, but you can also lower your current loan payments to cover interest for the first two or four years and still pay them off in 10 years instead of 30 with a consolidated.

Honestly, unless you are consolidating because you have multiple locations where you loans are serviced, I would hold off on consolidating until absolutely necessary.

The reason are deferments and forbearance. You only have 36 months of financial deferments available per loan. You only have 60 months of forbearance available on each loan. These delay payment if you ever needed some breathing room with payments.
So if you are unable to make payments because you can't find a job or the pay is too low, you can defer payments (and have the government pay the accruing interest on the subsidized loans) until you are able.
Consolidating the loans, you would limit yourself to only 36 months of financial hardship deferment over the 30 year repayment terms, and most consolidated are structured for the government NOT to pay interest while the payments are deferred.

To make my point, unless you are consolidating for the mere convenience of having all your loans in one location for payment, hold off on it until you need it.

The interest rates for student loans are determined July 1 of ever year. If you keep an eye on the rates, you can put your application in to secure the rate for consolidation.