Fiona
P.S. I'd love to see this info added as a sticky.
)
Full Version: Consolidation - where to begin?
DH is a full-time undergrad who will be starting his final semester of school in mid-January and graduating in May (yeahhh!!!!). We've been getting "would you like to consolidate" telemarketing calls for over a year and we've always brushed them off with "still in school." Of course, now we need to start looking at actually consolidating - he's a 6th year senior (lol) and so has at least a dozen loans out there. My question is simple: what are our first steps??? Seems like not the smartest idea to just say "sure, let's go" to the first company that calls post-graduation! Thanks in advance!
Fiona
P.S. I'd love to see this info added as a sticky.)
Fiona
P.S. I'd love to see this info added as a sticky.
)
It's a great topic & maybe Fla-tan will consider adding this as a sticky.
Try the consolidation calculator at www.mygreatlakes.com. You need each loan (sub, unsub and interest rate on each) to see what the estimated weighted average interest will be.
Is DH entering into an occupation that some of his loans may be eligible for cancellation such as teaching/nursing/social work? If he is, DO NOT consolidate Perkins or other eligible loans into your consolidation loan as you will lose your right to cancellation.
Shop around for any incentives that the lender (not the servicer) may be offering. Keybank was offering a 5% up front principal reduction and Chase was offering 5% cash back after the first 36 months of on time payments.
It is a good time to consolidate as there is a move in congress to make consolidation loans variable rate and not fixed as early as 2006.
And finally, congrats to DH
Try the consolidation calculator at www.mygreatlakes.com. You need each loan (sub, unsub and interest rate on each) to see what the estimated weighted average interest will be.
Is DH entering into an occupation that some of his loans may be eligible for cancellation such as teaching/nursing/social work? If he is, DO NOT consolidate Perkins or other eligible loans into your consolidation loan as you will lose your right to cancellation.
Shop around for any incentives that the lender (not the servicer) may be offering. Keybank was offering a 5% up front principal reduction and Chase was offering 5% cash back after the first 36 months of on time payments.
It is a good time to consolidate as there is a move in congress to make consolidation loans variable rate and not fixed as early as 2006.
And finally, congrats to DH
Thanks for posting this question mkfionap. I'm in the exact same position as your husband and was also wondering about consolidation.
-Amy
-Amy
Whether or not to consolidate federal student loans is a personal decision, that each must make according to his or her financial situation and obligations...having said that, there are a number of benefits to consolidation, to wit:
1) Fixed interest rate for the life of the loan - in mkfionap's DH's case, if he consolidates during the six months while in grace, he can get his grace rate, which is .6% less than the repayment rate; currently, for federal stafford loans disbursed after 7-1-1998, the grace rate is 2.77%, the repayment rate, 3.37%. When he graduates in May, though, he will only have until June 30 to get that rate, since the rates change on July 1, and will probably go up.
2) One monthly payment, and the option to lower it significantly - A lot of times, consolidation will allow you to extend your terms to reduce your monthly payment. However, a longer term will result in more interest paid over the life of the loan. But because most people have debt with an interest rate higher than 2.875% (grace rate rounded to nearest 1/8th%), it can make a lot of sense to reduce your student loan payments as low as possible, and put your money to better use paying off, say, credit cards or something like that.
3) No prepayment penalty - hopefully this is self explanatory.
4) Lower debt to income ratio - If you extend your terms when consolidating - your monthly payment obligation will be less, which can benefit your credit rating.
There are other benefits as well, such as an interest rate reduction or rebate that you can earn for on time payments - a caveat: choose carefully...a lot of times a rebate looks good, because you're getting a check, but a reduction will probably show you greater savings...example: a 1% rebate on a 50k student loan will get you 5k - a 1% reduction on a 3.375 IR, over a 25 yr term, will save you over 8k.
Also make sure to ask what happens if you are late with a payment AFTER you get the rebate or reduction - the servicer may roll the rebate back into the balance of the loan, or take away the interest rate reduction and recalculate everything at the higher rate...so ask, and get it in writing, too!
Other benefits - loan remains federally guaranteed, rights to deferment, forbearance and forgiveness remain intact; no credit check or income verification.
Finally...the interest rates on federal stafford loans is at an all time low...pretty much every recognized authority says to consolidate as soon as you can. Indications are the t-bill will be higher this spring, in fact, if the rates were to change today, they would go up over 1%, which could cost you hundreds or thousands in interest.
Oops, one more thing for mkfionap - make sure that you are even able to shop around - under federal guidelines, if one lender owns all your loans, you can only consolidate with that lender, as long as they offer an income sensitive program. My advice? If it's not too late, make sure that you get at least one loan thru a different lender, then you can shop around and find the best deal for yourself.
Good luck, hope this helps
1) Fixed interest rate for the life of the loan - in mkfionap's DH's case, if he consolidates during the six months while in grace, he can get his grace rate, which is .6% less than the repayment rate; currently, for federal stafford loans disbursed after 7-1-1998, the grace rate is 2.77%, the repayment rate, 3.37%. When he graduates in May, though, he will only have until June 30 to get that rate, since the rates change on July 1, and will probably go up.
2) One monthly payment, and the option to lower it significantly - A lot of times, consolidation will allow you to extend your terms to reduce your monthly payment. However, a longer term will result in more interest paid over the life of the loan. But because most people have debt with an interest rate higher than 2.875% (grace rate rounded to nearest 1/8th%), it can make a lot of sense to reduce your student loan payments as low as possible, and put your money to better use paying off, say, credit cards or something like that.
3) No prepayment penalty - hopefully this is self explanatory.
4) Lower debt to income ratio - If you extend your terms when consolidating - your monthly payment obligation will be less, which can benefit your credit rating.
There are other benefits as well, such as an interest rate reduction or rebate that you can earn for on time payments - a caveat: choose carefully...a lot of times a rebate looks good, because you're getting a check, but a reduction will probably show you greater savings...example: a 1% rebate on a 50k student loan will get you 5k - a 1% reduction on a 3.375 IR, over a 25 yr term, will save you over 8k.
Also make sure to ask what happens if you are late with a payment AFTER you get the rebate or reduction - the servicer may roll the rebate back into the balance of the loan, or take away the interest rate reduction and recalculate everything at the higher rate...so ask, and get it in writing, too!
Other benefits - loan remains federally guaranteed, rights to deferment, forbearance and forgiveness remain intact; no credit check or income verification.
Finally...the interest rates on federal stafford loans is at an all time low...pretty much every recognized authority says to consolidate as soon as you can. Indications are the t-bill will be higher this spring, in fact, if the rates were to change today, they would go up over 1%, which could cost you hundreds or thousands in interest.
Oops, one more thing for mkfionap - make sure that you are even able to shop around - under federal guidelines, if one lender owns all your loans, you can only consolidate with that lender, as long as they offer an income sensitive program. My advice? If it's not too late, make sure that you get at least one loan thru a different lender, then you can shop around and find the best deal for yourself.
Good luck, hope this helps
Woooooooow! 
Great info. That helps a ton.
Fiona
Great info. That helps a ton.Fiona
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