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Articles:
1) Graduates can save by consolidating student loans
2) Lower rate on US loans to students is hailed
3) College loan rates high? Save anyway
4) Complete your education on student loans
Posted on Fri, Jul. 11, 2003
Graduates can save by consolidating student loans
By JANET PAK
AP Business Writer
Jason Manning poses outside his home in Derby, Conn., on June 30. Manning has consolidated his student loans and cut his monthly payments in half. - Bob Child/The Associated Press
NEW YORK - Jason Manning received his masters in education degree last month, but he's already gotten a welcome reprieve in repaying his $35,000 student loan debt -- his monthly payments are being cut in half, to $150.
Like thousands of other students across the country, Manning is consolidating his student loans, taking advantage of record low interest rates that went into effect July 1. The consolidation allows borrowers to lower their payments and make adjustments to the terms of their loans.
"Right now, with different bills, moving and rent payments, I just thought it was important to have the lowest payment possible coming out of college," said Manning, who graduated June 15 from Union College in Schenectady, N.Y., and who starts working this fall.
Students and graduates, who typically have one loan for each year of schooling, can consolidate only once under federal law, but doing so allows them to write just one check and lower their monthly payments by several hundred dollars in some cases.
Loans can be consolidated at any time during the year. The application process can be started over the phone, by calling 1-800-448-3533, or online at www.salliemae.com.
As of July 1, the rates for what are known as Stafford loans dropped to 3.42 percent for borrowers who are already repaying loans, and 2.82 percent for those in school, in a grace period or a period of deferment. The rate for Parent Loans for Undergraduate Students (PLUS) fell to 4.22 percent.
Stafford loans are guaranteed student loans available to all students regardless of financial status. PLUS Loans are made to parents whose dependent children are students.
The consolidated loan will be issued in the same principal amount as the original loan, but the interest rate changes and is based on the average rate of all the loans being consolidated, said Patricia Scherschel, consolidation product executive for Sallie Mae, the nation's largest provider of student loans.
Once the rates are locked in, borrowers don't have to worry about interest rates increasing again because their rates are set. Conversely, they would not benefit if rates fall in the future.
Manning, who took out five separate loans, four during his undergraduate years and another for grad school, said his loan rate was dropping to 2.82 percent from 3.82 percent. He also arranged for direct payment of his loans from his checking account and an extra discount for making on-time payments.
Some lenders take the initiative and call graduates to see if they're interested in consolidating.
Collegiate Funding Service, a private lender in Fredericksburg, Va., called Manning, who said half the process was accomplished over the phone. By the time the paper application arrived in the mail, Manning only had to check a few options and send it back.
Grant Lee, a recent graduate of Santa Clara University received a call from College Loan Corp. to consolidate his loans.
Lee, 22, who has a degree in management information systems, consolidated loans with interest rates ranging from 3.5 percent to 5.5 percent. With the consolidated loan being repaid at 3.5 percent, Lee said he'll save about $113 a month on his $23,000 debt.
The fact that borrowers have just one chance to consolidate means they must decide if they want to do so now, or wait another year and see where interest rates are then.
"You have to pick your shot and go for it," said Jordan E. Goodman, author of Everyone's Money Book on College.
Judy Wilburn of Tulsa, Okla., took out $20,000 in PLUS loans in March 2002 for three sons during five different years. She didn't think the rates could go any lower and found it difficult to keep up with multiple lenders and payments that needed to be made.
"It was a good move. I feel now we should be able to refinance and could lower our interest by 3 points," Wilburn said.
She consolidated at 6.785 percent for her PLUS loans and pays $162 a month compared to the $300 before consolidation.
Some lenders sweeten the process by offering extra discounts after a graduate makes 48 monthly on-time payments.
Graduates who want to consolidate should keep in mind a few considerations, said Sallie Mae's Scherschel:
--If graduates have trouble making monthly payments or are at risk of late payments on credit payments and loans, they should consider consolidation to extend their payback periods and lower their monthly payments.
--Those who have high debt but who can make their monthly loan payments might want to consider locking in the low rates and freeing more cash to pay the loan back faster.
--A borrower who just left school and is still in a grace period might want to consider consolidating to lock in the low rates during this period.
Copyright Knight Ridder
http://www.kansascity.com/mld/kansascity/business/6266500.htm
Lower rate on US loans to students is hailed
Debts cut as interest hovers at historic 3%
By Amber Mobley, Globe Correspondent, 7/11/2003
WASHINGTON -- For many college students and graduates, loan is a four-letter word, and just thinking about repaying his makes Michael J. Tillman II want to curse.
''Whew. I'm looking at sixty to eighty thousand dollars in debt,'' Tillman said.
But Tillman, who finished his graduate studies at the University of Missouri-Kansas City in January, and other recent graduates got a belated graduation present from the federal government last week. The interest rates on federally-subsidized student loans, which were at a high of 8.19 percent three years ago, have dipped to about 3 percent, the lowest ever. Some banking specialists doubt that the rates can go any lower.
The low rates will save student borrowers and graduates like Tillman who consolidate their old loans almost $400 on $10,000 of debt over the standard 10-year repayment period, according to the Education Department. On average, college students with loans graduate with $17,000 in debt to pay for their studies.
The new interest rate for federal Stafford loans is 2.82 percent for students still in school, down from 3.46 last year. For graduates and others already repaying their loans, the new rate is 3.42 percent, down from 4.06 percent last year. The rates are readjusted each year.
''Locking in these rates is a once-in-a-lifetime opportunity,'' said Barry Morrow, chief executive of Collegiate Funding Services, a company that helps borrowers consolidate their student loans.
John Dean, special counsel for the Consumer Bankers Association, said the new rates are a dramatic decrease from previous levels.
''Rates are so low now, I can't see them getting any lower, but I would have told you the same thing last year,'' he said.
Interest rates on the majority of federal student loans are calculated based on the 91-day Treasury bill, plus about 2 percent.
The new rates took effect on July 1 and will remain in place at least until June 30, 2004. They are applicable for loans taken out since July 1998.
The College Board recently reported that federal loans make up nearly half of the $74.4 billion in financial aid available to college students. The largest of federal loan programs are the need-based, subsidized Stafford loans.
Students are allowed to borrow as much as $23,000 in Stafford loans to pay for an undergraduate education and up to $65,500 combined for undergraduate and graduate studies. For independent students, the cumulative limit is $46,000.
The federal loan consolidation interest rates are low, too: 2.875 percent for a Stafford loan in grace and deferment periods, 3.5 percent for a Stafford loan in repayment. The federally-guaranteed loans are provided by private lenders, such as banks, credit unions, and savings and loan associations.
''A lot of people, mostly recent graduates, are coming to us to refinance,'' Morrow said. ''People could wait until later to refinance but doing it now would ease other debt and let them keep more of their money, cash relief.''
The lower interest rates on student loans could also mean fewer delinquencies and easier payments for borrowers.
Consolidating during the in-school or grace period -- usually the six months after graduation, when borrowers do not have to make payments -- will allow them to lock in the new lower interest rate for the life of their loan.
Tillman consolidated his loans earlier this year and will start paying the lower interest rate of 3.5 percent next month. Instead of $563 a month, his payments have dropped to less than $200.
But consolidation is not a good option for everyone.
''When you refinance, it will stretch out your payments, and you'll pay more interest if you pay over that full time,'' Morrow said. ''But there are no prepayment fines, so a person could pay more each month if they wanted to and shorten the time.''
Consolidating college loans is a major decision, and doing so with only a year or two left to finish repaying a loan may end up costing more, Dean said, because ''a 10-year loan can turn into a 20- or 30-year loan.''
Interest rates on consolidation loans are locked in for the life of the loan. Borrowers are not allowed to consolidate again unless they have new loans to add to the consolidation, which means more debt and more years paying it off.
''It could be a bad deal, because you could be at a time when you should be paying for your kids to go to college, but you're still paying for your own college education,'' Dean said.
Tillman, a 30-year-old resident of Kansas City, said he is postponing getting married and having a family for that reason.
''Paying off my loans is burden enough,'' he said.
This story ran on page A3 of the Boston Globe on 7/11/2003.
� Copyright 2003 Globe Newspaper Company.
http://www.boston.com/dailyglobe2/192/nation/Lower_rate_on_US_loans_to_students_is_hailed+.shtml
College loan rates high? Save anyway
By Sandra Block
USA Today
Kathy and Jerry Dillon of Woodstock, Ga., have no credit-card debt and a good credit rating. They have an affordable home mortgage. But their financial health is jeopardized by more than $30,000 in student loans.
The Dillons' son is disabled and requires full-time care, which prevents Kathy from getting a job. Adding to the stress: Interest on the loan is 8 percent, more than twice the current rate for federal student loans.
Dillon consolidated her student loans in 1996, when interest rates were much higher than they are now.
Loan consolidation allows borrowers to combine several student loans into one, extend the payment period and lock in an interest rate. But under federal laws, once you consolidate your loans, you can't do it again, no matter how much interest rates decline.
Interest rates on federal Stafford loans, which are adjusted every year, have fallen to 3.42 percent. Borrowers who consolidate their loans can lock in a rate of 3.5 percent over the life of the loan.
That's great news for recent graduates, but it's a source of frustration for borrowers who locked in rates of up to 8.25 percent.
A borrower with a $30,000 loan balance, repaid over 20 years at 8.25 percent, would pay $31,348 in interest, according to the Web site FinAid. At 3.5 percent, interest on the same loan would be $11,756, a savings of nearly $20,000.
Reps. Rosa DeLauro, D-Conn., and Danny Davis, D-Ill., have introduced bills that would allow borrowers to refinance consolidated loans. The proposals are popular with borrowers but face hurdles in Congress. Critics say they would increase the amount of federal student-loan subsidies, reducing funds for programs that help students pay for college.
For now, borrowers who consolidated at above-market rates have few options. However, there are steps you can take to make your loan less costly:
Pay it off early. There's no penalty for prepaying a student loan, so if you can afford it, increase your monthly payments. The sooner you retire the loan, the less interest you'll pay. Contact your lender and ask how to apply the extra payment toward the loan's principal, not outstanding interest.
Pay it with a home-equity line. If you have equity in your home, a home-equity line of credit may offer a better rate than your student loan. The average interest rate on a home-equity line of credit is about 5 percent and may go even lower now that the Federal Reserve has cut short-term interest rates.
The rate on a home-equity line of credit is variable, which means your rate could increase if interest rates climb. And if you fall behind on your payments, you could lose your home.
Deduct your interest. You can deduct up to $2,500 in interest paid on a federal student loan on your federal tax returns. Single taxpayers must have an adjusted gross income of $50,000 or less to qualify for the full deduction; for married taxpayers who file jointly, the cutoff is $100,000. Singles who earn up to $65,000 and married taxpayers who earn up to $130,000 can take a reduced deduction. If you're unable to make the minimum monthly payments required by your loan, talk to your lender about payment options. You may qualify for a graduated payment plan, in which monthly payments gradually rise over the life of the loan, or a payment plan that's tied to your income.
Borrowers who are facing an economic hardship, such as a job loss, may qualify for loan deferment or forbearance. Both programs allow you to postpone making payments temporarily, avoiding default.
But be aware that often interest will continue to accrue while your payments are on hold, increasing your loan balance. Some lenders will let you make interest-only payments during forbearance.
Meanwhile, borrowers stuck with high-interest loans say they've learned an expensive lesson: Read the fine print. Many say they weren't aware they were locking in a rate when they consolidated their loans.
Dillon doesn't recall whether the drawbacks were disclosed when she consolidated. "If it was told to me, I didn't understand it," she says.
http://www.clarionledger.com/news/0307/11/b08.html
Posted on Tue, Jul. 01, 2003
Michelle Singletary: Complete your education on student loans
My mailbag continues to overflow with questions about federal student loan programs. Here are more answers to reader questions:
Q. As you have noted, you can consolidate your federal loans once. The situation seems so unfair since I'm locked in to a high rate while students graduating more recently are getting 3 percent. Can Congress remedy this?
A. Sure, Congress can change the law. But the rule won't be relaxed unless parents and students lobby for it.
"Loan consolidation will definitely be a hot topic during Higher Education Act reauthorization this year," said Deanne Loonin, a staff attorney at the National Consumer Law Center and co-author of Nolo's "Take Control of Your Student Loan Debt."
The Higher Education Act, which has to be reauthorized periodically, covers financial aid regulations overseen by the U.S. Department of Education. These regulations include the student loan programs. If you aren't satisfied with some of the regulations, this year is your opportunity to sound off.
Q. We took out two loans of $10,000 each for our daughter (the Parent Loan for Undergraduate Students program, known as PLUS). We recently consolidated the loans with car payments through our credit union at 7 percent (it was a tax advantage loan using our home as collateral). Will we be able to pull those loans out and refinance at the lower rate that is being offered?
A. The PLUS program allows parents with good credit histories to borrow to pay the education expenses of each child who is a dependent undergraduate student enrolled at least part-time. As of July 1, the rate on this type of loan will be readjusted to 4.22 percent, down from 4.86 percent a year ago.
Unfortunately, when you rolled the two loans into the one loan at your credit union, the PLUS loans were paid off. Therefore, there are no loans to pull out.
However, don't fret about your decision. Who knew that PLUS or federal student loan rates would have hit such historic lows? I'm sure you thought you were getting a good deal at the time.
As always, if you are thinking about consolidating loans - particularly if you plan to use your home as collateral--consider the consequence of such a move. You are taking unsecured debt (in this reader's case the $20,000 PLUS loans) and turning it into secured debt. That means you put your home in jeopardy if you can't pay off the loan.
Q. Is there any place my daughter can complain if she continues to have problems with the way the loan company is servicing her loan?
A. Your daughter should do everything she can to resolve her issues with the company first, advises John Falb, treasurer of the College Loan Corporation, a national student loan provider.
She should send a letter to the customer service department of the company detailing her complaints. If she still continues to have problems, contact the federal student aid ombudsman as a last resort, Falb suggested.
This is a free service provided by the Department of Education. An ombudsman can't take sides, but will informally investigate your complaints. He or she will then recommend solutions. Unfortunately, the ombudsman does not have the authority to reverse any decisions. In addition, the ombudsman office does not accept complaints about grants or student financial aid from private sources. For more information about this service go to www.ombudsman.ed.gov or call 877-557-2575.
Q. How long does it take to repair your credit record if you default on a student loan?
A. Defaulting on a student loan is treated like any loan default. The negative information could remain in your credit file for seven years.
Just so you know, the federal government is very aggressive when it comes to people who default on their student loans. For example, your individual income tax refund could be captured and applied to the amount you owe. At the same time, there are several options to cure a defaulted student loan.
In many cases, a default can be avoided by submitting a request for a deferment, forbearance or cancellation depending on your circumstances.
You can also apply to rehabilitate your defaulted loan, according to Loonin. Under this program, you and your loan servicer agree on a new affordable payment plan. You then have to make 12 consecutive on-time monthly payments. Once you have done that, the defaulted loan is purchased by a participating lender, who then assumes servicing of your loan. One of the benefits of this program, Loonin said, is that the default status will be wiped from your credit report. There are some caveats, such as the loan has to be paid off within nine years.
If you are in default, don't ignore the problem. Contact the Federal Student Aid Information Center. Call (800) 621-3115 for questions regarding your defaulted student loan account. If you are unsure which agency is servicing your defaulted student loan, call (800) 433-3243 for an address and telephone number of the agency which holds your loan.
Copyright The Tallahassee Democrat
http://www.tallahassee.com/mld/democrat/6205151.htm
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