Consolidation 101

1
Consolidation 101 Northeastern University March
12, 2007
2
Objectives

• Understand the basics of the federal
  consolidation loan program
• Discuss recent changes to the program
• Highlight the pros and cons of loan consolidation
• Learn what implications past consolidation loans
  have now that you are graduating

3
A word about ASA

• Non-profit institution
• Public purpose mission
• By guaranteeing repayment, interest costs are
  kept low relative to other consumer loans
• Selected by NEU to offer you the best services in
  the industry
• When you consolidate, you risk losing ASA as your
  guarantor

4
What is a Consolidation Loan?

• Multiple Loans ? Now One New Loan
• Underlying loans are paid in full
• New, usually longer term of payment
• Fixed interest rate
• No fees associated with consolidating
• Cannot un-consolidate

5
Eligibility - Details

• Borrower must be in grace or repayment status
• Must consolidate at least one eligible loan
• Loan must be fully disbursed to be consolidated
• Defaulted borrower must have made satisfactory
  repayment arrangements or pay loan under
  income-sensitive repayment terms

6
Eligible Loans

• 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

• Direct Subsidized, Unsubsidized and PLUS Loans
  (DL)
• Federal Subsidized, Unsubsidized Stafford and
  PLUS Loans (FFELP)
• Direct and Federal Consolidation Loans
• Guaranteed Student Loans
• Federal Insured Student Loans
• Federal Supplemental Loans for Students

7
Ineligible Loans

• Any loans made by individuals, states or private
  alternative lenders that are not guaranteed by
  the federal government, for example
• Primary Care Loans due to work requirements
• Private Alternative Loans
• Defaulted Loans unless borrower has made
  satisfactory repayment arrangements
• Credit Card Debt

8
Interest Rate How is it Calculated?

• Weighted average of interest rates rounded up to
  nearest 1/8 point and capped at 8.25
• Example

8,500 7 595 10,000 5 500 8,500
9 765 27,000 1860
1860 27,000 6.888 (.0688) So 6.888 1/8
(.125) 7.005
9
Terms

• Interest rate and eligibility is determined when
  the completed application is received.
• However a Consolidation loan is not made until
  the underlying loans are paid in full by the
  disbursements of the Consolidation loan to the
  underlying loan holders.
• Terms are based on date of first disbursement
  even if more loans are added on requiring
  additional disbursements.

10
Repayment Lengths

• Amount of Loan Repayment Length
• Less than 7,500 10 years
• 7,500 - 9,999 12 years
• 10,000 - 19,9999 15 years
• 20,000 - 39,9999 20 years
• 40,000 - 59,999 25 years
• Over 60,000 30 years

11
Repayment Plans

• A Consolidation Loan borrower may choose
• Standard Repayment Plan
• Extended Repayment Plan
• Graduated Repayment Plan
• Income-Sensitive Repayment Plan (In DL, Income
  Contingent)

12
Additional Loans

• A Consolidation Loan borrower may add loans to
  the consolidation within 180 days of the date the
  loan is made.

13
Subsequent Consolidation

• A borrower who obtains a new eligible loan after
  the date of the existing Consolidation may
  consolidate the new loan on its own or with the
  current Consolidation loan.
• A borrower who obtained a new eligible loan
  before the Consolidation was made must
  consolidate the loan with the Consolidation, or
  pay it off without consolidating

14
Consolidation Pros

• Convenience of one monthly loan payment
• Single point of contact for all customer service
  needs
• Lower monthly payment amount
• Long-term payment relief up to 30 years to
  repay
• Fixed interest rate ability to lock in fixed
  rate and protected against future rate increases

15
Consolidation Cons

• Fixed interest rate not able to take advantage
  of potential future decreases in interest rates
  on variable loans
• Loss of borrower benefits tied to underlying
  loans
• Accrued interest will capitalize when you
  consolidate
• May adversely affect grace, deferments,
  discharges (particularly Perkins), and interest
  subsidies
• Likely increase in total repayment amount the
  longer you take to pay off the loan, the more
  interest you will ultimately pay

16
Deferments and Forbearances

• Tools to allow you to temporarily suspend
  payments on federal loans
• Deferments require that you meet certain
  conditions such as being enrolled in school at
  least half time
• Forbearances are at the lenders discretion
• For both, you must submit a written request with
  you loan servicer

17
Are you going to grad school?

• If you are continuing your education, you may not
  want to consolidate now
• If you have variable rate loans, rates are high
  this year
• If you have fixed rate loans, consolidation could
  raise your rate by an 1/8th point
• You would lose your grace period

18
When is the best time to get started?

• The timing will depend on your situation
  decision is not once size fits all
• Interest rates rise when you enter repayment
• Think about consolidating while still in your
  grace period
• Repayment begins immediately on consolidation
  loans, there is no grace period

19
How to Get Started

• Expect process to take 30-90 days
• Gather information about underlying loans
• www.nslds.ed.gov will have info on all your
  Federal Loans
• Current balance
• Interest rates
• Holders
• Original balance

20
How to Get Started

• If eligible, contact several consolidation
  lenders and compare
• Interest rates
• Repayment options
• Benefits for on-time payment
• Customer service
• Any fees (there shouldnt be any)
• Deferment, forgiveness and discharges still
  eligible?

21
How to Get Started

• Request application by phone or online
• Complete application
• Make sure to fill out ALL fields to expedite
  application and prevent delays
• Monthly payments on underlying loans are still
  due keep loans current until consolidation is
  complete
• Make sure you receive Paid in Full stamped
  promissory notes from underlying loans when
  consolidation process is complete
• Keep forever!!

22
Miscellaneous

• Beware of solicitations you did not initiate
• Say No Fees but none should have fees!
• Ask Financial Aid for referrals they may know
  more about the company who contacted you
• Use Calculators http//www.finaid.org/calculators
  

23
Miscellaneous

• Some agencies will consolidate private student
  loans
• http//www.finaid.org/loans/privateconsolidation.p
  html
• Use your resources
• Your Financial Aid Office
• ASA were here to assist you with any questions
  about your loans
• Remember You can always prepay without penalty!

24
Other Resources

• www.loanconsolidation.ed.gov
• http//www.mapping-your-future.org/paying/cnsldte.
  htm
• http//www.finaid.org/loans/consolidation.phtml

25
Questions?

• ???

26

• Good luck!