Consolidating Loans

[StilgarMD]

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Hey guys

a few years ago, i recall looking at the federal loan site, and it saying something about interest rates being at a bottom this year. does anyone know what im talking about? i recall saying i'd consolidate loans this year, but i don't know how to do it. any advice would be appreciated.

 

[plauto]

This is the only website you can now used to consolidate.
http://www.loanconsolidation.ed.gov/index.html
Keep in mind a lot has changed since then. Rate is the same as Stafford loans (6.8%). The good thing about consolidating is less paperwork and all your loans (Direct and FFEL loans) would qualify for IBR. Downside? You loose any repayment benefits you might have.

 

[StilgarMD]

...what are repayment benefits?

 

[DrBowtie]

...what are repayment benefits?

They used to be offered maybe 4-5 years ago. Things like 0.5% interest off after 36 payments or last payment is free etc.

 

[StilgarMD]

So if that's not the case anymore is there any reason to not consolidate? Are rates improving anytime soon?

 

[Scorcher31]

I just have the multiple stafford lenders on automatic bill pay so I can keep the borrower benefits. Really all consolidation helps with now is having you make only 1 payment instead of multiple, but with autopay this isn’t a huge concern. The only way to get a better interest rate/consolidation at this point is if you can convince a private bank to loan you the money at a lower rate and you pay off your 6.8% loans. Usually you would need some sort of collateral either your house, or if your parents are willing to take out a second mortgage for you and you pay them back at the lower interest rate.

Keep in mind if you do get it bought out at a lower interest rate by a private bank you likely lose the protection of the federal loans. A private bank probably won't dismiss your loan upon death or disability and someone will be responsible for it and potentially lose a house, where as with a stafford loan the loan its forgiven in these scenarios. Your also have more flexibility with payments and other benefits through a federal loan.

 

[polar403]

I just have the multiple stafford lenders on automatic bill pay so I can keep the borrower benefits. Really all consolidation helps with now is having you make only 1 payment instead of multiple, but with autopay this isn’t a huge concern. The only way to get a better interest rate/consolidation at this point is if you can convince a private bank to loan you the money at a lower rate and you pay off your 6.8% loans. Usually you would need some sort of collateral either your house, or if your parents are willing to take out a second mortgage for you and you pay them back at the lower interest rate.

Keep in mind if you do get it bought out at a lower interest rate by a private bank you likely lose the protection of the federal loans. A private bank probably won't dismiss your loan upon death or disability and someone will be responsible for it and potentially lose a house, where as with a stafford loan the loan its forgiven in these scenarios. Your also have more flexibility with payments and other benefits through a federal loan.

You would want to get a life insurance policy if you go the private route.

 

[Dirt]

Just a heads up (though i'm not sure how you would miss this if eligible) there is currently a special limited time only government consolidation loan which is available through June 30 giving you two different types of consolidation.

Traditional consolidation - Interest rate is weighted average of current loans, 0.25% rate deduction for enrolling in autopay, the terms on all your loans goes to 30 years from whatever they are now (means less monthly payment but > interest paid overall)

Special consolidation - Interest is again weighted average, in addition to 0.25% for autopay there is an additional 0.25% reduction for doing the special consolidation for 0.5% total reduction, the original term of your loans remains unchanged

The benefit of both is that, for those of us with both direct and FFEL loans, if you want any shot at PSLF if it will indeed be around in 10 years you need to do one of these consolidation loans.

 

[plauto]

where did you find info about the special consolidation?

 

[shantster]

where did you find info about the special consolidation?

http://studentaid.ed.gov/PORTALSWebApp/students/english/specialconsolidation.jsp

 

[TMP-SMX]

The other benefit of consolidation is making non direct loans eligible for public service loan forgiveness at 10 years out. (FFEL)

 

[Candlestick Man]

I've read the special direct consolidation stuff a couple of times but I'm still a little confused.

My understanding: there is actually no new "consolidated" loan... the main result is that the FFEL loans serviced by commerical servicers not under the dept. of ed. are placed under servicers contracted to the dept. of ed.

So the end result is that you pay one servicer (fedloans, nelnet etc.) for all your loans.

What I'm not clear about (if I even got the above right), is whether or not FFEL loans that were already serviced by a dept. of ed. servicer would be eligible for PSLF after "special direct consolidation."

I know that in direct consolidation, all FFEL loans are consolidated and everything becomes eligible for PSLF... I want to be sure that after special direct consolidation, FFEL loans that were not actually touched (i.e. the ones already serviced by fedloan etc.) are eligible for PSLF.

any ideas?

 

[Dirt]

I've read the special direct consolidation stuff a couple of times but I'm still a little confused.

My understanding: there is actually no new "consolidated" loan... the main result is that the FFEL loans serviced by commerical servicers not under the dept. of ed. are placed under servicers contracted to the dept. of ed.

So the end result is that you pay one servicer (fedloans, nelnet etc.) for all your loans.

What I'm not clear about (if I even got the above right), is whether or not FFEL loans that were already serviced by a dept. of ed. servicer would be eligible for PSLF after "special direct consolidation."

I know that in direct consolidation, all FFEL loans are consolidated and everything becomes eligible for PSLF... I want to be sure that after special direct consolidation, FFEL loans that were not actually touched (i.e. the ones already serviced by fedloan etc.) are eligible for PSLF.

any ideas?

You are incorrect.

If you consolidate all the loans you consolidate (FFEL regardless of servicer and loans already serviced by fedloan) will be serviced by fed loan.

Currently PSLF only applies for loans serviced by fedloan aka DIRECT loans.

 

[Candlestick Man]

Currently fedloan is servicing all of my direct loans, and some of my FFEL loans.

PSLF only applies to direct loans, however, via the direct consolidation loan you can consolidate both direct and FFEL loans into one direct consolidation loan which is eligilble for PSLF.

My question is about special direct consolidation. Since this method does not merge all prior loans into a new direct loan, I am unsure whether my FFEL loans currently serviced by fedloan will be eligilble for PSLF after special direct consolidation

 

[milehigh]

Does anyone know how long this process takes?? I was told 4-6 weeks by phone. Online up to 90 days???

 

[docmed2012]

I had the exact same question and I was told that at this time, it is not certain if FFEL loans already serviced by DOE would be eligible for PSLF after a special direct consolidation, but they will definitely be eligible under the traditional direct consolidation because everything becomes a direct loan under the traditional. So, if you are thinking about PSLF - the traditional is probably a safer option.

I've read the special direct consolidation stuff a couple of times but I'm still a little confused.

My understanding: there is actually no new "consolidated" loan... the main result is that the FFEL loans serviced by commerical servicers not under the dept. of ed. are placed under servicers contracted to the dept. of ed.

So the end result is that you pay one servicer (fedloans, nelnet etc.) for all your loans.

What I'm not clear about (if I even got the above right), is whether or not FFEL loans that were already serviced by a dept. of ed. servicer would be eligible for PSLF after "special direct consolidation."

I know that in direct consolidation, all FFEL loans are consolidated and everything becomes eligible for PSLF... I want to be sure that after special direct consolidation, FFEL loans that were not actually touched (i.e. the ones already serviced by fedloan etc.) are eligible for PSLF.

any ideas?

 

[Svidrillion]

Under: http://studentaid.ed.gov/PORTALSWebA...solidation.jsp

Eligibility for loan forgiveness under the Public Service Loan Forgiveness (PSLF) Program: By consolidating your commercially-held FFEL loans into a Special Direct Consolidation Loan, those loans become Direct Loans, and as result, are eligible for the PSLF Program if you meet the additional program requirements. Under this program, you may qualify for forgiveness of the remaining balance due on your eligible Direct Loans after you have made 120 qualifying payments on those loans under certain repayment plans while employed full time by certain public service employers.

What about doing a special consolidation and then doing a traditional consolidation on top of that?

 

[JacobMcCandles]

How many of you actually think you'll do PSLF in the end? For those of you consolidating, is that your main motivation to consolidate or the slightly lower interest rate?

I've looked into consolidation, but it seems overrated. Once you consolidate, you cannot pay loans off individually...you have to pay all loans at the same time, regardless of the interest rate.

So if I wanted to pay off the 6.8% interest loan rather than the 1.7%, I wouldn't be able to individualize payments once consolidated. Is this correct?

If so, doesn't this alone make consolidation pointless? If your main motivation is to lower interest rates (rather than PSLF), it doesn't make sense to consolidate if you have different rates on different loans.

I haven't looked at the fine print but I imagine that the interest rates are weighted together so if you have a 6.8% loan and a 1.7% loan, the final interest rate will be somewhere between based on their weighted averages so individualizing payments vs. a new (slightly lower) overall interest rate would be a wash.

 

[JacobMcCandles]

.

 

[TMP-SMX]

Only good thing about consolidation is qualifying a loan for PSLF if it is not a direct loan.

 

[StilgarMD]

so it doesn't avoid interest rate changes or anything?

 

[dpmd]

Consolidation used to be a really good deal because student loans used to have variable rates. Consolidating let you make them fixed (which if you timed it right ended up being pretty damn low) and made the repayment period longer. The benefit once loans became fixed was more for the extended repayment period for people who weren't going to be able to afford bigger payments. Now that there is income based repayment, the main benefit would be simplifying paperwork (so you don't have to apply to four or more different servicers for defements, forbearance, or specialized repayment plans. I am confused how you would have loans at 1.7% and 6.8%, but I was able to keep certain loans separate when I consolidated (I was one of those that had variable rate loans and wanted to keep my super low rates separate from my higher ones for the exact reason stated). If you are able to do that still it might be worth it to save the 0.25% and have fewer servicers to deal with.

 

[dpmd]

I thought everything was fixed now for a few years. But, duh-obviously if you are in a position to be deciding about paying you probably have been taking loans for longer than they have been fixed. I just wasn't thinking right (maybe I thought they made all the old loans fixed too, but they never did that in the past so probably wouldn't start now)