NELA Loan Consolidation

Confused About Loan Consolidation?

Applying for a Federal Student Consolidation Loan is applying for a new loan to pay off your existing eligible student loans. Historically, borrowers would consolidate if they had many different loans with many different lenders or loan holders. In these situations, consolidation helped simplify the repayment process. Instead of sending loan payments to multiple places, the borrower could make one payment to one lender for all of their loans.

What It Does Now

More recently, historically low interest rates have compelled borrowers to consider a Federal Consolidation Loan. This type of loan has several new terms and conditions, such as a fixed interest rate based on the weighted average of all loans being consolidated.

But, as with most things in life, consolidation choices aren't black or white. For some people it may be a great idea, for others, not so great. It's an individual decision that you'll want to think about carefully and research thoroughly since it has long-term implications. We'll give you some tips and considerations before you decide if consolidation is right or wrong for you.

How It Works

Your student loans are paid off by the consolidating lender. A new loan that consolidates all of your individual loans is issued. You receive a new repayment schedule based on the size of your education loan debt, the loan interest rate and the repayment plan chosen. Your Consolidation Loan interest rate is based on the weighted average of the loans you are consolidating rounded up to 1/8 of a percent. Your interest rate can never exceed 8.25%.

Interest Rate

If you consolidate your loans, you'll be locking in a fixed interest rate for the life of the loan.

While a low-fixed interest rate may be a compelling reason to consolidate, this may not hold true for all your loans.

Loan Forgiveness Options

Some students can qualify for having some if not all of their loans forgiven. A great example of this is the Perkins Loan program that offers loan forgiveness for working in certain fields after graduation. If you go into social work, nursing or another qualified field, you may be able to get part or all of your Perkins Loan forgiven! Also, Stafford Loans have a forgiveness plan for teaching in a shortage area. Check out www.studentaid.ed.gov for a complete list of qualifications for loan forgiveness.

Remember that a Federal Consolidation Loan is a new loan. If you consolidate your Perkins Loan and later qualify for forgiveness, you won't be able to get it. The Perkins Loan will no longer exist since it was paid off by the consolidation loan, and the consolidation loan doesn't have forgiveness provisions!

A better option is to not consolidate loans with forgiveness provisions. Perkins Loans already have a 5% fixed interest rate, so it's not going to rise. In the future, if you don't qualify for forgiveness on the loans, or still have a balance on the Perkins remaining after maximum forgiveness, you can reconsolidate your Perkins with the existing Federal Consolidation Loan.

Repayment Terms

One thing that borrowers notice after consolidating is that the payment amount drops considerably. Many assume that the payment amount has dropped because the interest rate is lower but that's not the only reason.

The payment amount typically drops because the repayment term on the consolidation loan usually has been extended. Since you may be going from a 10-year repayment period to a 12-, 15-, 20- or even a 30-year repayment period, you can anticipate a big reduction in your month-to-month payment.

This may be a good thing, especially for borrowers who are looking at fairly high payments for a 10-year period. Simply by consolidating, you lengthen the term and lower your payments. For some people, it makes their student loan payments affordable rather than a burden.

However, since you are stretching out the term, you'll pay more in interest for your loan in the long run. Consolidation Loans don't carry a prepayment penalty. So if the programs offers you a lower fixed rate, you could pay off your loan in 15 years rather than 30 and avoid the interest costs that would come with a 30 year repayment period.

Final Thoughts

Loan consolidation isn't a one-size-fits-all option. There are lots of things to think about and consider before jumping into consolidation. Don't feel rushed into anything! You can always consolidate, but you may feel the pressure to lock into today's lower interest rates.

You can always ask NELA for help. Call us at 800.979.4441 or e-mail loaninfo@nela.net.

Links: http://www.nela.net

Need a college student loan? A Guide for Students

Need money for school but have no idea where to begin?

Private loans, also called "alternative student loans" or "private college loans," are one great way to pay for college. To save the most money over your lifetime, here's how you should look for money for college:

1. Look for Scholarships and Grants
2. Apply for federal aid by completing the FAFSA.
   • It's a FREE U.S. government website, so beware of sites that charge you to apply!
3. Apply for aid through your state government
4. Use your federal and state grants
   • You'll know if you're eligible after you complete the FAFSA and your state's paperwork
5. Use your savings
6. Use work-study money or work a little through school
   • It's easy to get distracted by work - find the right balance for studying
   • A college degree can earn you an additional million dollars over your lifetime – make sure you don't lose track of your goals!
7. Borrow Federal Loans for students. The most common federal student loan is the Stafford Loan.
   • Graduates students should also apply for a Grad PLUS Loan
8. Ask your parents to borrow a PLUS Loan for you
9. Private college loans

What's a private loan?

A private college loan is not backed by the federal government, so it's more like a traditional consumer loan. There's less paperwork and it's faster to apply and to get your money to your school, but the rates and terms on federal loans are likely to save you more money over your lifetime. Also, with a private college loan, you will probably need a co-borrower who is willing to sign for the loan with you, if you aren't working or don't have much experience with credit so you have a limited credit history.

Why a private loan?

If you need to borrow money, federal student loans are a great deal. The problem: with loan amounts tied to your year in school, most times they don't let you borrow to cover your cost of attendance. The typical undergraduate student is eligible for:

• $5,500 Freshman
• $6,500 Sophomore
• $7,500 Junior, Senior and 5th year undergraduate students

So, if still need money for school, that's where a private student loan can help!

Why the CLC^® Premier Loan?

It's fast and easy to apply for College Loan Corporation's CLC Premier Loan:

• Prequalify instantly
• Borrow up to your full cost of attendance, minus any other financial aid that you've already received
• No payments required until six months after graduation or dropping below half-time enrollment
• Help from experts available
• Winner of the Better Business Bureau's 2006 Torch Award for Marketplace Ethics

Ref: http://www.collegeloan.com/private-student-loans/college-student-loans/

Should I consolidate my college loans or not?

1. Still in school, yes! Rates are low, but they're scheduled to go up. Your college loan payments will then remain as manageable as possible when you leave school. If you have graduated, or will be graduating this May or June, yes! Graduates can lock in historical low rates, and reduce their monthly payments more than half. You can lock in a rate even while still in school, and even if you have been out of school for a couple of years can get a good deal, too.

2. The newest twist in the consolidation puzzle is the "in school consolidation", affecting students who are currently enrolled and will be enrolled past the July 1 consolidation. You can consolidate your existing college loans now to secure the low rates for at least part of their student loan portfolio.

3. Consolidating could save thousands of dollars in interest payments on college loans. There are impending student loan rate changes and new interpretation of regulations by the Department of Education, also, Congress is considering ending the fixed-rate program. Experts are urging students to consolidate to relieve themselves of a higher debt load.

4. Many students and families are looking for a simple, clear answer about whether to consolidate college loans or not. The simple answer is to take some of the bite out of the debt by loan consolidation. You could live like a miser and save as much money as possible or consolidate your federal student loans now.

5. For students still in school, you have an opportunity to choose consolidation. Consolidating would put a college loan borrower into repayment status, but the student can defer payments until after graduation by making a deferment request. Consolidating today can have payments put off until graduation.

6. The federal loan program allows consolidation, which is when a borrower pools his student debts together so that only one monthly payment is necessary, rather than several. It's not just the convenience of one payment that is making consolidation so compelling. The most significant aspect of the program is that it allows a person to permanently lock in a lower interest rate on loans. These loans are backed by, or granted directly by, the federal government.

7. Rates for federal Stafford loans, the most prevalent type of student loan, as well as some other types of federal student loans are set annually based on the rate of 91-day U.S. Treasury bills at the end of May. The exact rate won't be known until the end of the month, but experts say it will be about 2 percentage points higher. (Private loans and federal loans cannot be consolidated together.)

8. For the first time, the U.S. Department of Education will allow students still in school to consolidate federally backed loans. Federal PLUS loans can also be consolidated. PLUS loans are used to help pay the cost higher education.

9. Students, regardless of enrollment, should absolutely consolidate their college loans, arranged through the student's lender. There are no fees, no credit checks, and interest rates are expected to move higher. Those are good reasons to consolidate.

10. Act quickly to put lock on current federal-aid interest rates. Graduates should act now to insulate themselves from a drastic rate change. Apply early. Do not wait until the last minute to file paperwork. Those who have already graduated or left school should not wait to investigate consolidation. In the first six months after graduation, you are in a grace period. Within that six-month window, you can lock in a low rate on Stafford loans and spread the repayment over as long as 30 years.

If you're going to consolidate, now is the best time to do it.

Georgio Heberto is dedicated to offering news, articles, and instruction on financing college education. You have a definite choice in how you finance your education and beyond. Visit http://www.atopeducation.com for more information.

Ref: http://kollegeloans.com/article.cfm/id/33665

Federal student loan consolidation

Student loans in the U.S.
Regulatory framework
Higher Education Act of 1965 US Dept of Education FAFSA Cost of attendance
Distribution channels
Federal Direct Student Loan Program FFELP
Loan products
Perkins · Stafford PLUS · Consolidation Loans Private student loan

In the United States both the Federal Family Education Loan Program (FFELP) and the Federal Direct Student Loan Program (FDLP) include consolidation loans that allow students to consolidate Stafford Loans, PLUS Loans, and Federal Perkins Loans into one single debt. This results in reduced monthly repayments and a longer term for the loan. Unlike the other loans, consolidation loans have a fixed interest rate for the life of the loan.

Interest rates and payments

Consolidation loans have longer terms than other loans. Debtors can choose terms of 10–30 years. Although the monthly repayments are lower, the total amount paid over the term of the loan is higher than would be paid with other loans. The fixed interest rate is calculated as the weighted average of the interest rates of the loans being consolidated, assigning relative weights according to the amounts borrowed, rounded up to the nearest 0.125%, and capped at 8.25%. Some features of the original consolidated loans, such as postgraduation grace periods and special forgiveness circumstances, are not carried over into the consolidation loan, and consolidation loans are not universally suitable for all debtors.

History

The Federal Loan Consolidation Program was created in 1986. In 1998, the United States Congress changed the interest rate to the aforementioned fixed rate weighted mean, effective February 1, 1999. Consolidation loans taken out before that date had a variable interest rate, determined by the individual FDLP loan origination center (e.g., in the case of a university, that university) or FFELP lender (e.g., a third party bank).

In 2005, the Government Accountability Office considered consolidating consolidation loans so that they were exclusively managed through the FDLP. Based on several assumptions about future variations in interest rates, the loan volume, the percentage of defaulters, cost estimates from the United States Department of Education, it concluded that while doing so would incur an additional cost of $46 million, caused by the higher administrative costs of the FDLP compared to the FFELP, this would be offset by a $3,100 million saving comprised in part of avoiding $2,500 million in subsidy costs.

Consolidation loan lenders

Top consolidation lenders ranked by total FY 2006 consolidation loan originations

Lender name	# of loans	Amt of loans ($)
Federal Direct Student Loan Program	1,169,110	$19,197,268,873
Sallie Mae	866,295	$19,841,423,841
Citibank	232,126	$4,843,119,089
Nelnet	198,624	$4,796,065,812
NextStudent	89,284	$3,320,024,025
JP Morgan Chase	115,777	$2,668,451,098
Goal Financial, LLC	111,426	$2,494,856,673
College Loan Corporation	75,360	$2,245,128,826
AES/PHEAA	166,730	$2,037,618,548
Student Loan Xpress	114,790	$1,880,997,383
Wachovia Education Finance	80,174	$1,674,979,763

^{SOURCE: Stafford (FFEL & Direct) and PLUS (FFEL & Direct) Loans, from the National Student Loan Data System (NSLDS), US Department of Education, Fiscal Year 2006.}

References

1. ^ ^{a b} "GAO-06-195 Highlights, STUDENT CONSOLIDATION LOANS: Potential Effects of Making Fiscal Year 2006 Consolidation Loans Exclusively through the Direct Loan Program" (PDF). U.S. Government Accountability Office (2005-12-01).
2. ^ ^{a b} "Frequently Asked Questions About Consolidation Loans". Washington State University Office of Student Financial Aid (2006-06-09).
3. ^ ^{a b c} Potier, Beth (2004-02-05). "Amid the hype, opportunity lurks for students with loans.", Harvard Gazette.
4. ^ "Types of Student Aid: Consolidation Loans". Student Guide 2001–2002. United States Department of Education.

Further reading

• Teresa Boldt (2005-06-03). "FFELP Consolidation for Students Enrolled or In-Grace: A How-To Guide for Financial Aid Administrators" (PDF). National Student Loan Program.
• Burd, Stephen (2005-08-05). "House Committee Approves Bill to Extend Higher Education Act."", Chronicle of Higher Education.
• "Federal Loan Consolidation". Pepperdine University School of Law (2006).
• "Federal Loan Consolidation". Northwestern University Office of Undergraduate Financial Aid (2006).

External links

• Fact sheet from the Federal Student Aid site

Ref: http://en.wikipedia.org/wiki/Federal_student_loan_consolidation

Is Student Loan Debt Consolidation for You?

Student loan debt consolidation is right for you if it can lessen your debt burden by reducing interest rates and the number of creditors.

If you've been paying back your student loan debt but find it difficult to set aside some amount of money for other debts there are ways to reduce to your debt load. You can consolidate your student loans or refinance the student loans. There are two main benefits of student loan consolidation.

By consolidating student loan debt you can reduce the interest rates, which means reducing your monthly payments and overall debt. In addition, you only need to deal with one creditor, which will help you track your payments or renegotiate your loan for some reason in an easy way.

Different Types of Student Loans

There are two different types of student loans: federal and private. Federal student loans, such as Stafford Loans, are administered through Federal Student Aids programs. These loans offer benefits such as lower interest rates, tax deductible's interest, and deferred payments until after graduation. They can also be easier to consolidate after graduation.

Private student loans are offered by commercial lenders or banks, such as Sallie Mae Signature students or Citibank student loans. These loans are usually unsecured and charge higher interest rates than their federal counterparts. You can take these personal loans if the federal loans cannot cover the total costs of your study.

So, it's important to not consolidate federal and private loans together. Consolidate all your federal student loans first, and then separately consolidate your private loans. If you were to mix the public and private loans you would have to take out a single private loan that loses all the benefits of the federal loans.

Student Loan Debt Consolidation Steps

If you want to make a student loan debt consolidation you need to check your eligibility to the loan. To be eligible for the consolidation loan you

• have to be out of school,
• must be in the grace period of the loan, or must already be making repayments.

If you have taken both federal and private student loans, you should never consider consolidating them into a single package. Federal loans can be refinanced at lower rates because they have government backing. In case you have more than one federal loan you can consolidate all the loans together.

Once you solve them you can then head for the private ones. This way can save you money because you can keep all the benefits of the federal loans.

Ref: http://www.debtfirms.com/student-loan-debt-consolidation.html