Mutterkuchen

Senior Member
15+ Year Member
Nov 28, 2001
804
3
Omaha
Visit site
Status
For AMDFAO or anyone else in the know. . .

Other than direct federal consolidation is anyone consolidating Stafford loans right now. I have loans that are variable from my 3rd year and want to lock in at the new (presumably) lower rates. I consolidated my first 2 years with THE and my other loans are with Access Group. Neither are consolidating nowadays.

What do you think is going to happen? Will I have some options this fall? Any thought or opinions would be appreciated.
 

AMDFAO

AMDFAO
10+ Year Member
May 31, 2007
117
0
Status
Academic Administration
If you're sub and unsub are in an in-school deferred status you really don't have the option of consolidating until you enter your grace period (I'm thinking you are graduating MD this June-- correct me if I'm off since if you are not, you can't do anything).
If you are in your final year, the rate for next year should be going down on July 1. Timing matters in all this since if you consolidate in the beginning of your grace (after the rate change on July 1 of course) you're in reapyment in 30-45 days.... If you wait until after your grace is over (6 months to the day you stop going to school-- critical date so ask what your last date of attendance is with your FA office), your rate will go up by .6 that day. I would think towards the end of your grace would be best but I encourage you to be realistic about will you do what you need to do when you need to do it... Grace periods are not the be all and end all and the world does not end if you enter repayment.
FFEL Lenders (bank loans money, feds back it) do Federal Consolidations. Direct Lending (from the fed gov directly) does Direct Consolidations and they can be 2 different animals. As the feds cut the special allowance payment (extra payment in addition to what you pay the lender over the length of repayment), Federal Consolidators ran for the hills... The profits dried up as well as their capital.
Did you want to consolidate just the one or all of them? I know the eco hardship defement is not coming back and you could consolidate if your loans are in en eco hardship deferment (or any of the others just not the in-school deferment but I think it would be the repayment rate (.6 higher) and not the in-school/grace rate-- not positive). Once all your loans are consolidated with a Federal Consol you can't go to another FFEL lender but you can always go to Direct. Direct can buy any Federal Consol from any lender since they are the only game in town that has the Income Contingent Repayment Plan with forgiveness after 25 years (nice feature but hopefully one you'll never be using).
Before you make the decision to do one or all, I would encourage you to talk to your FA folks and ask their advice. Be warned: some FA folks decided that consolidation was a "borrowers decision" and has nothing to do with their job (pretty freakin' pitiful if you ask me and I think most of them don't understand it to begin with).
 

DCMDtobe

New Member
10+ Year Member
Jul 3, 2006
78
7
Status
Medical Student
Hey, I just spent a few hours getting my loan info organized and researching the options for consolidation.

Quick question based on the above post:

I have around $200K in student loans: mainly sub and unsub Stafford and Perkins. I consolidated once back in 2005 I believe.

I just graduated from my pricey med school a couple weeks ago.

Looks like loan payments for most of my loans start in June already, though some start in July and some is a few months later.

I was thinking of consolidating now, but looks like it might be worthwhile to make a couple of payments, then consolidate after July 1, when rates go down. Any thoughts there?

Also, any advice on which consolidator to choose?

Thanks!
 

mshheaddoc

Howdy
Moderator Emeritus
15+ Year Member
Apr 24, 2002
43,161
84
Wild west of Mistytown
Status
Most of your loans are fixed anyway (as of July 2006) so it won't be a huge difference in your blended rate. I do not believe fixed rate loans will decrease (was my interpretation, could be wrong, haven't looked into it much). I just consolidated a bunch of debt from last year myself with direct (one of the only ones currently doing consolidations - plus I have my other loans with them now too!).
 

Lauraaa

10+ Year Member
5+ Year Member
Oct 2, 2007
120
0
Status
Fellow [Any Field]
Hello everyone -
I've a very,very specific question on re-consolidation.

Here's the scoop:

I currently have a Consolidated loan of 42700 at 2.875% and a Perkins loan of 5600 at 5%. I just recently graduated. My current lender does not have any borrower benefits. I know of another lender that give a 1% reduction in the principle as well as .25% reduction in the interest rate with automatic payments. I would like to switch to this lender to take advantage of these benefits, but in order to do so I must reconsolidate meaning add my Perkins to the current consolidated loan. Now, becasue my Perkins loans is at 5% my plan right now is to pay 5,590 of the loan and leaving the remaining balance at $10. Then, apply for a re-consolidation. This way the weighted average of the Perkins loans ($10 at 5%) will not make a difference when weighted with my first consolidated loan ($42700 at 2.875%). I feel that this would be a great way to change lenders, take advantage of borrower benefits and re-consolidate without having the interest loan change, but I am worried that there is something else that I am not taking into consideration - in other words it sounds too good to be true. Why on earth would any bank want this loan? Is there a catch? Is there any way at all that I might ruin my already very good interest rate on the loan that I have? In other words - any way the interest on the loan could actually increase? I read that the government round up to an 1/8 of a percent when you consolidate, that is worrisome.

I've read the fine print on the promissory note, called my services, called my lender, emailed my med school's financial counselor, talked to financial counselors at my bank, emailed a couple other servicers to try to see if they had any info on it, and nobody says that it won't work... but I'm still worried. I'm going to call some more people tomorrow but does anyone have any other experience with this that they could share?

Thanks so much....
 

Ooch

10+ Year Member
Mar 12, 2008
44
0
Status
Pre-Medical
When I've looked at consolidation loans, there have been minimums (except for Direct Loans). You've probably already looked at this, but if you haven't it's certainly something to ask about.
 

Lauraaa

10+ Year Member
5+ Year Member
Oct 2, 2007
120
0
Status
Fellow [Any Field]
Yep, there are minimums to the total loan itself but at the end of it the total loan would still be $42,708.70 so it would be above the minimum criteria for consolidated loans.

The biggest fear I have is the rounding of the interest when they are calculating the new interest. When they calculate the weighted average, and then round that average UP to the nearest 1/8 of a percent (unless you are exactly at an exact 1/8 of a percent like 0.125, 0.250, 0.375, etc). Well, when you make a weighted average of a loan at 2.875% with ANY other loan that has an interest higher than that, no matter how small that loan at the higher percentage is, it WILL increase the weighted average if you carry out the trailing numbers far enough. Even if I consolidated my loans after paying off the Perkins down to just $1 remaining, it would look like this:

$42707.7 (my first consolidated loan) X 2.875% (my loan's rate) = 1227.846375

$1 (the Perkins loan) X 5% = 0.05

1227. 846375 + .05 = 1227.896375

42707.7 + 1 = 42708.7

1227. 846375 / 42708.7 = 0.028750497557


So, the weighted average would be 2.8750497557 % - so it comes down to how far are they going to carry out the numbers on their calculator when they are figuring out this new rate. Would they round up to 3%? I talked to my servicers on the phone (Great Lakes) who said they use the same calculator on their website to calculate rates, but I have to say - who's to know if they don't carry out the numbers further? Plus, they have you sign the promissory note before even seeing what they new rate will be, and if it's approved then you are locked into that rate and can't get out. I have to say, I don't think I'm going to apply for it because I would be ticked if I was raised from 2.75% to 3% just to get a hold of a 1% reduction in principle balance and the possibility of a .25% interest rate reduction because if that loan got sold the borrower benefits will likely cease to exist and there is no gaurantee that the loan won't be sold. Then I would stuck with a 3% loan when I could have just been happy with the 2.875% loan. I'll probably stick with the 2.875% loan and just count my blessings that it's that low and not get in a huff that I don't have borrower benefits.
 

mshheaddoc

Howdy
Moderator Emeritus
15+ Year Member
Apr 24, 2002
43,161
84
Wild west of Mistytown
Status
Also sometimes perkin loans can be forgiven (one of my husband's lenders let us know about this) so we kept it separate. Usually they round to the nearest one hundreth (at least my loans did). You can always ask.
 

AMDFAO

AMDFAO
10+ Year Member
May 31, 2007
117
0
Status
Academic Administration
If you take your current $5,600 at 5% and your $47,200 at 2.875 and calculate the weighted average you should wind up with a consolidated rate of 3.125%. If you take them separately in a 10 year repayment, your monthly would be $469.26 for 10 years. If you did them together at a 3.125% your monthly payment would be about $468.18. What you should be gathering is that you are pretty much in the same place over 10 years. Most of my kids want to keep their 2.875's out of the 5%'s etc like you but I would encourage you to do the math yourself and see if it really makes a difference in the long run and rethink the strategy of paying it all off provided it's federally backed (alternative loans are a very different beast). I'm not sure why other FA folks can't stress the risk (or lack thereof) on these loans and groom you all to "pay it off quick, it accrues interest etc" but that's all you hear. Every dollar accrues interest if borrowed or nets interest if invested, but not every loan has: unlimited deferment or forbearance, income contingent repayment, automatic death and total disability forgiveness. I should also mention that a Perkins in a consol loan would be unsub and thus the interest accruing is now yours so waiting until you will not be elgible to defer it makes sense but don't take that as a "never add it" premise since nothing is cut and dry in consolidating and if the rate for the consol is low enough, the extra interest accrued over the short period of time may still be less than if it sat out there and was paid back at 5%.
Let's say you owe $50,000 in a mortgage at 8.5% and your federal ed loan at 9.5%. Your first impulse (totally normal by the way) would be to pay the 9.5% first since it is costing you more. If you understand the risk of the mortgage which really is: you owe us so pay and if you are in arrears for 90 days, we want all $50,000 now (we foreclose). Oops, you can't do that since you were out of work for 2 months; we don't care. Now we get to sell your house out from under you since you can't pay us our $50,000 today. There is no "why" in lending: we at the mortgage company, car company, big screen TV company don't care why you can't pay us, just that you can't. The only loan type that cares "why" is federal ed lending.
Your federal education loan in the same situation would go more like this: you know you will be behind on the payments having been out of work for a month and call and request a forbearance since you have the intent to pay but not the ability. I grant you the forbearance and charge you the interest over the 3 months but more importantly: I don't ruin your life.
All that said, I'd be whacking my money on the mortgage and dragging out the fed loans with way less risk.
Perkins loans do have forgiveness which is largely centered around you going into teaching which you're pretty unlikely to do so consider what the forgiveness options really are and guage if they will ever apply to you and let that be factored in your decision whether to consolidate them or not. As for consolidation in general: not all repayment options are created equal and let's be perfectly honest about the fact that banks are in it to make money and not to help poor kids go to school (again, I'm also not sure why my colleagues believe the latter but they do...). Keeping the risk model in mind from above, let's say your repayment incentive is 1% off the rate after 36 payments. Does your monthly payment go own so you get the full 30 years or does the monthly stay the same and now you pay it over 22 years so it's "like the rate was 8.5%?" Would you rather have the longer repayment on the debt with the little to no risk factor? Maybe that means more than the 1% savings and thus enables you to take the extra money to put into the riskier debt...
I will repeat that alternative/private loans do not have the same options as federal education loans and discourage any of my kids from getting into those unless their backs were against the wall from day 1. The rates are low so they look attractive but the risk should discourage you from borrowing these types. If my alt loan was 6.5 and my fed was 7.5 I'd be paying off the alt loan that has an iron clad "you can only forbear for a total of 2 years throughout the term of the loan" you agreed to in the contract so if you burned through it already with residency etc, you're stuck later on if tragedy occurs. Sadly, I be amazed if anyone bothered to point this out to you but feel free to share.
 

plauto

10+ Year Member
7+ Year Member
Sep 16, 2007
1,056
4
Status
Attending Physician
If you take your current $5,600 at 5% and your $47,200 at 2.875 and calculate the weighted average you should wind up with a consolidated rate of 3.125%. If you take them separately in a 10 year repayment, your monthly would be $469.26 for 10 years. If you did them together at a 3.125% your monthly payment would be about $468.18. What you should be gathering is that you are pretty much in the same place over 10 years. Most of my kids want to keep their 2.875's out of the 5%'s etc like you but I would encourage you to do the math yourself and see if it really makes a difference in the long run and rethink the strategy of paying it all off provided it's federally backed (alternative loans are a very different beast). I'm not sure why other FA folks can't stress the risk (or lack thereof) on these loans and groom you all to "pay it off quick, it accrues interest etc" but that's all you hear. Every dollar accrues interest if borrowed or nets interest if invested, but not every loan has: unlimited deferment or forbearance, income contingent repayment, automatic death and total disability forgiveness. I should also mention that a Perkins in a consol loan would be unsub and thus the interest accruing is now yours so waiting until you will not be elgible to defer it makes sense but don't take that as a "never add it" premise since nothing is cut and dry in consolidating and if the rate for the consol is low enough, the extra interest accrued over the short period of time may still be less than if it sat out there and was paid back at 5%.
Let's say you owe $50,000 in a mortgage at 8.5% and your federal ed loan at 9.5%. Your first impulse (totally normal by the way) would be to pay the 9.5% first since it is costing you more. If you understand the risk of the mortgage which really is: you owe us so pay and if you are in arrears for 90 days, we want all $50,000 now (we foreclose). Oops, you can't do that since you were out of work for 2 months; we don't care. Now we get to sell your house out from under you since you can't pay us our $50,000 today. There is no "why" in lending: we at the mortgage company, car company, big screen TV company don't care why you can't pay us, just that you can't. The only loan type that cares "why" is federal ed lending.
Your federal education loan in the same situation would go more like this: you know you will be behind on the payments having been out of work for a month and call and request a forbearance since you have the intent to pay but not the ability. I grant you the forbearance and charge you the interest over the 3 months but more importantly: I don't ruin your life.
All that said, I'd be whacking my money on the mortgage and dragging out the fed loans with way less risk.
Perkins loans do have forgiveness which is largely centered around you going into teaching which you're pretty unlikely to do so consider what the forgiveness options really are and guage if they will ever apply to you and let that be factored in your decision whether to consolidate them or not. As for consolidation in general: not all repayment options are created equal and let's be perfectly honest about the fact that banks are in it to make money and not to help poor kids go to school (again, I'm also not sure why my colleagues believe the latter but they do...). Keeping the risk model in mind from above, let's say your repayment incentive is 1% off the rate after 36 payments. Does your monthly payment go own so you get the full 30 years or does the monthly stay the same and now you pay it over 22 years so it's "like the rate was 8.5%?" Would you rather have the longer repayment on the debt with the little to no risk factor? Maybe that means more than the 1% savings and thus enables you to take the extra money to put into the riskier debt...
I will repeat that alternative/private loans do not have the same options as federal education loans and discourage any of my kids from getting into those unless their backs were against the wall from day 1. The rates are low so they look attractive but the risk should discourage you from borrowing these types. If my alt loan was 6.5 and my fed was 7.5 I'd be paying off the alt loan that has an iron clad "you can only forbear for a total of 2 years throughout the term of the loan" you agreed to in the contract so if you burned through it already with residency etc, you're stuck later on if tragedy occurs. Sadly, I be amazed if anyone bothered to point this out to you but feel free to share.
thanks for your always insightful and intelligent posts!