Loan consolidation

[Southern Hick]

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I'm all set to get the ball rolling with my loan consolidation at Sallie Mae...
--They'll let me lock in on the low rates on my Stafford loans (a weighted avg on the interest rates of all loans dating back to college).
--immediate 1/4% rate discount for electronic automatic payments
--1% reduction after 48 straight on-time repayments
--1% cash back or credit to consolidated loan balance after 33 on-time payments

...but before I go though it all with Sallie Mae, I was just wondering if anyone has encountered better deals from other finance providers? I've heard about some places offering 5% reduction of loan balances, etc...

thanks!

 

[ttusom04]

I've not heard of a 5% reduction, but I believe if the consolidation was/is done after 2003 then it's only 36 months of on time payments before you get the 1% discount. All the more reason to mortgage your student loans for 30 years. Get a low payment that you can make in residency and you will start to get the discount either when residency ends or close to ending. And you can always pay more if you want later.

 

[DireWolf]

Should you start to consolidate student loans after graduation or after residency? I won't be making enough in residency to pay back loans, so I'll probably defer. Just wondering if you can still consolidate after graduation.

 

[Seaglass]

You can consolidate at any time. You have an automatic 6 month grace period after graduation where your loans remain subsidized and interest uncapitalized. If you consolidate the subsidized portion of the loan remains subsidized during deferment.

You do not have to begin repayment after consolidation, you have the same deferment options as before consolidation. Almost all residents will qualify for financial hardship deferment. This is calculated based on a 10 year repayment schedule REGARDLESS OF WHAT YOUR ACTUAL REPAYMENT SCHEDULE IS. So if you consolidate for 30 years, your financial hardship deferment is calculated as if you were paying over 10.

The ideal scenario is to use your grace period and then consolidate & defer (max 6 months grace, 36 months deferment) or just defer. If you consolidate right after graduation you will lose out on 6 months of subsidization/non-capitalization/lower interest rates.

C

 

[joedogma]

Interest rates are near historic lows right now. I would recommend consolidating soon. The new rates will be coming out soon (June I think) so if you want this rate you should consolidate now. Since it is an election year, I would bet that the rates won't change much until June 2005 (this is speculation not based on fact) so you could probably wait another year. Look around for different plans, some have graduated payment systems meaning you pay less a month in the beginning and more per month later...If you are concerned about not having enough money during residency maybe a plan like that is for you. If you defer payment through residency that loan is gonna snowball, better to start paying something as soon as you can afford it...

 

[Seaglass]

Greenspan has said that rates won't change for about a year. The current forcast is for stafford rates to drop slightly in June. Joe is correct - better to pay ASAP, however you don't have to.

C

 

[Southern Hick]

thanks everyone....really helpful info here!


ok...i'm reading through all this stuff from Sallie Mae and it appears that even if I consolidate right after graduation (like in May or June '04), I still have my 6 months of grace period if I wish--I just need to ask for it.

What I'm still unclear is...can I still either defer or declare for financial hardship AFTER consolidating/locking in at the current rates? Or do I just declare for financial hardship right off the bat (does this mean that I'll essentially maintain "in-school" status for a set period of time)?

thanks

 

[Kalel]

Yup, I'd wait for June before you decide if you are going to consolidate. If the rates go down or remain the same, you will be better off waiting to consolidate later during your 6 month grace period. Just be sure to consolidate before your grace period expires though, as the interest rate increases as soon as you enter your repayment period by ~1% automatically. I've heard that most consolidation firms that don't solicite you in the mail are approximately the same too, because consolidating services have to follow the same federal laws that governed the original loan. Just be wary about firms which you've never heard of offering deals that sound "too good to be true", there are some fraudulent companies out there that look for federal student loan owners.

 

[Seaglass]

ok...i'm reading through all this stuff from Sallie Mae and it appears that even if I consolidate right after graduation (like in May or June '04), I still have my 6 months of grace period if I wish--I just need to ask for it.

If you are getting your grace period then you haven't actually consolidated. By federal law the grace period ends when the consolidation happens. You can apply for consolidation and tell them not to actually do it until your grace period is about to expire (like Kalel says). You can defer after consolidating like I described above.

C

 

[southerndoc]

Originally posted by cg1155
If you are getting your grace period then you haven't actually consolidated. By federal law the grace period ends when the consolidation happens. You can apply for consolidation and tell them not to actually do it until your grace period is about to expire (like Kalel says). You can defer after consolidating like I described above.

I was also told you lose your grace period after consolidation (and there's no way around this according to an AAMC financial aid rep).

Since all I have ever borrowed are federal funds and loans from my school, I'm obligated to consolidate with the Department of Education. Does anyone have any experience with their consolidation terms? Any perks (reduced interest rates with so many payments, extending the economic hardship period ("refreshing" it), etc.)?

 

[MDEntropy]

This is an outstanding discussion.

I particularly appreciate the point from CG who noted that deferment is based on a 10 year pmt schedule even if your amortization is 30 years. I certainly didn't know this and had been hesitating to consolidate because I wanted to remain qualified for economic hardship. I feared losing this qualification given the lower payments based on consolidation. I have yet to verify cg's statement.

I talked to one of my many lenders (Direct Loans) who like lots of lenders does consolidation. I was told that not only do the same deferrment rules apply after consolidation but that the 36 month max for hardship deferment resets with consolidation, and at the time of consolidation you are given a fresh 36 months. Furthermore, if you consolidate while in deferment you get the same lower in-school interest rate on your loans that you get if you consolidate within 6 months of graduating. The point about interest rates likely remaining stable until 7/05 ( a point I completely agree with) has led me to believe that I will consolidate just before this time and have a fresh 36 months for deferment that can be used up to the first half of 2008, if need be, and I will still lock in rates at all time lows for the life of my student loan repayment period.

 

[dr.smurf]

what about private loans in addition to federal loans? how does this work?

 

[jay dub]

Originally posted by Kalel
Yup, I'd wait for June before you decide if you are going to consolidate. If the rates go down or remain the same, you will be better off waiting to consolidate later during your 6 month grace period.

While the official rates will be changing as of July 1 (I think), you can actually find out what those new rates WILL BE in April or possibly May. That will give you time to initiate consolidation and lock in the current low rate, that is assuming rates are going up this summer. If the new rates are stable or even lower (which is too much to hope for) then you could wait until in your grace period and get a couple of 'free' months (it really seems a shame to waste a grace period, doesn't it??). That's my understanding of all the financial mumbo jumbo. It's just nice to know we don't have to wait until it's already too late to do anything about it to see the new rates...

 

[southerndoc]

Originally posted by jay dub
While the official rates will be changing as of July 1 (I think), you can actually find out what those new rates WILL BE in April or possibly May. That will give you time to initiate consolidation and lock in the current low rate, that is assuming rates are going up this summer. If the new rates are stable or even lower (which is too much to hope for) then you could wait until in your grace period and get a couple of 'free' months (it really seems a shame to waste a grace period, doesn't it??). That's my understanding of all the financial mumbo jumbo. It's just nice to know we don't have to wait until it's already too late to do anything about it to see the new rates...

According to the AAMC financial aid rep that talked to our school, the interest rate is determined by the 90-day T-bill rate at the end of May (5/31) + 1.7 points for in school/grace/deferment and + 2.3 points for forbearance/repayment.

The rate will take effect July 1.

 

[DoctorDoom]

Originally posted by Southern Hick
What I'm still unclear is...can I still either defer or declare for financial hardship AFTER consolidating/locking in at the current rates? Or do I just declare for financial hardship right off the bat (does this mean that I'll essentially maintain "in-school" status for a set period of time)?

You can definitely defer or declare hardship after consolidation. Post-consolidation interest rates apply. Don't declare or defer right away as some deferments are for a limited total duration.

Private loans could not be consolidated with federal loans as the laws governing those loans are different. Federal loans are consolidated with federal loans and private loans will have to be consolidated together. I chose to consolidate federal loans and paid off all of my private loans in one lump sum.

 

[Southern Hick]

wow! learning a lot from you folks! thanks!

I called up a sallie mae medloans rep and she basically said everything already mentioned here. i'll just add the following because i learned something new:

I was told to wait until first wk of June to call back for consolidation. by then, we will know if rates are going to stay the same or go down (either one, it won't go up). again, in either case, she told me that i should wait until towards the end of the grace period to get the consolidation process started, as some of you had mentioned.

you can "defer" for up to 60 months (time period varies, an agreement you strike with your lender), can do this after consolidation, but if you have unsubsidized stafford loans, the interest will continue to accrue. subsidized loans will remain subsidized.

you can "forbear" your loans also after consolidation...also the time period varies, up to 60 months, and depends on agreement with your lender. interest on both subsidized and unsubsidized loans will continue to accrue.

the sallie mae rep was nice enough to calculate the rates for me (you need to know the amount of each loan you have and the current rates they're at). for the amount of debt i have (i can buy a loaded hummer), the rate comes out to be 3.125%. In 4 yrs, it'll become 2.125%. After 33 consecutive on-time payments (during the 34th month), i will get a lump sum 1% cash back (1% of the original consolidated balance).

2.125%?!?! good enough for me!

 

[axm397]

I think this was on another thread but it is relevant to this discussion. Here's a website where you can figure out if you would qualify for economic hardship deferment.

http://www.northstar.org/Consolidation/Calculators.aspx

I'm not pushing one company over another but T.H.E. has a monthly "Bonus" of 0.75% which starts immediately after starting repayment.

Sallie Mae has better percentage - 1% but it doesn't start until 36months or more of ontime payment. the T.H.E. rep who came to out school said that T.H.E. will suspend the bonus if you are late but as soon as you catch up, they will re-start the bonus again.

 

[MariaG]

is consolidation credit dependent?

 

[MariaG]

and what is T.H.E short for?

 

[axm397]

T.H.E is Total Higher Education - I don't know about loan consolidation and credit. As far as I know, they take your 10-40 or some form of proof of income when you apply for deferment. I dont' know if they check your credit for consolidation.

I think you can only consolidate federal loans at T.H.E. you'd have to find a private consolidation for the private loans. The only thing is that the Perkins loans will start accruing interest even with an economic hardship deferment with consolidation. Depending on the amount, may be worth it to keep it separate.

Anyways, take full advantage of your grace period. I took 6mo off in the middle of med school and my Perkins loans gave me my grace period all over again but stafford did not. Call your lender to get details about your loan and try to take care of errors now before you apply for consolidation, etc. I found out my lender is missing two substantial payments from their record although they clearly cashed the check. I'm now in the process of arguing with them to get the situation fixed. So make sure all the numbers add up. I got three different total loan amounts from my med school financial aid office, the university financial aid office, and the lender.

 

[MDEntropy]

Originally posted by cg1155


Almost all residents will qualify for financial hardship deferment. This is calculated based on a 10 year repayment schedule REGARDLESS OF WHAT YOUR ACTUAL REPAYMENT SCHEDULE IS. So if you consolidate for 30 years, your financial hardship deferment is calculated as if you were paying over 10.


C

Can you cite your source please cg1155?

Thanks

 

[Seaglass]

My source is the lady in charge of consolidation at THE (total higher education, my lender) and the people at my school's financial aid office. The same info has been posted here on other threads in the Financial Aid forum.

C

 

[frog4brooke]

I really recommend the AAMC's website:

http://www.aamc.org/students/medloans/consolidation/start.htm

There are a few criteria for deferment:

1-Total monthly loan payments on federal loans amortized over 10yrs must equal or exceed 20% of their gross monthly income

2-Gross monthly income - total monthly loan payments must be lass then 2,298.

Now, from my understanding occasionally consolidation can make throw some one out of deferment b/c of criteria #1-(Not totally sure b/c my loans are way too big to do this)

If this happens you can still go into forbearance, this is not quite as nice because interest accrues and may be capitalized on and the interest rate increases 0.6%.

Consolidation (the basics):

There should NEVER be origination fees, application fees, prepayment penalty or credit checks (this is gov't mandated)

Lock in a fixed rate (these change 7/1) The AAMC listserv will be letting people know the predicted rates in June.

The end of deferment or Grace period is the time to think about consolidating-Allows you to lock in the lower rate that you are getting during these periods. Also, as mentioned before with some lenders you can reapply for 36 more months of deferment.

Good Luck!
f4b

 

[Seaglass]

Now, from my understanding occasionally consolidation can make throw some one out of deferment b/c of criteria #1-(Not totally sure b/c my loans are way too big to do this)

No NO NO!!! Your deferment options are based on a 10 year repayment schedule REGARDLESS OF WHAT YOUR ACTUAL REPAYMENT SCHEDULE IS!!! I HAVE THIS ON THE AUTHORITY OF GOD HIM/HERSELF! Well not really, but almost as good. Well not as good as the Pope or Jesse Jackson, but you get the idea. Anyway, don't let deferment fears scare you away from consolidation, it won't affect your options. Consolidate for the lowest monthly payment schedule possible, you can always change it later.

C

 

[Mad Dog]

Regarding the 10 year schedule for determining hardship deferment eligibility (regardless of actual amortization): this is clearly stated on the federal Economic Hardship Deferment Request form (Jesse Jackson notwithstanding). This is available from your lender and on the web.

Regarding waiting until June for the new rates: you can track these rates yourself to see how they are trending, if you feel so motivated. They are listed at http://wwws.publicdebt.treas.gov/AI/OFBills. All student loan rates are based on the 91-Day T-Bill, which had a rate of 1.12% last year, and has fallen slightly since then. So things are looking favorable now if these rates are able to hold out for another 8 weeks.

Cheers
md

 

[frog4brooke]

Originally posted by cg1155
No NO NO!!! Your deferment options are based on a 10 year repayment schedule REGARDLESS OF WHAT YOUR ACTUAL REPAYMENT SCHEDULE IS!!! I HAVE THIS ON THE AUTHORITY OF GOD HIM/HERSELF! Well not really, but almost as good. Well not as good as the Pope or Jesse Jackson, but you get the idea. Anyway, don't let deferment fears scare you away from consolidation, it won't affect your options. Consolidate for the lowest monthly payment schedule possible, you can always change it later.

C

First of all-Try and be nice.

Secondly, at my exit interview with the AAMC rep (Paula Craw), she warned us that one of the potential disadvantages of loan consolidation is "Potential loss or grace, deferment and loan forgiveness options." So, while I know that this will not happen with my loan amount and lender at this point in school, I do not know if it applies to others with less debt and a different lender at a different point in their education.

Lastly-I mentioned the criteria for deferment. Here is a link to the worksheet. People can run the #'s to be sure they qualify.
http://www.aamc.org/students/medloans/debtmanagement/economichardship04.pdf

What this means is that people need to be sure that they are reading what they are signing-not all lenders are exactally the same.

F4B

 

[Seaglass]

Actually, with regards to federal loan consolidation, all lenders are required BY LAW to be the same, with the exception of perks offerred to get you to consolidate with them. Deferment options and loan terms must be the same lender to lender.

I had no intention to be rude, I've just said the same thing like 50 times and people keep giving incorrect information. It was not directed at you personally or at anyone individually for that matter.

C

 

[freelancewriter]

I used to work in college admissions and financial aid, so this thread fascinates me.

The federal government has largely standardized the consolidation field, but there are differences in perks. Even something like reduced interest rates varies from company to company in terms of amount (% interest rate decrease), when (time period before this kicks in) and how to qualify (electronic withdrawal of payments, for example). At least the neverending stream of consolidation junk mail that I receive implies this.

Also consider whether or not your loan will be sold. Although it's minor, it can be a hassle to adjust to sending payments to a new address. Some suggest that small companies are more likely to sell your loan, though there is no guarantee that a large company won't sell it, either.

Here's two links in addition to the other links already posted:

EXCELLENT loan consolidation primer:
http://www.aamc.org/students/medloans/loanconsolidation/primer.htm

The federal government's student guide to financial aid re: consolidation loans:
studentaid.ed.gov/students/publications/student_guide/2003_2004/english/
types-consolidation.htm (There is a 2004-2005 version, but last I checked it was still only in PDF format.)