STUDENT LOANS - CONSOLIDATION LOANS
Through the Federal Consolidation Loan Program, you may be able to
consolidate your outstanding education loans into one new loan.
Consolidation loans are not for everyone. Before choosing loan
consolidation, review all your options to be sure it'st the right choice
for you.
ADVANTAGES
The benefits of loan consolidation include:
-
Lower monthly payments - Reduce
your overall monthly payments and lower your debt-to-income ratio.
-
Single monthly payment - submit
only one payment per month instead of making two or more payments
with different due dates.
-
Fixed interest rate - With
historically low interest rates you can lock in at a low, fixed
interest rate during your repayment term (if you consolidate during
your grace period, your interest rate could be even lower).
-
Zero cost / zero obligation to apply
- There are no costs associated with a Consolidation loan
application and no credit check is required.
DISADVANTAGES
-
Increased interest costs
- Understand that consolidating your sutdent loans simply extends
the repayment term, which means that you will pay more
interest over the life of your loan. You may ultimately pay 30 to 40
percent more interest on your loans.
-
Higher interest rate -
The interest rate on your Consolidation loan my be slightly higher
than the current interest rates on your student loans. The
interest rate is determined by the "weighted average" of all the
loans you are consolidating, rounded up to the nearest 1/8th percent
or a maximum or 8.25 percent, whichever is less.
-
Fixed interest rate -
Your federal Consolidation interest rate is fixed, meaning you will
not benefit from future declines in interest rates. (NOTE:
Current rules do not allow reconsolidation.)
-
Possible loss or change in
benefits - Your old loans will be combined into one new loan
with a new set of benefits that may include different deferment and
forbearance options. Be sure to check with your lender first!
-
Possible loss of loan
forgiveness - Unlike Stafford and Perkins loan debt,
Consolidation loan debt cannot be forgiven if the loans being
consolidated were made before October 1, 1998.
HOW TO AVOID TROUBLE
New consolidation companies seem
to be popping up overnight and many provide good service, however some
may not be able to provide the service you need or want. It is
always good to know your lender and their reputation.
Always ask, "what's the catch?"
If it sounds too good to be true, then it probably is. Check with
your school financial aid office about the experience of other borrowers
with particular loan consolidators. Your school maintains a list
of preferred lenders - reputable banks and servicers that have
tried-and-true experience working with education loans.
You should not only review the
advantages and disadvantages of a Consolidation loan, but also talk to
your lender about the following:
WHO IS ELIGIBLE FOR LOAN CONSOLIDATION
To be eligible for loan consolidation under
the Federal Family Education Loan Program (FFELP) you must agree to the
terms and conditions listed on the Application and Promissory Note,
which include:
-
You are not enrolled in school, or you
are enrolled on a less than half-time basis.
-
You are in the "grace period" or
already in repayment on EACH loan you choose to consolidate.
-
If you are in DEFAULT, you must either
make satisfactory repayment arrangements with your current lender or
agree to repay the consolidating lender under an income-sensitive
repayment plan.
Spousal Consolidation
Married couples may consolidate their
individual student loans. However, you would only be eligible for
a deferment or loan cancellation on your Federal Consolidation loan if
both you and your spouse meet the eligibility criteria. As with
any complex financial decision, it is advisable to weigh all your
options before you choose loan consolidation.
WHAT LOANS MAY BE CONSOLIDATED
Most federal student loans may be
consolidated. Private / alternative loans from banks, schools, or
family cannot be consolidated.
The following loans may be consolidated:
-
Federal Family Education Loan Program (FFELP)
loans (Stafford, PLUS, Consolidation and/or SLS)
-
Federal Direct Loan Program (FDLP)
loans (Stafford, PLUS and/or Consolidation)
-
Federal Perkins loans (these are made
through the school - formerly National Direct Studetn Loans [NDSL])
-
Federally Insured Student Loans (FISL)
-
Auxillary Loans to Assist Students
(ALAS)
-
Health Professions Student Loans (HPSL)
including Loans for DIsadvantaged Students (LDS)
-
Nursing Student Loans (NSL)
-
Health Education Assistance Loans
(HEAL)
*All information provided by Michigan
Guaranty Agency
HOW TO APPLY FOR A CONSOLIDATION LOAN
Contact your loan holder for application
information and more detailed information on your consolidation options.
Not sure who holds your student loans? You
can find information on your student loans online with the National
Student Clearinghouse - Loan Locator service at
www.studentclearinghouse.org
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