Student Loan News, Updates and Blog Posts

Yes, you may consolidate a Parent Plus Loan, but there a few things you should know.

1. The parent who took out the Plus loan owns the Plus loan for the life of the loan. What I mean by that is you can not have your student, who the loan was taken out for, roll your Plus loan in with their federal Stafford or Perkins loans. The loan is in your name and tied to your social security number.
2. If you have your own federal loans you are allowed to consolidate your Plus loan with them.
3. Your fixed consolidated interest rate will depend on the loans you are rolling into your federal consolidation. A weighted average will be taken based on the interest rates attached to said loans.

So what are the Parent Plus loan interest rates that exist today? They vary widely, which is why your friend could have a really low fixed rate while you are stuck in the eight percent rate. Again, your consolidated rate is a reflection of the interest rates attached to your current loans. It is not strictly a market gage, as is the case with a home refinance.

Parent Plus Loan Rates

• Any FFEL Parent Plus loan taken out after 7/1/06 holds an 8.5% fixed rate, however, if you consolidate that loan there is an immediate interest rate deduction of .25% as the consolidation rate is capped at 8.25%.
• Within the Direct Loan program Plus loan are fixed at 7.9% for those disbursed after 7/1/06.
• For all other Parent Plus loans that have not been previously consolidated and which were disbursed prior to 7/1/06 the interest rate is at a historically low level, 3.28%. The previous low was during the 2004-05 academic year when Plus loans were are 4.17%.

Here is my no fluff, naked truth blog stating the cold hard facts surrounding Stafford loans and federal consolidation interest rates.

FACT: If you took out a federal Stafford loans AFTER 7/1/06 than your loans are already fixed and you WILL NOT be able to get a lower interest rate through the consolidation process.

FACT: If you have federal Stafford loans which were disbursed before 7/1/06, that have not yet been consolidated, than you currently have variable interest rates which are subject to change each July 1.  Your rate will not go down should you choose to consolidate but your current rate is FAR MORE advantageous than those whose loans were disbursed after July 1, 2006 making consolidation more desirable because you can fix that lower rate through the consolidation process.

Consolidation is not always the right move for students, yet they do it anyway. I believe the reason for this is because many students assume consolidation is just part of the financial aid process; that consolidation is the final stop on their debt filled journey.  The truth, however, is that consolidation is not for everyone.  Here are a few reasons why you should turn your nose up at consolidation.

1. You can afford your monthly student loan payment just fine thank you very much.  Consolidation is used as a debt management tool to extend out your repayment terms and minimize your monthly payment, but in the process you actually end up paying back more than you owe.  Who wants that?

2. Sometimes borrowers will consolidate because they want to turn their low variable rate into a fixed one, but if your loans are already fixed there is no point. All federal loans disbursed after 7/1/06 are already fixed and can not be lowered.

3. You may have better borrower benefits with your current lender than with your consolidated one.  Ask your current lender what benefits you have now compared to what you will have if you consolidate.  Examples include: ACH rate reduction, rate reduction after 36 consecutive months of on time payments.

Ah yes, the dreaded panic button has officially been pressed.  Those of you who graduated in May are now approaching repayment at mach one speed.  Yikes! I think I can hear your heart pounding out of your chest from here.  Ok, fear not – this can still work, but you’ll need to get started right away.  Once you START the consolidation process your application is date stamped on that date which is mundo important because you want to consolidate your loans before your grace period expires.

If you have any federal loans which were disbursed prior to July 1, 2006 that have not previously been consolidated it is important to consolidate your federal loans ASAP!  The reason being is because the rates on those loans will jump from 1.88% to 2.48% after your grace period expires.

If all of your loans were dispersed AFTER 7/1/06 then you can take a deep breath.  Your loans are already fixed and their is no rate benefit to consolidation.  Consolidation for you is just about extending your loan terms and minimizing your monthly payment.

APPLY FOR FEDERAL CONSOLIDATION NOW

It turns out that doing good really does pay off.

When many college seniors graduate in May they will be facing a tough job market and student loan bills. Because of this, many soon-to-be college graduates are considering alternative post-graduate options. For students who decide to engage in post-graduate volunteer service there are a few student loan benefits.

The Peace Corps is the best example of this. Volunteers with the Peace Corps can apply for deferment of Stafford loans, Perkins loans and consolidation loans for up to 27 months.  Additionally, PeaceCorps volunteers qualify for a partial forgiveness of their Perkins loans (15% for each year of service).

AmeriCorps is another program with loan benefits. If you serve with AmeriCorps for 12 months you receive up $7,400 in stipends and $4,725 to be used towards student loans.

If you do decide to take advantage of one of these opportunities it is important to know that deferment and cancellation do not happen automatically. It is up to you to contact your lender and complete the paperwork needed in order to apply. The Peace Corps’ itself has very little to do with the deferment process. They basically only certify your dates and country of service. The Peace Corps does not grant or deny deferments of loans.

Try saying that five times fast!

Do you know what happens when you do not make your student loan payments? Ideally you should take repayment into consideration before you sign off on a loan, however most people do not really think about it until the bills start coming in. The worst thing you can do is miss payments. Missing payments kills your credit score. A bad credit score makes it impossible to obtain a mortgage, buy a car, and take out any other loans in the future. If you miss payments you will also end up getting slammed with interest in the long run. Paying at least the minimum amount every month is key to staying on top of your debt.

If you are in a position where you really cannot make your payments there are steps you can take to avoid being severely penalized. One option is to apply for income-based repayment. This is a new payment option for federal student loans. With this option your monthly payment is calculated based on your income and family size. The IBR loan payments will usually be less than 10% of your income.

Loan consolidation is another option that will help you minimize your monthly payments. When you consolidate your federal student loans your loan term is extended and you end up with one smaller monthly payment. The new interest rate is a weighted average of all of your previous loans. Before considering consolidation you should know that does not necessarily cut down your interest and you will be paying off your loans for a longer period of time.

Loan deferment options are also available in certain situations. Deferment does not excuse you from ever paying off your loans, rather it temporarily suspends payments. You may be eligible for deferment if you are in school at least half time, unemployed or have experienced an extreme economic hardship.

Finally, in rare situations a person might be eligible for student loan forgiveness. Forgiveness means that all or part of a person’s student loans are cancelled. You would qualify for loan forgiveness if you enter into public service, perform volunteer work, perform military service, or if you become permanently disabled.

Did you know when you consolidate your loans early, meaning right after you graduate, you do not necessarily need to begin the repayment process immediately? You can elect to do a “Hold for Grace.”

A hold for grace option allows you to file your consolidation application right after you graduate college while allowing you to still enjoy your full six month grace period. The other option, assuming you would like to fully utilize your six months, is to just file your consolidation application near the end of your grace. The consolidation process generally takes 30-60 days.

That subject line was not a misprint.  And no, I did not lose my mind.  If you want 6 years of deferment on your federal loans listen closely.

Keep your loans unconsolidated and with your current lenders.  You have 36 months of deferment time available to you with each of them.  Go ahead and use all 36 months. Now, here is the kicker.  When you consolidate your federal loans that benefit refreshes!  You reset the dial and are handed another 36 months of deferment time.  I kid you not.

Theoretically those who graduated in May ‘09, after their six month grace, may not have to make a payment on their federal student loans until November of 2015!  Now tell me how awesome I am for telling you that.  Don’t be shy. Post below.

If you are enrolled in school half time or greater as defined by your school are not eligible to consolidate your federal loans.  You need to wait until you are out of school to  consolidate.  This is just one of the ridiculous rules you will uncover in the federal consolidation process.

I have a friend who just started her Grad program and never consolidated her undergrad loans which span back to 2003.  And the loans she has from 2003 to July 1, 2006 are at 2.5% right now, but by the time she graduates from Grad school there is a good chance those variable interest rate Stafford loans will increase from the current 2.5% rate.  She wants to lock them in now at this fantastic rate, but she is unable to do so.  This is just another way students get the shaft.

Thoughts?  Sound off below!

The best time to consolidate varies from person to person.

The reason this is not a black and white answer is because your loans, and the rates attached to said loans, may vary from the student to your left.  You may also have a low balance which would make consolidation an unsavory choice.  Never forget that the main purpose of loan consolidation is to extend your loan terms, thus, making your monthly payment smaller but your aggregate loan balance bigger.

• For anyone with federal Stafford loans taken out prior to 7/1/06 I would say consolidate right away to lock in the 2.5% interest rate the market extends today.

• If all your loans were taken out after 7/1/06 there is no rush as your loans are already fixed and will not get lower through the consolidation process.

• If you have a mix of pre and post 7/1/06 Stafford loans the interest rate you will be extended through consolidation will be the weighted average of all your federal loans.