Students taking classes outside on the Clarkson campus

Loan Consolidation

LOAN CONSOLIDATION

Consolidation – A Money Management Tool                                  
 Revised October 2008

INTEREST RATES ANNOUNCED

 
Interest rates on variable Direct (Stafford) Loans(issued through 6/30/06)

Effective July 1, 2008 through June 30, 2009:

Direct (Stafford) Loan (During Deferment or Grace Period):

3.61%

Direct (Stafford) Loan (During Repayment):

4.21%

Plus Loan:

5.01%


Variable interest rate loans use the 91 day T-bill investment rate as of the last auction in May in the calculation. Please note that loans issued July 1, 2006 and later are already fixed rate loans. Consolidation does lock you into a fixed interest rate loan; that rate is the weighted average of your existing loans, rounded up.

Also, in some cases, consolidation allows a borrower a longer repayment period, which results in lower monthly payments, but higher total interest paid.

Some students used a handful of companies that also allowed private loan consolidation.  Some of those companies no longer allow that option.

Interest rates are changing.  It may not be beneficial for you to consolidate your loans immediately following graduation.

Don’t be pressured into consolidating your loans.  Some of the companies who do direct mailings regarding loan consolidation disguise themselves to look like the “Federal Government”.  You can opt out of credit offers by calling 888-567-8688. You can get on the   DO NOT CALL REGISTRY by calling 1-888-382-1222 to get your phone listed so that telemarketers can’t call you. Or online at www.donotcall.gov

As a result of recent congressional action, many companies are dropping out of the federal loan consolidation program; some companies who offered incentives no longer do, and those who do, admit that a very low percentage of borrowers actually earn those benefits. Many of these companies will sell off these loans, or have them serviced by another company, making it confusing for a borrower ready to make payments.

Things to consider when deciding about loan consolidation:

(We cannot make specific recommendations)

If you choose to consolidate with a company other than the Department of Education, consider these questions:

1.  Who will you be making payments to? Will the company service their own loans?  Will they sell these loans to someone else?  Have you checked this company out at the Better Business Bureau website www.bbb.org?

2.  Will you have a grace period?

3.  How many years will your repayment period be?  If they use a 15 year repayment period rather than the standard 10-year, your monthly payment will be less but you will pay more in total interest.

4.  Does the consolidation company offer borrower benefits?  What are they and what percentage of borrowers actually earn these benefits?

5.  Will you still be eligible for deferments and what are they? Will you be eligible for forbearance?

6.  Do you have a Perkins loan?  If you do, you will lose possible cancellation benefits if you consolidate a Perkins loan.

If a student consolidates a Direct Loan with a FFEL lender (any consolidation company other than the Department of Education ) prior to making the first 12 payments on-time, you will be responsible for the up front origination fee rebate of 1.5 %.

Once you consolidate, you will go in repayment within 60 days, so you may want to wait until you’re closer to the end of your grace period, depending on pending interest rate changes.

Once you consolidate, your loan has a fixed percentage rate, and if variable rates decrease, you would not benefit from that decrease. You cannot consolidate again unless you have another Federal loan to add. If you do, they do a weighted average of your existing rates.

Consolidation products for federal loans and private loans have different terms. Private loan consolidation generally is at a variable interest rate, could have an origination fee and no or very limited deferment options.

Direct Loan borrowers considering Loan Consolidation should contact Direct Consolidation Loans at 800-557-7392 to discuss their personal account and learn how consolidation would affect them, personally.  Their website, where you can apply online, is:

www.loanconsolidation.ed.gov


Prepared by Anne Moomey, Clarkson University, SAS                               October 28, 2008