Loan Consolidation and Paid Residencies...

[OMFS2B]

I graduate from dental school this summer and start a 4-yr paid residency in July. Does anyone know how loan consolidation works when you are only getting enough money for food and housing? Can you still get subsidized loans throughout your residency? I've heard some say it would be better to consolidate through the federal government than a consolidation company. What do you think?

Thanks

---

Members don't see this ad.

 

[DcS]

Do a search this has been discussed recently. If any of this is wrong please correct me.

From what I understand, I'm pretty sure once you consolidate your dental school loans you can't defer paying them once you are in a residency. It is still better to consolidate now because everything I've been told says the interest rate on federal loans will jump considerably this summer. They set the new rates in July 1st so once you graduate you better consolidate quickly. Recently a Harvard MBA came to our school (UNC) and spoke to us regarding student loans...this is where I got this info. Go to the website www.graduateleverage.com. Basically it's a non-profit group set up by these Harvard MBAs made up of dental, medical, pharm students etc (those of us with heavy student debt). In any case, since the membership of that group is high they use it as leverage to get the best rates with companies as far as consolidation.

Now regarding consolidating with a govt program or private...you can get great rates w/ private but you have to be very careful. A lot of times there is a lot of fine print. Don't be fooled by companies offering zero fees...there never should be when consolidating. Look for discounts that can drop your interest rate over time. There are 2 common discounts...one is offered when you enroll in the lender's automatic bill payment program...the other is a reward for a certain number of on-time payments. Like I said read the fine print..some lenders will only offer benefits if you have a certain amount of debt. Others won't give you the benefits if you consolidate during your grace period (which if you do right after school, like you should, you will be in). Another thing is this...there has been a significant rise in the number of consolidation programs in the US since new rules were loosened by the government in 1998. Because of this, many smaller companies may buy your loans and then sell them off to another company. This is another thing to avoid. All of these things can be asked by you of your lender. Go to www.finaid.org to research and compare lenders.

Here are a few great questions you need to ask of your lenders:

1. What are your borrower benefits? What % of your borrowers actually earn the borrower's benefits (I listed some above)? This is a good idea to see if they are even reachable.

2. Ask their history regarding selling of loans.

3. Will they lock the rate when they receive your application or when it's processed. This is very important. Like I said, the rate now is at an all time low. It will certainly go up significantly July 1st. Now this is why it's important. Say you apply May 15th to get this years rate when you consolidate. Some companies may hold your app and not process it until June, to screw you with the higher rate.


This information was all gleamed by having a representative from www.graduateleverage.com speak to our school. Actually our ASDA reps got them to come. It was by far one of the most informative and most organized lectures I have ever been to. If you go to their site it will have some short videos but not as much in depth as they went in person.


I hope this helped, let me know if I can help you at all.

 

[DcS]

From graduate leverage:


Eight Misleading Tactics Marketed by Consolidators

We compiled this list from actual customer feedback on our website. We hope it will increase your awareness of some of the marketing games consolidators play:

1. You must apply by this deadline
There are no deadlines in the Federal Consolidation Loan program. You can apply for the loan at any time during your grace period or during repayment (including during approved deferment and forbearance periods).

2. Falsely representing themselves as part of the US Government
While federal loan consolidation is a government program, some fly-by-night marketing firms are attempting to portray themselves as the government in an effort to establish credibility (something they desperately lack). They use many tactics to achieve this, including displaying the Department of Education seal and falsely claiming to be part of the "Ford" Program. The bottom line is that only the William D. Ford Direct Program offers consolidation through the government, and chances are they won’t be marketing to you.

3. Issue the Final Notice
This is a great one. They’re only attempting to create a sense of urgency, and the worst part is it’s never the final notice - they’ll surely follow up with many more mail pieces and telemarketing.

4. Important information about YOUR student loans enclosed
Students have been complaining that consolidators are attempting to mislead borrowers into thinking they are being contacted by their lender, or there is an issue with their loans. The consolidators hope is that you will contact them to inquire about your existing loans. You need to be sure that it is not your lender, but once you are, you will save time and hassle by not responding.

5. We offer no fee for consolidation!
Well that’s great, but so does everyone else in the industry, and given that Uncle Sam requires there to be no fee, I don’t think you can call it an offer.

6. Demonstrate monthly payment savings based off an 8.25% interest rate
Some send a marketing piece that shows the savings you would realize by consolidating. The problem is they compare today’s consolidation rate with a hypothetical 8.25% Stafford loan. This rate is not current given that recent loan repayment rates are at 3.37% today.

7. Our plan has no pre-payment penalty
Again this is another attempt to market an aspect of the program as unique when it’s actually standardized by the government. No federal consolidation loans incur penalty for pre-payment.

8. "Offer" borrower benefits for interest rate reductions
While some lenders do offer legitimate savings in terms of a 1% reduction for timely payments, many consolidators offer these incentives with fine print. Some require that you already have your loans through the lender or disqualify loans consolidated during grace period (often the best time to do it).

 

[DcS]

Consolidation 101 - the basics on the Federal Consolidation Program.
For a more detailed review of the program please see our flash presentations.

Background on the program - why does this program exist?

The consolidation program has been in place since 1986 when congress enacted the Federal Consolidation Loan Program in an effort to reduce default rates. Federal (Stafford) loans are limited to 5 to 10 year terms, so by increasing the term limits to 15 to 30 years the program is able to lower students’ monthly payments. The legislators decided that the loan would change from a variable rate to a fixed rate - essentially allowing students to refinance their loans once. So while the original intent of the program was to target students at risk for default, the recent interest rate decline has helped other students as well.

How does Consolidation Work?

Federal Consolidation allows borrowers to combine one or more federal education loan and lower their monthly payments. The program also locks in current rates by switching the loan from variable to a fixed rate. The drop in monthly payments is due to the extension of the period of the loan, and this process does increase interest costs over time. There are no pre-payment penalties however, so borrowers may pay down their loan early if they so choose. Once the application process is complete, the original loans are paid-in-full, and a new loan for the combined balance is issued with new terms. The interest rate is calculated as the weighted average interest rate of the loans being consolidated, rounded up to the nearest 1/8 of a percent.

Why Should I Consolidate?

There are two primary reasons why consolidation offers a compelling opportunity today. The primary reason is rates are at their lowest point in the program’s history and consolidation allows you to lock-in these rates. Borrowers who lock-in today’s rates won’t be subject to future rate increases.

The second reason consolidation is attractive is because it can lower your monthly payment by extending the term of your loan. This can help create room in your budget to pay down more expensive debt or other personal items. The monthly payment decrease can also improve your credit profile by improving your debt to income ratio. If you are apply for a mortgage you will want to ensure that your broker is aware of this monthly payment decrease.

Another benefit worth highlighting is consolidation allows you to pay all your federal loans with one payment.

Who consolidates loans?

While the government sets federal guidelines on the program, two types of lenders offer the program:

* William D. Ford Direct Student Loan Program (Direct) – offered by the US Dept of Education
* Federal Family Education Loan Program (FFELP) - offered through private lenders

The two consolidation programs are identical with the exception of a few subtle differences. One key difference is that Direct Consolidation may be done while a student is still in school, while a FFELP must be done after graduation. To take advantage of Direct Consolidation you need to have at least one Direct loan or be attending a Direct school. A list of Direct Lending Schools can be found at: http://www.ed.gov/offices/OSFAP/DirectLoan/schools/schoolin.html

An issue unique to the FFELP Program is the Single Lender Rule. This states that if a borrower has all his or her federal loans from one FFEL lender then this lender has right of first refusal for consolidation. If this is the case you will be instructed to contact your current FFELP lender for consolidation.

For students who will not graduate this year, the Direct Program offers in-school consolidation. This permits students to consolidate their loans this year, locking in rates prior to the probable rate increase this July 1st. Another difference between the programs is borrower benefits. The Direct Program is offered by the government (DOE), and they offer minimal borrower benefits. Some participants in the FFEL Program however have elected to offer borrower benefits as a marketing incentive to consolidate. The benefits typically take the form of an interest rate reduction (after timely payments) or a reduction to the loan’s principal.

The only other differentiator is customer service. We have obtained a great deal of feedback through the site and the FFEL Program has faired better than the Direct Program. The FFELP call center representatives are said to be more knowledgeable and many of them are open seven days a week.

Note on borrower benefits: All FFELP lenders offering interest rate incentives include a disclosure statement that says something like "we reserve the right to modify or discontinue borrower benefit programs at any time". We contacted several FFELP lenders and were told that loans consolidated prior to the termination or change of these programs will not be affected by such changes.

When Should I Consolidate?

This can be tricky. The Stafford loan program announces new rates every July 1st. The current rate is 3.37% for recent Stafford loans in repayment. Upon consolidation, the rate is rounded up to the nearest 1/8%. This allows you to lock-in a 3.375% rate.

By consolidating during your grace period, however, you lock-in a 0.6% reduction, lowering the rate to 2.875%.

Competition among lenders has introduced incentives which can lower your rate to 1.625% or lower. While this rate yields a compelling discount to your student loans, it’s important to know that you cannot miss or be late on a monthly payment in order to retain the benefit.

Rates have declined for the past four years, but this may be the first year that rates increase. Therefore the optimal timing depends on the Treasury bill rates in May/June. If rates increase, you will lock in a lower rate by consolidating prior to July 1st. If rates continue to decline however, you will receive a lower rate if you wait until after July 1, but before your grace period ends.

This time-sensitivity is one of the reasons Graduate Leverage established our Personalized Reservation System which allows students to decide on the most opportune time to consolidate based on the information.

Does Consolidation have risks or drawbacks?

The short answer to this is no. There are no fees or prepayment penalties with a consolidation loan. In the case that you didn’t need the lower payment afforded by consolidation, you could just continue making the same monthly payment and payoff your loans over the same timeframe. The real risk in consolidation is that you lock-in too high of a rate. This was the case for many who consolidated in the past four years (before rates reached current lows). Other things to consider are:

* Spousal Consolidation Loans:
o Since July 1st, 2003, spousal consolidation loans are eligible for partial discharge benefits if one of the borrowers dies and may be eligible for partial discharge if one of the borrowers becomes totally and permanently disabled. If one spouse dies, the portion of the consolidation loan attributable to that borrower is eligible for discharge. The surviving borrower, however, will remain responsible for repaying the remaining balance of the Consolidation Loan. If one of the spouses becomes totally and permanently disabled, the portion of the Consolidation balance attributable to that borrower is eligible for discharge. Both spouses remain responsible for paying the remaining balance of the consolidation loan.
* Perkins Loans:
o Perkins loans deserve special consideration because they have different deferment and grace subsidy treatment and allow for cancellation under certain circumstances. You may be eligible for partial cancellation of a percentage of the original principal balance of your Perkins (NDSL) loans if you complete at least one year of a service in the following fields: Teaching, Law Enforcement, Military, Volunteer Service (Peace Corps/VISTA), Nursing and Medical Technicians and Child and Family Services.

 

[DcS]

# Be Aware of Aggressive marketing. Many consolidators will:

* Falsely represent themselves as part of the US government or your lender
* Impose false deadlines "You MUST apply by this deadline"
* Attempt to create sense of urgency by issuing the "FINAL NOTICE"


# Carefully research, compare, and select the optimal lender:

* Ask: Do you sell your loans historically?
* Ask: Will you lock my rate when my application is received or processed?
* Ask: What are your borrower benefits?
* Ask: Does deferment eliminate my borrower benefits?
* Ask: What percentage of your borrowers earn all their borrower benefits?
* Ask: If I earn my rate reduction, will my payment be reduced?
* Ask: Technical questions to determine customer service aptitude.


# Consolidate in your grace period for 0.6% interest rate reduction

# Base timing of consolidation on the last 91-day T-bill auction in May. If rates increase (most likely), consolidate before July 1st. If rates decrease or remain at 2.875%, consolidate after July 1st but before the end of your grace period.

# Consider excluding fixed rate debt at higher rates. You will lower your debt cost if you exclude previously consolidated loans or fixed rate loans at higher rates and retire them early.

# Consider not consolidating Perkins Loans. If applying for deferment consider not consolidating Perkins Loans until after the deferment to maintain subsidy

* Rate is already fixed at a higher rate
* You will lose deferment subsidy if included in FFEL consolidation
* Perkins loan forgiveness eligibility is forgone


# Add private loans to consolidation application. They cannot be consolidated, but can be used to extend your payback period (which is based on total educational debt).

# Manage debt portfolio to minimize overall costs and maximize credit profile:

* Graduated payment plan allows for
* Consider private loan consolidation to improve debt to income ratio
* If financing a home, make sure broker understands payment terms


# If not graduating in ’05, assess eligibility for in school consolidation.

 

[UFOMS]

DcS,

a rep from Graduate leverage came to my school (UF)....guy gave a really convincing and compelling lecture.....what do you think of his (their) company? I'm just weary about loan consolidation sharks. The dean of admissions told me yesterday that they by-passed our financial aid office and gave their lecture in the evening without the backing of our financial aid office. Otherwise, I thought it was an awesome lecture.

 

[1-16-17-32]

DcS, did you read the question that UFOMS asked? You wrote a lot of stuff, but I dont think you answered the question. I am not positive, but I think a lot depends on whether you are considered a student or not by the program you are in. If you are not considered a student (the fact that you are being paid is of no consequence) then you will not be able to defer your current loans, or take out more loans. If you are considered a student, you might be able to take out some more loans, and even if you consolidated your loans, several lenders will recognize you as a full time student and allow you to defer your current loans.

 

[DcS]

I plan on doing a residency as well and from everything I have read/learned etc I will be able to defer my loans once in a residency unless I consolidate them. If I consolidate and have to pay those loans I will use my stipend to pay the minimum each month.


UFOMS....Regarding Graduate Leverage, I think they are very trustworty. They are not a "company" they are purely non-profit. The idea makes sense...they take the students burdened by the most debt (dental, med, law), and with increased membership use it as leverage to compete for better consolidation rates. Personally for me, I'm lucky that the lender for UNC is College Foundation...it is actually backed by the state of NC and when I consolidate I will do it through them because their rates can't be beat. However, if I could not use them I would definitely consider going through graduate leverage. It is a non-profit organization...they use money from the few lenders they pick to fund their lectures that we went to . That's the only thing they use the money for. The whole origin of their group makes sense...a whole bunch of very smart MBAs who knew nothing about their student debt and researched it to death. I too was blown away by their presentation.

In the end the best thing to do is to look at the lenders they have used their leverage and compare the rates/benefits etc to those you can get outside the group.

 

[DcS]

From my understanding regarding residencies:

If your program is a school based program, you will most likely be able to get federal loans again (unsubsidized) like you probably did in undergrad. Also you can easily get "in-school deferment".

If you go to a hospital program it is a little more difficult. Most times you can't claim "in-school deferment". What you can do is this...you can claim "economic hardship" based on the amount of your debt. It's a sliding scale. Here is an example...

Assume you are in a residency with a 40K stipend. To claim economic hardship while making 34 grand you have to have more than 60K in student debt. To claim economic hardship if you make 40g stipend you must have over 110k in student debt. In our example, say you have a 40K stipend but only have 80K in debt. You would NOT qualify for economic hardship. However, what you would need to do is say put 4K into an IRA to max it out and say another 4K into a 401k. That brings your taxable income down to 32K and qualifies you for economic hardship (with the ultimate goal then being able to defer till you are done).

Make sense?

As far as getting federal loans for a hospital based program, I am not too sure. I will email the guy from graduate leverage and get back to you.

 

[texas_dds]

i too saw the GL program at my school - excellent
for anyone who can find out, please help me w/the following:
my situation is sticky - the amount of time between graduation and my new residency is just at one month. (may 21-June20) will that be enough time to consolidate at the pre-july 1 rate? as i understand it, you cannot consolidate once you enter 'in school status' again
also, i may be screwed on the single lender rule cause all my dental debt is w/sallie mae EXCEPT a 2K Perkins loan. I know if I had more time, I could fenagle my Perkins so that I could get out from Sallie Mae (and w/GL's lender) but I am afraid my time frame is so tight that it would be impossible to try to do this
i assumed deferment would be an option w/consolidation loans, is this not universally true? i better call sallie mae huh
and one more thing - i am getting no stipend and will be paying out of state tuition. BUT i heard there is a $18.5K cap/per year for federal loans in residency - is this TRUE????? if so I am tanked.

 

[DcS]

i too saw the GL program at my school - excellent
for anyone who can find out, please help me w/the following:
my situation is sticky - the amount of time between graduation and my new residency is just at one month. (may 21-June20) will that be enough time to consolidate at the pre-july 1 rate? as i understand it, you cannot consolidate once you enter 'in school status' again
also, i may be screwed on the single lender rule cause all my dental debt is w/sallie mae EXCEPT a 2K Perkins loan. I know if I had more time, I could fenagle my Perkins so that I could get out from Sallie Mae (and w/GL's lender) but I am afraid my time frame is so tight that it would be impossible to try to do this
i assumed deferment would be an option w/consolidation loans, is this not universally true? i better call sallie mae huh
and one more thing - i am getting no stipend and will be paying out of state tuition. BUT i heard there is a $18.5K cap/per year for federal loans in residency - is this TRUE????? if so I am tanked.

Ok, according to the GL presentation, they strongly advised NOT consolidating your Perkins loans with your Staffords. The reason is that the perkins loans are at a fixed interest rate when you graduate, but the staffords are variable. So assuming you will not consolidate them together, you are correct...you fall under the single lender rule. For those not familiar, if all of your loans come from the same lender (as in this case, Sallie Mae), you cannot consolidate with another company. It makes sense if you think about it....why should a company front you money if they will not be able to make money on the interest in the end from you. So you will have to consolidate the staffords w/ sallie mae.

Things will be tight with you but you have plenty of time. This is what I suggest you do. You are graduating in May I assume. The 3 month t-bill auction is bid on during May, so basically you will know what next year's interest rate will be a month ahead of time. (goes into effect July 1st fyi). For those interested, the interest rates are the T-bill auction rate + 1.7%. Right now, the T-bill is at 1.07% so the federal rate on staffords is 1.77%....simple enough. During May, read the Wall St Journal to find out the t-bill for 2005. I will post it here when I see it. Then decide...but I can almost guarantee it will be higher.

So you are in a GREAT spot. I'm assuming you are starting the residency July 1st. That leaves you with the entire month of June to consolidate at this years rate. In addition, since you are in your 6 month grace period, you will get a .6% reduction as well. Because the Perkins has no reduction in the grace period there is no benefit towards consolidating it now. The key with you is that a lot of companies will not "process" your loan until July 1st even if they get it in June....to screw you into a higher rate. Make sure they will process it in June.

Also, more important advice for those graduating in 2005. I hear a lot of people saying they will pay the max loans right away to take care of them. You are losing money that way. For the class of 2005, if you consolidate over a 30 year period with a 2.7% rate (just threw those numbers out), think of it like this. Your minimum say is 250 a month, but you want to pay 1000 a month to erase the debt quicker. The best thing to do is just pay the 250 and invest the other 750. Because you guys have such a low interest rate on your loans, you can easily get a 5% return on investing the 750 dollars. That return is much more than the interest that accrues on your student debt......you make much much more money in the end. Does this make sense...if now I can throw out more numbers.

Let me know if you have any other questions.

 

[1-16-17-32]

Actually, some of the big lenders (such as Sallie Mae and Access group) will still grant you your grace period even if you consolidate before July 1. As long as they received your application before July 1, they will give you the old rates. They do this by not processing your consolidation until just before your grace period is up, but they still give you the pre-July 1 rates. The tricky part is if you are going to be considered a student again in July - because if they wait to consolidate your loans until after you start residency, you might be considered a full time stuent and no longer eligable for loan consolidation. There is a trick to get around this - and it involves forgiving your grace period as soon as you hit grace, and then consolidating. Some of the big lenders will still give you your grace.