How To Finance A College Education: Re: College Loans

» JenL_2 - Re: College Loans

I was talking today to a very helpful person from a student loan consolidation group, and think that am going to go with them for consolidation of the Plus loans (the parent loans). Here's the contact info if anyone else is interested:

Collegiate Funding Services (CFS)
http://www.cfsloans.com
http://www.collegexit.com
contact person: Gary Fittro 1-877-923-7562

to consolidate the Stafford Loans (student loans) will probably go through the loan consolidation group mentioned in the post above:

Academic Management Services (AMS)
http://www.tuitionpay.com
contact person: Merridith Skelly 1-888-829-3880 option 3 - ext 3928

Have found both of these loan consolidation reps to be very helpful and willing to "walk you through it".

As I've been saying - now is the best of all times for folks with kids in college, with the new tax laws with increased education deductions and tax credits, and with college loan interest rates at the lowest rate ever. Well things are about to get even better! Now the loan consolidation groups are telling folks to pre-apply now, but to wait to consolidate their loans in July because college loan interest rates are going to be lowered on July 1. The websites above explain it pretty well....

http://www.cfsloans.com/cfsloans.3866754...

http://www.collegexit.com/Collegexit.196...

This from 4/29 USA Today:

Consolidating your student loan? Waiting may pay

Sandra Block

Where your finances are concerned, delay can be costly. An overdue payment on your credit card bill will trigger big late fees. Miss a couple of car payments, and a burly man with no sense of humor may repossess your Jaguar.

But if you're planning to consolidate your student loans, procrastination could save you a lot of money. On July 1, the government will recalculate interest on federal student loans, based on a formula tied to interest rates for short-term Treasury bills. Based on the outlook for short-term rates, loan experts believe interest on student loans issued after July 1998 could fall to about 4%, nearly 2 percentage points below current rates.

The rate decline is automatic, so if you're repaying a student loan, you'll benefit. But the rate is adjusted annually, and if the economy improves, it will probably go up in 2003.

When you consolidate, you lock in the weighted average of all your student loans, rounded up to the nearest one-eighth of 1%. Based on current interest rates for Treasury bills, the consolidation rate on loans issued after July 1998 could fall as low as 4.13%. One caution: Some policymakers, concerned that low-interest consolidation loans will strain federal coffers, are seeking to change the formula. A proposal backed by the White House would apply variable rates to consolidation loans, making them much less attractive. The measure faces tough opposition from Democrats.

EC: See WSJ article below - the proposal to change consolidation loans from fixed to variable rates didn't go through.

Assuming the formula doesn't change, "not consolidating at these rates would be a dreadfully bad idea," says Terry Hartle of the American Council on Education. Some tips:

Consolidating usually extends the payment period for your loan. If your loan is large, you may be able to stretch the payment over 30 years. But extending your loan also will increase your overall interest costs, and may wipe out savings from lower rates, says Robert Murray of USA Funds, which guarantees student loans.

There's no penalty for prepaying your student loans, so you can shorten your loan term by making extra payments. If you don't have the discipline to do that, ask your lender for a shorter term, Murray says. Otherwise, most lenders will automatically give you the longest payment period allowed, he says.

Make sure you can make your payments, because the consequences of default are severe. Your account may be turned over to a collection agency, and the government may require your employer to withhold part of your salary to pay off your debt. The Internet site www.finaid.org features a calculator that will estimate what you can afford to pay each month, based on your income.

You can consolidate a single loan. Consolidating lets borrowers with several student loans arrange for one monthly payment. But even if you have just one loan, you can lower the interest rate and extend your payment period by consolidating.

However, most lenders won't extend your payment period unless you owe more than $7,500. And you're usually required to consolidate with the lender that owns your loan.

Getting the best deal

A 4.1% loan is hard to beat. But smart borrowers can lower their costs even more. Some strategies:

Consolidate while in your grace period. Graduates are usually given a six-month window before they must start repaying their loans. During this period, interest continues to accrue, but at a lower rate than the repayment rate.

If rates remain unchanged, students who consolidate during their grace periods will be able to lock in a rate of about 3.5%. Once you consolidate, you must start making payments. But you may be able to time your consolidation so that it comes near the end of the grace period, says Pat Scherschel, marketing executive for Sallie Mae, which funds student loans.

Shop around. If you have loans with several lenders, ask about incentives. Some lenders will reduce your interest rate an additional quarter-point if you agree to have your payments automatically deducted from your bank account.

The federal government also offers a consolidation program for borrowers with direct student loans. These loans are issued by the federal government, instead of through a third-party lender. You can find more information at http://www.loanconsolidation.ed.gov or by calling 800-557-7392.

Get your application ready now. If rates fall as much as expected, there will be a scramble to consolidate after July 1. You can beat the rush by talking to your lenders beforehand. Not sure who owns your loans? Check out the loan tracking service at National Student Clearinghouse, http://www.nslc.org

is a personal finance writer for USA TODAY.

from 5/3 WSJ:

White House Begins Backpedaling On Curbing Student-Loan Program

By DAWN KOPECKI
DOW JONES NEWSWIRES

WASHINGTON -- Faced with mounting public outcry, the White House began backpedaling on its recommendation to save $1.3 billion this year by curbing a popular student-loan program.

Consumer groups, higher-education officials and Democrats oppose the proposal, which would eliminate the federally subsidized fixed interest rate for consolidated loans, just as rates for education loans are projected to drop to their lowest levels ever this summer -- around 4%.

EC: See Letter to the Senate Regarding Student Loan Consolidation below.

Borrowers would still be able to consolidate their debt under the administration's plan, but at a less attractive variable interest rate, which is likely to rise within the next year.

The State Public Interest Research Groups, or State PIRGs, a consumer-advocacy organization, estimates that eliminating the fixed-rate option for consolidated loans would cost a typical borrower with $16,928 in education debt about $2,800 over 10 years and $6,390 over 20 years.

White House Budget Director Mitch Daniels had targeted the provision for inclusion in a supplemental spending bill, currently in the House Appropriations Committee, to offset a projected budget shortfall in funding Pell Grants for low-income students.

"Under the Bush administration proposals to raise interest rates and cut student assistance programs, students will have little choice but to borrow more and work longer hours to pay their college bills," said Wisconsin Rep. David Obey, the top Democrat on the Appropriations Committee. "I will do all that I can to see that it remains in the trash heap of all the other ill-conceived OMB proposals that we have seen this year."

Comments made Wednesday by White House Press Secretary Ari Fleischer indicate that the administration is backing off its previously aggressive pursuit of the change.

"That idea was always a voluntary one, never a mandatory one," Mr. Fleischer told reporters. "But clearly, if there's no congressional support for something, it won't move anywhere."

"We're just going to continue to work with the Congress to find a solution," he said.

While student advocates were relieved that the White House appeared to be stepping away from its position, they weren't convinced it was a done deal.

"Mr. Fleischer is right; there isn't congressional support for this proposal. There isn't support from students or higher education institutions. It's a terrible idea," said Ellyne Bannon, a higher-education specialist for the State PIRGs. "But we haven't heard from the administration that this isn't off the table."

Sallie Mae, the nation's largest student-loan lender, had been quietly promoting the plan over the past several months.

"We have certainly talked about this openly and in policy debates have been supportive," said Sallie Mae spokeswoman Kathleen deLaski. "We're not trying to get in the middle of this. It's on the Hill, between the Hill and the administration. From a policy standpoint, we have been supportive of it."

However, consumer groups say there would be little incentive for students to consolidate their loans if the rates were variable. Most outstanding student loans already have variable rates that are automatically adjusted each year based on the 90-day Treasury bill. Consolidating them to another variable-interest-rate loan would provide few financial benefits.

But there is considerable incentive for Sallie Mae to keep its consolidated loan portfolio at a minimum. Sallie Mae and other lenders pay the Department of Education considerably higher fees to guarantee consolidated loans than they do for the loans they originate.

Lenders pay 1.05 percentage points, or $1.05 for every $100 in outstanding loans, to the department for consolidated loans.

Sallie Mae pays just 0.30 percentage point, or 30 cents for every $100 in outstanding loans that it has originated. And that fee, which is levied only against Sallie Mae because it was created as a government-sponsored enterprise, will be phased out completely by 2006 when Sallie Mae completes its transition to a private corporation.

That translates to roughly $147 million in annual fees charged against Sallie Mae on just $14 billion in consolidated loans and $174 million for its $58 billion in outstanding nonconsolidated loans.

Sallie Mae recently changed its official name to USA Education Inc.

Subscribe to WSJ Online @ http://www.wsj.com

This letter from the American Council on Education helped block the change from fixed to variable rate for student loan consolidations:

Letter to the Senate Regarding Student Loan Consolidation

May 1, 2002

Dear Senator:

I write on behalf of the undersigned associations to express our grave concern about a proposal to change the interest rate in the federal student loan program that may be considered as part of the FY 2003 Supplemental Appropriations bill. The proposal under consideration would reduce federal student loan expenditures by $1.3 billion by increasing the cost of loans to student and parent borrowers by an equal amount.

Under current law, the interest rate on federal Stafford loans is recalculated every July 1 based on the interest rate for short-term U.S. Treasury bills. The proposal under consideration would alter student loan interest rates by moving from a fixed interest rate to a variable rate for consolidated student loans in the next 60 days. This is a tremendous change in policy and one that should not be undertaken on an emergency supplemental bill.

While we share the Administration's concern for the Pell Grant shortfall and applaud their efforts to make the program whole, an effort to do so by a sudden change to the current system of setting borrower interest rates is the wrong approach and would dramatically increase the cost of loans to students. Next year, Congress will begin its regular process of rewriting the Higher Education Act. Many fundamental issues such as these will be examined. Reauthorization is the appropriate time to examine concerns arising from the consolidation program.

It is hard to imagine a less desirable graduation present for this year's Student Loan Consolidation college graduates than a huge increase in the cost of their student loans. We urge Congress to avoid taking this step.

Sincerely,
David Ward
President, American Council on Education

On behalf of:
American Association of Community Colleges
American Association of State Colleges and Universities
American Council on Education
Association of American Universities
Association of Community College Trustees
Association of Jesuit Colleges and Universities
Council of Graduate Schools
Hispanic Association of Colleges and Universities
National Association for Equal Opportunity in Higher Education
National Association of College and University Business Officers
National Association of Independent Colleges and Universities
National Association of State Universities and Land-Grant Colleges
National Association of Student Financial Aid Administrators

Gee - I wasn't even aware of the administration's proposed change from fixed to variable rate for student loan consolidations till the loan rep mentioned it today. Sure glad it didn't go through!......Jen

-- posted by JenL_2