Which Student Loans Should Be Consolidated?
In most cases, consolidating student loans is an ideal option for lowering monthly payments and consistent, predicable monthly payments. The biggest attraction of consolidating student loans is locking in a fixed interest rate and gaining freedom from the government’s fluctuating variable interest rates. However, not every student loan is perfectly suited for consolidation. Each different type of student loan has different qualities that should be weighed when consideration whether to include them when consolidating student loans.
The Stafford Loan – Ideal for consolidation
Stafford loans are the most popular type of loan and ideal for student loan consolidation. The Stafford loan is a variable interest rate loan, meaning that every July 1st when the government implements the new rate changes, the amount of your Stafford loan payment will change. No matter how long ago the loan was written, the payments continue to fluctuate for as long as payments are due.
Consolidating student loans with variable interest rates can reduce payments up to 63% through a combination of a low fixed interest and an extended repayment period. Stafford loans offer forgiveness programs for those in certain professions, particularly teachers. If you’re considering consolidating student loans, you’ll want to verify that you won’t lose this benefit if you’re eligible.Before consolidating student loans, check to see if your profession or volunteer group makes you eligible for student loan forgiveness.
The Perkins Loan – Consider the current interest rate before consolidating
Unlike the Stafford Loan, the Perkins Loan is a fixed rate loan and not subject to rate fluctuations. The interest rate on your Perkins loan will have been determined by the interest rates at the time the loan was issued. If today’s interest rates are lower than the interest rate of the loan, then consolidating student loans with the Perkins loan included is a good option.
However, if the interest rate today is higher than it was at the time your loan was issued, you will pay more over the course of the repayment period to include the Perkins when consolidating student loans. For some borrowers, the benefit of one low monthly payment is more important than saving a few dollars over the course of 10 years. ScholarPoint loan specialists can help you compare the cost with or without the Perkins Loan included so that you can make the choice that is best for you when consolidating student loans.
The PLUS Loan – Ideal for Consolidation
The PLUS loan is another variable interest rate loan that fluctuates with the current government interest rates. PLUS loans generally have a higher interest rate than Stafford Loans so when rates increase the interest payments are even more significant.
Until July 1st 2006, PLUS loans were only for parents. Because the loan is written in the parent’s name, it cannot be consolidated with the student’s loan. However, multiple PLUS loans can be combined when consolidating student loans. Changes in 2006 will allow graduate students to take out PLUS loans in their own names.
HPSL Loan – Ask questions about deferment before consolidating
Like the Perkins Loan, the HPSL (Health Professions Student Loan) has a fixed rate of interest. The HPSL loan also has some deferment options that consolidating student loans could eliminate.
The HPSL loan is specifically designed to meet the needs of those in the health care industry. The loan allows the borrower to defer payments for the first 3 years after graduation while in residency. If you have an HPSL loan, contact the lender you are considering to find out if your deferment options will carry on after consolidating student loans.
Direct Loans – Ideal for consolidation
If you received the balance of your student loan check directly from your school’s financial aid office, then your school most likely participates in the Direct Loan program. If this is the case, consolidating student loans must first be done through the Direct Loan program before shopping around for your choice of student loan refinancing lender.
Before July 1st 2006, borrowers had the option to shop around for a lender when comparing options for consolidating student loans. After July 1st, Direct Loan borrowers will face more restrictions when it comes to choosing a lender. Borrowers will now only have the freedom to switch lenders in cases where the Direct Loans refinance lender does not offer an income-sensitive repayment option.
Strong Resume Key to Winning Scholarship
As the possibility of internships and future scholarships looms on the horizon, students should get themselves prepared. While there are plenty of great books on résumé writing, this article offers a few easy tips that can get students started and help make their résumés stand out.
Make a list of accomplishments
About the time that students graduate from college, they have compiled plenty of material for a résumé. But for freshmen, it may seem that there isn't a great deal of work experience to put down. However, when students take the time to list their volunteer work, odd jobs, club memberships, and high school and college leadership positions, they often will be surprised with what they find.
Even the most mundane job experience at a fast-food restaurant can be valuable. After all, think about what a cashier actually does at work: talks to customers, takes and fills orders, handles money, and works with POS software. There are many different things a student can use to fill up a résumé page. Taking the time to write them down will help students see what they have to offer and how to show those skills to a potential employer or scholarship judge.
Be original
While students want to be seen as individuals, many use a cookie-cutter approach to creating their résumé. It's easy to open up Microsoft Word and use a standard template to do the job. The problem is that templates or résumé programs don't allow for much individualization. In addition, intern recruiters and scholarship administrators can typically sniff out a "canned" résumé a mile away. Every student should remember that originality, rather than uniformity, is what makes your résumé stand out.
Make the résumé fit the job/scholarship
No two jobs or scholarships are exactly alike. Each organization will be looking for something unique in a scholarship or internship. Therefore, it's a good idea to make sure a student's résumé fits the goal. Let's look at two different internships as an example.
- X Charities offers a scholarship to a marketing student that has a "commitment to community."
- Y Corporation offers a scholarship to qualified marketing majors.
What is the difference between the two? X Charities is looking for volunteer service, while Y Corporation is looking for a marketing candidate with strong academic credentials.
A student applying to both should tailor the résumé to fit the differences in the organizations. Students should make their volunteer and leadership service more prominent for the X Charities application. But volunteer services are less important for the Y Corporation application, so career-related clubs and experience should play a lead role on the résumé page.
All students will have to create a résumé someday. But it's important for them to also know not only how to make one, but how to make it work to help them win valuable scholarships and career building internships.
Strong Resume Key to Winning Scholarship
As the possibility of internships and future scholarships looms on the horizon, students should get themselves prepared. While there are plenty of great books on résumé writing, this article offers a few easy tips that can get students started and help make their résumés stand out.
Make a list of accomplishments
About the time that students graduate from college, they have compiled plenty of material for a résumé. But for freshmen, it may seem that there isn't a great deal of work experience to put down. However, when students take the time to list their volunteer work, odd jobs, club memberships, and high school and college leadership positions, they often will be surprised with what they find.
Even the most mundane job experience at a fast-food restaurant can be valuable. After all, think about what a cashier actually does at work: talks to customers, takes and fills orders, handles money, and works with POS software. There are many different things a student can use to fill up a résumé page. Taking the time to write them down will help students see what they have to offer and how to show those skills to a potential employer or scholarship judge.
Be original
While students want to be seen as individuals, many use a cookie-cutter approach to creating their résumé. It's easy to open up Microsoft Word and use a standard template to do the job. The problem is that templates or résumé programs don't allow for much individualization. In addition, intern recruiters and scholarship administrators can typically sniff out a "canned" résumé a mile away. Every student should remember that originality, rather than uniformity, is what makes your résumé stand out.
Make the résumé fit the job/scholarship
No two jobs or scholarships are exactly alike. Each organization will be looking for something unique in a scholarship or internship. Therefore, it's a good idea to make sure a student's résumé fits the goal. Let's look at two different internships as an example.
- X Charities offers a scholarship to a marketing student that has a "commitment to community."
- Y Corporation offers a scholarship to qualified marketing majors.
What is the difference between the two? X Charities is looking for volunteer service, while Y Corporation is looking for a marketing candidate with strong academic credentials.
A student applying to both should tailor the résumé to fit the differences in the organizations. Students should make their volunteer and leadership service more prominent for the X Charities application. But volunteer services are less important for the Y Corporation application, so career-related clubs and experience should play a lead role on the résumé page.
All students will have to create a résumé someday. But it's important for them to also know not only how to make one, but how to make it work to help them win valuable scholarships and career building internships.
Private Student Loans: Pros and Cons
Many financial aid experts will urge prospective students, with conviction, that private student loans are the logical alternative to federal aid in affording higher education. Although naysayers of federal aid are correct in that private student loans bridge the gap between federal aid and the actual cost of higher education, these private alternatives can be more damaging to borrowers than beneficial if used as a substitution to federal aid rather than a supplement.
Indeed private student loans have their advantages. Applicants can be approved for sizeable loans - in some cases up to $30,000 - in minutes. There are no application deadlines, rather prospects who are enrolled halftime or more, or are planning to enroll halftime or more, at any accredited higher education institution may apply at any time. Furthermore, private aid is awarded not on need-based criteria like federal aid, rather on creditworthiness.
However, as any conscientious consumer would admit, "If it looks too good to be true, then it probably is." Although the advocates of private education loans persuade borrowers that interest rates are fixed, what they really mean is that interest rates are fixed at prime rates that fluctuate quarterly based on LIBOR (London Interbank Offered Rate), plus a margin at the discretion of the lending institution. Similarly, such advocates would have prospective borrowers believe that private college loans offer affordable repayment options comparable to federal student loans.
Although private student loan borrowers are granted certain flexibility regarding the timeline in which repayment begins, private loan repayment terms cap at 15 years, half of the time allocated to qualified federal student loan borrowers. A trivial discrepancy you say? Not so. By extending a repayment term - possible only through consolidation - borrowers' monthly payments decrease by over 50%.
Private student loan holders forego other vital benefits afforded federal loan holders. For instance, if a federal student loan holder becomes disabled or deceased, the loans are forgiven making repayment unnecessary. Private loan holders' heirs would have to repay the loans in full from the deceased's estate.
Even the disabled and unemployed are still liable for their debt. Nobody anticipates such catastrophic events; however, the federal government provides an alternative to the hardship of unaffordable loan repayment by complete loan forgiveness.
As reputable private loan sources purport, private student loans are only valuable when filling the gap between total college expenses and a borrower's awarded financial aid. To use private student loans as a substitution to federal aid, rather than a supplement is short-sighted on the part of the borrower. Researching affordable methods of securing college financial aid is a short-term investment of time for a long-term return.
For more information, please contact an ACFS Loan Specialist to explore higher education financing options.
Tips for Managing Your Student Loan Debt
1) Be proactive; find out what you owe and who you owe
- Find out what your total debt is, what kind of loans you have, where they are held, and who you pay.
- Check nslds.com to get a list of your student loans and the details of each loan. Keep records and important paperwork in a safe place.
2) Make your payments on time
- Paying on time will help establish good credit.
- Paying on time will decrease the total interest that accrues on your loan.
- Delinquencies and defaults on student loans will lower your credit rating, and defaulted loans are turned over to the federal government for collection.
3) Make your payments affordable
- Shop for the best benefits. Many lenders offer borrower benefit programs that can lower your interest rate or reduce your loan principle. Choose the best program for your situation.
- Choose a repayment plan that works for you.
Standard – Monthly payments are fixed with a payment term up to 30 years. This plan yields the lowest overall interest cost compared to other repayment plans.
Graduated – Monthly payments are initially lower for the first 2-3 years and then gradually increase over the repayment term.
Income Sensitive – The monthly payment amount is adjusted annually based on your income.
But watch out for any monthly payments that are lower than the actual interest that accrues on your loan each month. This will increase your debt to such a level that you may never be able to pay off the principle.
- Is Consolidation for you?
Consolidation is the process by which a lender pays off your individual loans and refinances the total balance into a new consolidation loan with a fixed interest rate and one monthly payment. Because the total balance is higher, you will have a longer repayment term and your monthly payments will be lower. In addition, if you consolidate during your 6 month grace period prior to entering repayment, your interest rate will be fixed at the lower grace period rate.
Consolidation Guidelines:
a) You should have more than $10,000 in federal student loans to make it worthwhile.
b) The loans you wish to consolidate must all be under your social security number.
c) Do not consolidate federal student loans with private student loans. If you consolidate your federal loans into a private consolidation loan, you will lose your federal benefits e.g. fixed interest rate, deferments, subsidized interest, etc.
- Have your monthly payments automatically deducted from your bank account. Most lenders offer a .25% or more interest rate discount for choosing the automatic payment method.
4) Make your payments convenient
- Consolidate your loans (if this is the best option for you) so that you have one monthly payment.
- If you do not consolidate, have your lender combine your loan payments on one monthly bill.
- Have your monthly payments automatically deducted from your bank account.
5) Know what you are entitled to
- Some lenders offer you “benefits” that are not unique benefits; they are really just entitlements that all student loan borrowers receive from the federal government. These include:
- Fixed interest rates
- No fees
- No credit checks
- No prepayment penalties, and
- Rates that are “0.6% lower if you consolidate while still in school, or in your grace period.”
- Another entitlement on your federal student loans is the right to have a deferment or forbearance on your loan if you meet the federal requirements. Choosing a certain lender will not affect this entitlement.
6) Know what will cause you to lose the benefit the lender offers
- The benefit offering is what many people use to evaluate a consolidation loan. Equally important is knowing what can cause you to lose the benefit.
- Know what the grace period is for a late payment. Some loans do not provide ANY grace for payments. In that situation, a payment due on Saturday has to be processed on Friday or you will be late.
- Look for benefits that become “permanent.” Some benefits will cease if you have one late payment OVER THE LIFE OF THE LOAN.
- Be careful if the automatic withdrawal (referred to as Automatic Clearing House, or ACH) and the benefit are tied together. If you lose the withdrawal option, the benefit goes away, too. There are some very easy ways to lose ACH, such as:
- The opportunity to sign up for ACH is limited to 30 days from the signing of the application. If the borrower does not follow up with the lender to get ACH WHILE the application is processing, then they can be outside of the sign-up window. ALL benefits are lost before they get their first bill.
- They are required to sign up to receive their bill via e-mail. In addition, every month they must reply to the e-mail, acknowledging receipt. If they do not, they lose ACH, which causes them to lose their benefits.
- Returned e-mails, insufficient funds in their checking account and failure to notify the lender of a change of address are additional ways to lose ACH.
Guide to Finding an Alternative Student LoanAlthough US Department of Education student loans are the most common form of financial aid, sometimes families find they need an alternative student loan to get their children through college. For one thing, competition is rising to secure the limited number of federal student loans, and if your application is not received early, you might not receive any aid. At the same time, the maximum loan amount available through a Stafford loan has stayed the same for over ten years, while tuition costs continue to soar. Furthermore, most federal student loans presume that parents will foot part of the bill, but some parents are unable or unwilling to contribute to the student's education fund, leaving even more money for the college applicant to come up with. If federal student loans are not enough to cover a college attendee's bill, then he or she needs to find an alternative student loan.
The most common form of alternative student loan is the private loan, which is offered by banks and other lending institutions. Students with poor or no credit might require a co-signer on the loan, however, and alternative loan rates might not be as stellar as with Department of Education loans. The financial aid office of most universities will be able to help students find a banker that offers an alternative student loan at a fair interest rate. The personal bank of the student's parents might also offer educational loans. Young adults searching for an alternative student loan should be very careful to read the fine print of any private lender and to shop around to receive the best rates.
Of course, before signing on the dotted line, students might consider ways to avoid an alternative student loan altogether. Some creative ways to lower college costs include researching accelerated study courses which take less time to earn a degree, attending a less expensive community college for the basic credits and then transferring to a more prestigious school for the last few years (and the precious degree), and scholarships.
There are oftentimes more scholarships available than people realize; a local grant may be enough to bring college expenses to a manageable level. There are even colleges that charge no tuition at all, requiring instead that their students work a few hours a week at jobs related to their course of study. Not only is this a way to secure an inexpensive education, but it also provides valuable experience in your field. Finally, some investment groups offer creative ways to fund college by banking on the student's future earnings. They will pay the college costs in exchange for a percentage of future earnings (usually between 1% and 4%) for a fixed period.
Whether you finance your college fees through alternative student loans or simple ingenuity, there is no reason today for tuition costs to hinder students from receiving an education. Even if federal student loans do not seem to be enough, there are many ways to get an excellent education and to secure a brighter future.
7 Little-Known Facts about Refinancing Student Loans
Because obtaining the ability to refinance student loans is so simple, many people tend to overlook some of the key factors that can make a major impact on overall cost. Ensuring that you're utilizing every money-saving opportunity when it comes to your student loans can amount to huge savings over the course of the 10-20 years you spend repaying your loan. You might be surprised at how many ways there are to easily save money when you refinance student loans.
Your interest rate will be 60% less if you refinance student loans during the grace period
The single most important way to reduce the total amount you repay is to refinance student loans during the post-graduation grace period. Following graduation, every student has the right to a 6 month grace period before they must begin repaying their loans.
During this grace period, the rates to refinance student loans are a full 60% lower than they are once the loan enters into repayment status. When you refinance student loans during the grace period, you will lock in these lower rates for the entire 10 to 20 year repayment period.
Lender incentives can save big bucks when its time to refinance student loans
Not all companies that refinance student loans are created equally, and where they differ the most is in the interest rate reduction incentives offered. Aside from choosing to refinance student loans during the grace period, lender incentives can be the most effective way to shave a big chunk of money off of your monthly payment.
Look for those that offer interest rate reductions versus dollar amount reductions then compare the percentage of the reduction. Reductions for on-time payments and auto debit are the most common types of incentives. While many companies offer a .25% rate reduction for payments made by auto debit, ScholarPoint gives .5%. Many lenders also offer a 1% interest rate for making 36 months of consecutive on-time payments. ScholarPoint offers this 1% rate reduction a full year earlier.
Deferment and Forbearance starts over
Student loans allow a post-grad to put loans on hold for a specific amount of time over the course the loan repayment period. During this hold, called a deferment or forbearance, the borrower does not need to make payments on the loan although interest does accrue and is added to the balance of the loan.
The deferment and forbearance benefits aren’t lost during when you refinance student loans – in fact, the “clock” starts over again so that these hold periods are refreshed and can be used again in full.
You could pay more by incorporating fixed rate loans into your consolidation
The reason it’s smart to refinance student loans is that most student loans are written with a variable interest rate. This means that every year when the federal government decides on a new interest rate, the payment on your old student loan will change if you haven’t refinanced.
However, not all student loans are written with variable interest rates. Some types of loans like the Federal Perkins Loan and the HPSL loan are fixed interest rates, meaning that the rates always remain the same. If the interest rate offered when you refinance student loans is higher than that of your fixed rate loans, then you could actually pay more by adding your fixed rate loans to the mix when you refinance student loans. ScholarPoint lending specialists can help you find the most cost effective solution in terms of which loans to incorporate.
No reconsolidation after July 1st
For years, borrowers have enjoyed the flexibility of refinancing student loans multiple times in order to take advantage of better interest rates or to extend their repayment period. Beginning July 1st 2006, student loan borrowers will no longer have this option except for in a few select circumstances. These new limitations are part of the “Deficit Reduction Act,” a set of changes in place to begin repair of the nation’s rising deficit.
After July 1st, borrowers will have the option to refinance student loans only in cases where some of the loans were left out of the original consolidation or if the current lender does not offer an income sensitive repayment plan. Because borrowers are more or less locked in with their first lender they choose, it’s critical to find a lender with a solid reputation and high incentive savings options.
In order to refinance, loans cannot be in default
In order to refinance student loans, the payments must first be current and not in default. Loans that are current include those that are in their grace period, in deferment or in forbearance – as long as there are no payments due.
If you are a month or so behind on your student loans because of extenuating financial strain, try contacting your current lender about securing a hardship deferment before refinancing student loans. Oftentimes, if the payment is just a little overdue and your financial situation qualifies, the lender will backdate the forbearance thus bringing your loan current so that you can move forward in your effort to refinance student loans.
A consolidated loan cannot combine private and federal loans
If you’ve got loans from a private lender as well as loans that were granted through a government student loan program, you’ll need to secure two different loan consolidations.
Most lenders recommend consolidating federal student loans first, and then working on private loan consolidation afterward. Separate consolidations are only necessary for private and federal loans. Any type of federal loan can be combined such as subsidized and unsubsidized Stafford loans.
Refinancing student loans is a wonderful way to lower monthly payments and lock in low fixed rates. These 7 key factors can help you to save even more by taking advantage of every benefit that student loans have to offer. If you’d like to discuss these points further or
start the consolidation process now, contact us by phone at 877-561-8042 or
click here to chat with a live representative online
5 Ways to Save Money by Consolidating Student Loans
Student loans are some of the most flexible and consumer friendly loans available. Understanding how to use the process of consolidating student loans to your benefit can help you to save a great deal of money. Most people realize that consolidating student loans can help them to lower their monthly payments, but there are also plenty of added benefits such as improving credit rating and lowering debt to income ratio. Here we’ll take a detailed look at 5 ways you can save money by consolidating student loans:
Your rates are locked in at today’s low rates after consolidating student loans
Because the majority of student loans are variable rate loans, they are subject to constant fluctuation depending on the current interest rates set by the government. By consolidating student loans, you can lock in a low fixed interest rate. Because the rate is fixed after consolidating student loans, there are never any surprises when the first bill arrives after the yearly rate adjustment.
For many years, student loan rates remained at record lows. On July 1st 2006, rates will increase significantly as a result of a government plan to reduce the federal deficit. Those who don’t refinance by July 1st will still save money each month by consolidating student loans. After consolidating student loans, the balance can be repaid over a longer period of time, reducing monthly payments by as much as 60%.
You can receive additional interest rate reductions by consolidating student loans
When consolidating student loans, you not only enjoy a fixed interest rate but you can also earn additional interest rate reductions offered by the lender consolidating your student loans. Different lenders offer different types and amounts of incentive plans, and by knowing what to look for, you can save yourself a great deal of money above and beyond the already low consolidation rate.
ScholarPoint offers is customers a full 1.5% interest rate reduction, one of the most competitive savings incentive offers in the industry. The majority of incentives are offered to customers for making on-time payments and for having payments directly debited from their account – something most people do anyway!
Improve your credit score by consolidating student loans
Many students take out numerous loans throughout their college years. A student that takes out just one subsidized and one unsubsidized student loan every semester will accumulate 16 different loans on their credit report over the course of four years. While numerous loans are a benefit when it comes to paying for college, they can really drag down a credit score after college.
When consolidating student loans, all of these open loans are closed and replaced with one simple loan for the entire balance. After consolidating student loans, you will also have a much lower monthly payment, thus reducing your debt to income ratio.
Reduce debt to income ratio by consolidating student loans
Consolidating student loans can shave as much as 63% off of your monthly payment by extending the repayment period. This can make a huge difference in your cash flow each month. When creditors consider whether or not to lend you money, they will consider your debt to income ratio, which is the amount of income coming in compared with the amount paid toward bills each month.
A typical student with a $300 per month student loan payment can save as much as $200 per month by consolidating student loans. This savings can certainly make the difference between securing a loan for a car or other necessities. A favorable debt to income ratio can also help you to secure lower interest rates on new lines of credit which can literally save you thousands of dollars over a lifetime.
Reduce dependence on high interest debts by consolidating student loans
Many young professionals just out of college turn to high interest credit cards to help them get through the period where expenses are high and their careers are just ramping up. The average college student carries 6 credit cards with a combined balance of around $2100. These high interest credit card debts can really put a strain on your finances and limit your capacity for getting ‘good’ credit.
By consolidating student loans, borrowers can free up several hundred dollars in disposable income and reduce dependence on high interest credit cards. The savings can be used to pay off high interest credit card debts accrued during college. Paying off just $200 per month above the minimum could more than pay off the average college student’s credit card balance in just one year.
Consolidating student loans is simple and extremely fast now thanks to the internet. By consolidating student loans today, you could save yourself several hundred dollars by the time you make your next loan payment.
Student Borrowers Responsibilities
When you take out a student loan, you have certain responsibilities. As stated by the U.S. Department of Education in the Student Guide – 1996-97:
- When you sign a "promissory" note, you are agreeing to repay the loan according to the terms of the note. The note is a binding legal document and states that, except in cases of discharge, you must repay the loan – even if you do not complete your education. You must also repay the loan even if you are not able to get a job after you complete the program, are dissatisfied with, or do not receive the education you paid for. Think about what this obligation means before you take out a loan. If you do not repay your loan on time or according to the terms in your promissory note, you may go into default, which has very serious consequences.
- You must make payments on your loan even if you do not receive a bill or repayment notice. Billing statements (or coupon books) are sent to you as a convenience, but you are obligated to make payments even if you do not receive any notice.
- If you apply for a deferment or forbearance, you must continue to make payments until you are notified that the request has been granted. If you don't, you may end up in default. You should keep a copy of any request form you submit, and you should document all contacts with the organization that holds your loan.
- You must notify the appropriate representative (school, agency, lender, or the Direct Loan Servicing Center) that manages your loan when you graduate, withdraw from school, or drop below half time status, change your name, address, Social Security Number, or transfer to another school. If you borrow a Perkins loan, your loan will be managed by the school that lent you the money or by an agency that the school assigns to service the loan. If you borrow a Direct Loan, it will be managed by the Direct Loan Servicing Center. If you borrow a FFEL Program Loan, it will be managed by your lender or its servicing agent. During your loan counseling session, you will be given the name of the representative that manages your loan.
- Regardless of the type of loan you borrow, you must receive entrance counseling before you are given your first loan disbursement, and you must receive exit counseling before you leave school. These counseling sessions will be administered by your school and will provide you with important information about your loan. Your lender or the Direct Loan Servicing Center will provide you with additional information about your loan.
A Borrower's Rights
A student has certain rights as a borrower. Below is a list of some of the borrower's rights:
Before your school makes your first disbursement, you will receive the following information about your loan from your school, lender, and/or the Direct Loan Servicing Center:
- The full amount of the loan
- The interest rate
- When you must start repaying the loan
- The effect borrowing will have on your other eligibility for other types of financial aid
- A complete list of any charges you must repay (loan fees) and information on how those charges are collected
- The yearly and total amounts you can borrow
- The maximum repayment periods and the minimum repayment amount
- An explanation of default and its consequences
- An explanation of available options for consolidating or refinancing your loan
- A statement that you can repay your loan at any time without penalty
Before you leave school, you will receive the following information about your loan from your school, lender and/or the Direct Loan Servicing Center:
- The amount of your total debt (principal and estimated interest), what your interest rate is, and the total interest charges on your loan
- If you have FFEL Program Loans, the name of the lender or agency that holds your loan, where to send your payments, and where to write or call if you have questions
- If you have Direct Loans, the address and telephone number of your Direct Loan Servicing Center
- The fees you should expect during repayment period, such as late charges and collection or litigation costs if you are delinquent or in default
- An explanation of available options for consolidating or refinancing your loan
- A statement that you can repay your loan without penalty at any time
If you borrow a Federal Perkins Loan, the previous information will be provided to you by your school. If you borrow a Direct Loan or an FFEL Program Loan, this information will be provided to you by the Direct Loan Servicing Center or your lender, as appropriate.
If you have direct or FFEL Stafford Loans, your school will also provide you with the following information during your exit counseling session:
- A current description of your loans, including the average monthly anticipated payments of students from your school
- A description of applicable deferment, forbearance, and discharge provisions
- Repayment options
- Advice about debt management that will help you in making your payments
- Notification that you must provide your expected permanent address, the name and address of your expected employer; the address of your next of kin, and any corrections to your school's records concerning your name, Social Security Number, references and driver's license number (if you have one)
You have the right to a grace period before your repayment begins. (Your parents do not receive a grace period for the PLUS loan). Your grace period begins when you leave school or drop below half-time status. The exact length of your grace period is shown on your promissory note.
During exit counseling, your school, lender, and/or the Direct Loan Servicing Center as appropriate must give you a loan repayment schedule that states when your first payment is due, the number and frequency of payments, and the amount of each payment.
You must be given a summary of deferment and discharge (cancellation) provisions, including the condition under which the U.S. Department of Defense may repay your loan.
If you or your parents borrow a FFEL Program Loan, you must be notified when:
- Your loan is sold, if the sale results in your making payments to a new lender or agency
- Both the old and the new lender or agency must notify you of the sale
- The identity of the new lender or agency holding your loan
- The address to which you make payments
- The telephone numbers of both the old and new lender or agency
- This does not apply to Perkins or Direct Loan borrowers
Consolidating Student Loans Can Improve Your FICO Score
Most people are aware that consolidating student loans can greatly lower their monthly payments. However, many borrowers don’t realize how great of an impact consolidating student loans can have on their FICO score. Consolidating student loans is perhaps one of the most effective ways to quickly improve your FICO score, in turn saving a great deal of money on future big ticket credit purchases like cars and homes.
The anatomy of a FICO score
A FICO score is derived from giving a numerical value to different elements of creditworthiness and running those numbers through a complex algorithm. The score considers your current and past financial situation in order to make a prediction about how likely you are to pay your bills on time in the future. Each credit-worthiness factor is weighted according to its importance:
35% - Payment history
30% - Amount of debt owed
10% - Length of credit history
10% - Types of current credit
15% - Miscellaneous
The direct impact of consolidating student loans on your credit
The first way that consolidating student loans positively impacts your FICO score is by closing all of the open student loans and replacing them with one, predictable, fixed interest loan. Because the amount of debt owed is such a highly ranked factor, reducing the amount owed can make a big impact on your overall score. Lenders most certainly consider debt to income ratio when deciding if you can comfortably take on a new payment. Because consolidating student loans can reduce your monthly student payment by up to 60%, your debt to income ratio can be significantly lowered.
If a graduate with a $30,000 debt pays around $313 per month before refinancing. After consolidating student loans, the new loan payment is around $106, freeing up an additional $207 per month. When considering the purchase of a new vehicle with a $300 monthly payment, having an extra $200 a month in disposable income can be a deciding factor on whether or not you can secure the auto loan at a favorable interest rate.
The indirect impact of consolidating student loans on FICO score
The reason most young adults find themselves in credit trouble is because they often need to rely on high interest credit cards to get through school and the years following graduation. People just out of college already have the chips stacked against them with a long future of student loan bills and plenty of things to purchase. Additionally recent graduates are usually just starting their careers and earning only a fraction of their likely future salary which makes it more difficult to pay off old credit card debt and easy to take advantage of new offers.
Saving several hundred dollars a month by consolidating student loans can give graduates the additional income needed to pay down harmful high interest credit card debts. If the student in the above example were to use the savings from consolidating student loans to pay down credit cards, this would add up to $2,400 per year and $12,000 over a span of 5 years.Being financially savvy is the art and practice of leveraging good debt to eliminate dangerous high interest debt.
Student loan consolidation: how it works to lower your monthly payments
When consolidating student loans, your lender pays off all of your existing variable interest rate loans then writes a new, fixed interest rate loan which you are then responsible for. The borrower still retains all of the benefits enjoyed before consolidating student loans such as the ability to defer payments or apply for forbearance.
The main reason why payments can be so much lower after consolidating student loans is that the loan can be spaced out over a longer period of time, thus reducing the amount due monthly. Borrowers can pay off the loan early at any time without penalty should they choose. By consolidating student loans, graduates can leverage what they have a lot of – time, against something that is generally less readily available – money.
Building a strong financial base and maintaining a healthy FICO score is a critical factor in the type of home you can own, the type of car you can buy, and the quality of life you can enjoy. Consolidating student loans today means taking the first step in building a strong financial future.
5 Incentives to Consolidate Student Loans
Each year on July 1st, student loan rates change based on the government’s established rate calculation. For years this date has come and gone without alarm, but 2006 marks one of the largest increases in history. Not only will interest rates rise sharply, but many benefits that borrowers have grown to count on will also now be eliminated.
Here we detail 5 money-saving reasons to consolidate student loans by the 1st of July:
Reason #1: Interest rate hikes on student loans
On July 1st, 2006, the current variable rate for existing Stafford Loans will increase from 4.7% to 6.54% during deferment and grace periods, and increase from 5.3% to 7.14% in repayment. PLUS loans will shoot skyward from 6.1% to 7.94%. By consolidating student loans before July 1st, borrowers have the opportunity to lock into today’s current rate before the hike. All it takes is for you to apply online by June 30th. If you miss the July deadline, the cost could be substantial. You could end up with a rate that is 4% higher than what you could consolidate at today, and pay $15,000 or more in extra interest costs.
Reason #2: Lower monthly payments
Applying for a federal consolidation loan with ScholarPoint can lower your monthly payment by up to 63%. For example, a borrower with $50,000 in student loan debt can consolidate and reduce the monthly loan payment from $537 to $198. This leaves more money in your pocket and eases the financial impact of student loans. Consolidation gives students and parents much needed freedom and flexibility when making financial decisions.
Reason #3: The end of student loan consolidation while still in school
Previously, students could consolidate student loans while still in school. As part of the new legislation going into effect on July 1st, students will no longer have this option. This means that students will either have to consolidate student loans at whatever the rates are when they graduate, or continue to pay the government’s fluctuating variable interest rates until they feel the rate is right to lock in. 2006 graduates who are currently in their post graduation grace period should move quickly to consolidate student loans before July to lock in the lower 2005-2006 interest rates.
Reason #4: No more spousal student loan consolidation
Many married couples have enjoyed the opportunity to consolidate student loans together into one low monthly payment. Another of the July 1st changes will be to cut this option from the list of student loan benefits. Couples who miss the July 1st deadline will still be able to consolidate student loans individually and save up to 60% on their current monthly payments. But, they would be consolidating at a much higher rate.
Reason #5: Shopping for a more favorable student loan consolidation lender will be more difficult
Up until now, borrowers have had the option to shop around for a lender with which to consolidate student loans, even if they had previously consolidated. With the new legislative changes, borrowers won’t be able to switch lenders once they’ve already consolidated except in specific circumstances. Unless one or more of your student loans were left out of your original consolidation or if your lender doesn’t offer an income sensitive repayment plan, you must remain with your current lender under the new laws.
