Repay Student Loans

By Michael Wai W

Article by: Sarah Russell

If you’ve recently graduated from college, you’ve probably been bombarded with mailings and advertisements urging you to refinance (or consolidate) your student loans right away. But wait, what is loan consolidation? And why should you do it?

If you’ve just graduated from college, you’ve probably got a number of different student loans, all in different amounts from different lenders at different interest rates. Loan consolidators (which can be private banks, lenders or government agencies) pay off all your individual loans in exchange for a single loan in the same amount issued to you. So now instead of all those different loans, you’ve got one loan that you repay to the consolidator.

Refinancing your student loans reduces your monthly payments and locks in a fixed interest rate. In most cases, student loans have variable interest rates set a few points below prime. As interest rates go up, so will the interest rate on your loans. When you refinance your loans, you lock in an interest rate based on the current market conditions that will be set for the life of your loan. Therefore, it’s important to evaluate the market before making the decision to consolidate. Right now, interest rates are low, but they’re going up and most economists predict that they’ll continue to go up for awhile. So for many people, this is a good time to refinance.

Your credit history will also determine your eligibility for loan consolidation programs. Loan consolidators can be picky in who they accept for their programs, so the option to refinance is usually only available to individuals who have established good credit by paying their loans back on time. If you’ve missed payments or made payments consistently late, you may not be offered the best terms, if you’re accepted at all. If your application is denied the first time, call the consolidator and talk to a loan officer about the reason for your rejection. The officer may offer you advice on how to qualify for their program at a later date.

If you decide to refinance, be sure to consolidate federal loans and private loans separately from each other. When you consolidate your loans, you’re typically offered a rate that’s 1-2% lower than the average rate of your loans. Federal student loans often carry much lower interest rates than private loans, so consolidating them together can bring up the average interest rate of your loans and leave you with a higher fixed rate locked in. If you only have one private loan, it may not make a difference, but it’s important to assess your options before committing to refinance.

Is there anyone who shouldn’t consolidate? Let’s look at a scenario. Tracy has 2 loans for $5,000 each that are scheduled to be paid off within 5 years. She can afford to make her monthly payments but wants to see if she can save a little extra cash each month by consolidating. She finds out that she can refinance the loans into a $10,000 consolidation loan to lower her monthly payments and she’ll be eligible to extend her payments over 8 years. But because she’s extended the life of her loans, she’ll be paying interest over a longer period of time and may wind up paying more overall than if she had kept her loans as they were.

It is tempting to pay less per month but if you can afford to pay off your loans in a shorter period of time, then you’ll likely save money on interest in the long run. Obviously every situation is different and you won’t find all your answers in a short article like this. But if you think loan consolidation might be right for you, check out the Student Loan Network’s site at Studentloanconsolidator.com for more information or speak with a loan officer or financial planner to see what your options are.

About The Author

This article was published by Sarah Russell on Smart Young Money – a collection of money management resources for teens and young adults. For great information on using credit, managing debt and more for young people, visit http://www.smartyoungmoney.com.

Article by Roger Guzman, M.D.

Private student loan consolidation cannot be generally mixed with federal student loans due to the low interest rate on the latter. However, there are several options open to refinance the private student loans by replacing them with another.

The main advantage of doing this is that instead of making several monthly payments, only a single payment is made every month that may be reduced although this will cost one in terms of higher interest amount paid because the single loan may be for a longer period of time.

There is a way to secure a lower interest rate. The private student loan is based on the credit score. If the credit score has improved by 50 to 100 points due to the fact that you have graduated and have a job, then you will be rewarded with a low interest rate.

Another way of getting a better deal when considering a private student loan consolidation is to talk to the holders of your debts. They may be willing to negotiate with you and cut down your interest rate so that they can keep you as their customer.

This type of loan also incurs the same interest that the home equity loan has. You can have a home equity loan at a fixed rate, thus locking in the low interest rate. However sometimes a variable rate looks attractive as long as you can watch it and lock it the moment it is on an upward trend.

Study carefully the terms of the agreement. Find out if the interest rate is variable or fixed. Ask also about fees and if there are prepayment penalties. Find out how much they are for each of the following lenders. Write them down so you can get the best deal from among the following list and whatever other companies willing to do the private student consolidation loan with you:

Key Education Consolidation Loan – $75,000 maximum for non-key debt, $7500 minimum, 10, 15, 30 year repayment term, no prepayment penalty and no fees

Citi Student Loans – $75,000 maximum, $7500 minimum, choose fixed or variable rate, up to 30 year term rate, rate reduction after 48 monthly on time payments, no prepayment penalty

Study carefully the terms of the agreement. Find out if the interest rate is variable or fixed. Ask also about fees and if there are prepayment penalties. Find out how much they are for each of the following lenders. Write them down so you can get the best deal from among the following list and whatever other companies willing to do the private student consolidation loan with you:

Key Education Consolidation Loan – $75,000 maximum for non-key debt, $7500 minimum, 10, 15, 30 year repayment term, no prepayment penalty and no fees

Citi Student Loans – $75,000 maximum, $7500 minimum, choose fixed or variable rate, up to 30 year term rate, rate reduction after 48 monthly on time payments, no prepayment penalty

Study carefully the terms of the agreement. Find out if the interest rate is variable or fixed. Ask also about fees and if there are prepayment penalties. Find out how much they are for each of the following lenders. Write them down so you can get the best deal from among the following list and whatever other companies willing to do the private student consolidation loan with you:

Key Education Consolidation Loan – $75,000 maximum for non-key debt, $7500 minimum, 10, 15, 30 year repayment term, no prepayment penalty and no fees

Citi Student Loans – $75,000 maximum, $7500 minimum, choose fixed or variable rate, up to 30 year term rate, rate reduction after 48 monthly on time payments, no prepayment penalty

Educated Borrower Private Consolidation Loan – $300,000 maximum, $7500 minimum, up to 30 year repayment term, no prepayment penalty and 0 to 5% origination fees

Sallie Mae Private Consolidation Loan – $275,000 maximum, $5000 minimum, 15 to 30 year repayment term, choose between fixed and variable rate, no prepayment penalty and no fees

SC Student Loan – PAL Consolidation Loan – $150,000 maximum, $5000 minimum, 10 to 30 year repayment term, choose between fixed and variable rate, no prepayment penalty and no fees

Next Student Private Consolidation Loan – $300,000 maximum, $7500 minimum, up to 30 year repayment term, no prepayment penalty and 0 to 5% origination fees

Make sure when you are considering to go this route that you clarify all the terms of the agreement as the above may have changed and that all are put in writing and signed by both parties. The best one is the one that fits your needs. There you have some of the possible lenders and the other options when considering to do the private student loan consolidation.

About The Author
Brief Biography: Dr. Guzman worked for the Atlantic Health Corporation and was consultant to St. Joseph’s Hospital, Sussex Mental Health Clinic, and St. Stephen Mental Health Clinic for many years. He was Director of Forensic Psychiatry at Centracare for ten years and published numerous articles, including financial ones in the Journal of the American College of Forensic Psychiatry and other medical magazines.

Copyright © May 28, 2009 Roger Guzman, M.D. (Private Student Loan Consolidation, Is There a Best One?) All Rights Reserved. You may copy and publish this article as long as the text, the author’s name, the active links and this notice remain the same. http://www.debtchallenges.com/

The Direct Consolidation Loan Program offers four repayment plans with various term selections:

• Standard Repayment Plan – Under this plan, you will pay a fixed amount of at least $50 each month for up to 10 to 30 years, based on your total education indebtedness. This plan may result in lower total interest paid when compared to repayment under one of the graduated plans.If you have not selected a repayment plan by the time repayment begins, your loan(s) will be placed on the Standard Repayment Plan.
• Graduated Repayment Plan – Under this plan, you will pay a minimum payment amount at least equal to the amount of interest accrued monthly for up to 10 to 30 years, based on your total education indebtedness. Your payments start out low, and then increase every two years. Generally, the amount you will repay over the term of your loan will be higher under the Consolidation Graduated Repayment Plan than under the Consolidation Standard Repayment Plan. This plan may be beneficial if your income is low now but is likely to steadily increase.
• Extended Repayment Plan – To qualify for this plan, your Direct Loan balance must be greater than $30,000, and you will have up to 25 years to repay your loan(s). Plan options include:
  • Fixed Monthly Payment Option – You will pay a fixed amount of at least $50 each month for up to 25 years. Repayment under this plan will result in lower total interest paid when compared to graduated plans with similar terms.
  • Graduated Monthly Payment Option – You will pay a minimum payment amount of at least $50 or the amount of interest accrued monthly, whichever is greater, for up to 25 years. Your payments start out low and then increase every two years. Repayment under this plan may provide lower initial monthly payments, although the total interest paid may be greater when compared to plans with similar terms with fixed payments. This plan may be beneficial if your income is low now but is likely to steadily increase.

  **Extended repayment terms are available to Direct Loan borrower with no outstanding principal or interest balances as of October 7, 1998 and with more than $30,000 in Direct Loans.

• Income Contingent Repayment (ICR) Plan – payment amount is based on your income (and your spouse’s income, if you are married), loan balance and family size, and can vary year-to-year for up to 25 years.

Source: U.S Department of Education

The following federal education loans are eligible for consolidation into a Direct Consolidation Loan:

• Direct Subsidized and Unsubsidized Loans
• Federal Subsidized and Unsubsidized Stafford Loans
• Direct PLUS Loans and Federal PLUS Loans
• Direct Consolidation Loans and Federal Consolidation Loans
• Guaranteed Student Loans
• Federal Insured Student Loans
• Supplemental Loans for Students
• Auxiliary Loans to Assist Students
• Federal Perkins Loans
• National Direct Student Loans
• National Defense Student Loans
• Health Education Assistance Loans
• Health Professions Student Loans
• Loans for Disadvantaged Students
• Nursing Student Loans

Yes, you can delay the processing of your Direct Consolidation Loan until closer to the end of your grace period end date if any of the loans you want to consolidate are in a grace period.
Normally, when you consolidate your existing loan(s) into a new Direct Consolidation Loan, you will be required to start repayment of your new loan immediately.

However, if any loan you want to consolidate is still in a grace period, you can delay entering repayment on your new Direct Consolidation Loan until closer to your grace period end date by entering your expected grace period end date (month and year) in the space provided on the application. We will start processing your application about 45 days before the expected grace period end date that you provide. If you leave the expected grace period end date blank on your consolidation application, your Direct Consolidation Loan will enter repayment immediately.

You can select a date up to nine (9) months into the future. If your grace end date is more than 9 months away, wait to submit your application.

Source: U.S. Department of Education

Generally, Federal education loan(s) in default may be consolidated in a Direct Consolidation Loan if borrowers:

* Agree to repay the loan(s) under the Income Contingent Repayment Plan.
OR

* Make satisfactory repayment arrangements with the current loan holder(s).

If, before applying for consolidation, borrowers who want to completely clear the default notation from their credit records, they may want to consider another option: loan rehabilitation. Borrowers should contact their loan holders to obtain more information about this option.

Borrowers cannot consolidate defaulted loans under these conditions:

* If a judgment has been issued against a defaulted loan, it cannot be included in the consolidation unless the judgment order has been vacated (dismissed).
* If they are trying to consolidate defaulted Direct Consolidation Loans.
* If they are trying to consolidate defaulted FFEL Consolidation Loans unless they have made satisfactory repayment arrangements with their current loan holder OR the borrowers agree to repay under the Income Contingent Repayment Plan.
* If they are trying to consolidate defaulted Perkins or health professions loans unless they have made satisfactory repayment arrangements with their current loan holders.

Source: U.S. Department of Education

Effective July, 1 2006 a married couple may no longer obtain a Direct Consolidation Loan as joint borrowers. Consolidate jointly with your spouse Effective July, 1 2006 a married couple may no longer obtain a Direct Consolidation Loan as joint borrowers.

Source: Department of Education

Yes, under three conditions:

Borrowers can consolidate existing consolidation loans into a new Direct Consolidation Loan if they include at least one other FFEL or Direct Loan into the new consolidation loan.
Borrowers can consolidate a single Federal Consolidation Loan if the loan is in default status or has been submitted to a guaranty agency for default aversion by the loan holder.
Borrowers can consolidate a single Federal Consolidation Loan if they intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program.
Borrowers who have only a Direct Consolidation Loan cannot consolidate again unless they include an additional loan.

Source: U.S. Department of Education

Yes, With a Direct Consolidation Loan, borrowers can include certain health profession loans sponsored through the U.S. Department of Health and Human Services with other Federal education loans in their Direct Consolidation Loan. Borrowers must include at least one Direct Loan or Federal Family Education Loan (FFEL) Program loan in the Direct Consolidation Loan.

• Eligible Health Professions Loans
• Health Professions Student Loans (HPSL)
• Health Education Assistance Loans (HEAL)
• Loans for Disadvantaged Students (LDS)
• Nursing Student Loans (NSL)

The Advantages

Direct Consolidation Loans offer many advantages to borrowers of health professions loans. These include:

• a longer repayment period;
• a lower monthly payment; AND
• a single monthly payment

When deciding to consolidate a health professions loans, consider the following advantages:
Borrowers who have defaulted on a HEAL may include the collection costs and late fees in a Direct Consolidation Loan. These fees may not be included in HEAL Refinancing.
Under the Direct Consolidation Loan Program, HEAL borrowers may repay under the Income Contingent Repayment (ICR) Plan for the life of the loan. HEAL lenders are only required to offer an ICR Plan for the first five years.

To qualify for an in-school deferment, Direct Consolidation Loan borrowers must be attending school at least half-time. HPSL, HEAL, and LDS borrowers are required to attend school full time to be eligible for an in-school deferment.

Issues to Consider

Before applying for a Direct Consolidation Loan, consider the following points:
HEAL loans have fixed or variable rate that are tied to the average 91-day Treasury bill rate plus 3 percentage points. There is no maximum interest rate for variable rate HEAL loans. In contrast, the interest rate for a Direct Consolidation Loan is based on the weighted average of the interest rates on loans being consolidated, rounded to the nearest higher one-eighth of one percent. It is a fixed rate and will not exceed 8.25 percent.

The interest on some health professions loans is subsidized by the U.S. Department of Health and Human Services. This interest subsidy is lost when these loans are included in a Direct Consolidation Loan.

Interest does not accrue during deferment for HPSL, LDS, and NSL borrowers. Interest does accrue during deferment on the portion of Direct Consolidation Loans that include health professions loans.
Borrowers who consolidate Health Professions Loans do not retain the deferment benefits that apply to those loans. However, they gain the deferment benefits that apply to Direct Consolidation Loans. For example, a borrower may be eligible for additional deferments if they have an outstanding balance on a FFEL made before July 1, 1993, when they obtain their first Direct Loan.

Source: U.S. Department of Education