Student Loan Consolidation Resource Center

Preventing Student Loan Default

2005-09-07T17:42:00.000-07:00

Consequences of Default

If you default on your student loan:

Your loans may be turned over to a collection agency.
You'll be liable for the costs associated with collecting your loan, including court costs and attorney fees.
You can be sued for the entire amount of your loan.
Your wages may be garnished. (Federal regulations limit the amount that may be garnished to 10% of the borrower's take-home pay.)
Your federal and state income tax refunds may be intercepted.
Your defaulted loans will appear on your credit record, making it difficult for you to obtain an auto loan, mortgage, or even credit cards. A bad credit record can also harm your ability to find a job.
You won't receive any more federal financial aid until you repay the loan in full or make arrangements to repay what you already owe and make at least six consecutive, on-time, monthly payments. (You will also be ineligible for assistance under most federal benefit programs.)
You'll be ineligible for deferments.
Federal interest benefits will be denied.
You may not be able to renew a professional license you hold.
And of course, you will still owe the full amount of your loan.

Preventing Default

Make sure you understand your options and responsibilities before taking out a loan.
Make your payments on time.
Notify your lender or servicer promptly of any changes that may affect the repayment of your loan. If you move or change your address, let them know. Likewise tell them about name changes (e.g., because of marriage), graduation or termination of studies, leaves of absence and transfers to another school.
If you encounter financial difficulties, consider applying for a deferment or forbearance on your loans. It is better to defer your payments than to go into default. Ask your lender about these options while you are still making payments, before you default on your loan. You won't be able to get a deferment or forbearance after you default.
If you are having trouble making payments, your lender may be able to suggest alternate repayment options, such as graduated repayment, income sensitive repayment and income contingent repayment. The types of available repayment options currently depend on whether the loan was issued under the FFELP or FDSLP (Direct) programs.
Consider using a consolidation loan to combine all of your educational loans into one big loan. This lets you send your payments to just one lender. You may also be able to extend the term of the loan in order to reduce the size of your monthly payments.
Keep careful records regarding your loan. Put copies of all your letters, canceled checks, promissory notes, notices of disbursement and other forms in a file folder.

[source: finaid.org]

Will you default on a student loan?

2005-09-06T17:08:00.000-07:00

What does it mean to default on a student loan?

For federally guaranteed student loans under Title IV of the Higher Education, a default occurs when you fail to make payments on your loan for (a) 180 days if you repay in monthly installments or (b) 240 days if the payments are due less frequently. During the time that you are behind in your payments, your lender must exercise "due diligence" (make repeated efforts to find you and contact you about repayment) in attempting to collect the loan from you. If the lender is unsuccessful, it will usually place the loan in "default" and turn it over to the "guaranty agency" in your state. Lenders may "accelerate" a defaulted loan, which means that the entire balance becomes due in a single payment.

Once your loan is assigned to a guaranty agency or the U.S. Department of Education for collection, several steps, including the following, may be taken to recover what you owe:

credit bureaus may be notified [under 20 U.S.C.1080 or 20 U.S.C. 1087cc (c)] and your credit rating may suffer,

the IRS (under 34 CFR 30.20-30.33) may withhold your tax returns,

you may be subject to an Administrative Wage Garnishment where the Department of Education ( under 20 U.S.C. 1095a), will require your employer to forward 10-15% of your disposable pay for repayment , or

the Department may take legal action to force you to repay.

Once a loan is declared in default, you are no longer entitled to any "deferments" or "forebearance" (explained below). In addition, you may not receive any additional Title IV federal student aid if you are in default on any Title IV student loan.

(source: clarkcountylegal.com)

Federal Student Loan Consolidation

2005-06-17T15:29:00.000-07:00

In order to apply for the Federal Consolidation Loan, you must have at least $7,500 in eligible federal student loans. All loans must be in the grace period, in active repayment status, or deferment, and loans to be consolidated cannot be in default. You may not have already consolidated, unless you have a new loan to add.

Eligible Federal student loans include:

DSS- Direct Subsidized Stafford Loans
DUS- Direct Unsubsidized Stafford Loans
DPLUS- Direct PLUS Loans
DUCON- Direct Unsubsidized Consolidation Loan, including Direct PLUS Consolidation Loans
SS-Subsidized Federal Stafford Loans, formerly Guaranteed Student Loans (GSL)
US- Unsubsidized and Nonsubsidized Federal Stafford Loans
NSL-Federal Nursing Loans
PERK- Federal Perkins Loans, formerly Nations Defense/National Direct Student Loans (NDSL)
PLUS- Federal PLUS (Parent) Loans
SCON- Subsidized Federal Consolidation Loans
UCON- Unsubsidized Federal Consolidation Loans
SLS- Federal Supplemental Loans for Students (formerly Auxiliary Loans to Assist Students (ALAS) and Student PLUS Loans)

NOTE: You may consolidate a Consolidation Loan only if you are combining that loan with at least one other eligible loan for you or your spouse, although spousal consolidation has some risks.

(source: collegeaid.com)

Economic Hardship forbearance or Student Loan Consolidation

2005-06-15T11:46:00.000-07:00

You may be able to obtain an Economic Hardship Deferment for a period of time when you are earning less than the minimum wage or owe 20% or more of your monthly income for federal education loans.

To qualify for an Economic Hardship Deferment you need to:

Have an outstanding Federal Stafford, Supplemental, PLUS or Consolidation Loan which you obtained on or after 7/1/93 and any one of the following:

Have been granted an Economic Hardship Deferment under the Federal Direct or Federal Perkins Loan programs;
or

Be receiving public assistance payments. (Examples: Aid to Families with Dependent Children, Supplemental Security Income, Food Stamps, or state general public assistance);
or

Be working at least 30 hours per week and have federal education loan payments that equal or exceed 20% of your monthly income. In addition, when you subtract your federal education loan payments, your remaining monthly income must fall at or below 220% of the minimum wage or the poverty line, whichever is greater;
or

Be working at least 30 hours per week and earning no more than minimum wage or the poverty line for a family of two whichever is greater;
or

Be working LESS than 30 hours per week and earning no more than twice the minimum wage or the poverty line amount whichever is greater. In addition, when you subtract your federal education loan payments, your remaining monthly income must fall below the minimum wage or poverty line;
or

Be serving as a Peace Corps volunteer now or in the future.
You may obtain this deferment for a maximum of three years.

This deferment is granted in 12-month increments.

(source: citibank.studentloan.com)

Help with defaulted student loan

2005-06-14T12:24:00.000-07:00

The U.S. Department of Education's efforts to assist student loan borrowers are paying off, says Education Secretary Roderick Paige. The nation's student loan default rate has dropped to an all-time low of 5.4 percent, and for the first time ever, all schools have rates low enough to ensure they remain eligible for federal financial-aid programs, Paige said last month.

Paige applauded improved efforts by the financial-aid community to counsel borrowers and to inform them of the numerous flexible repayment options designed to meet individual repayment needs.

The national default rate has dropped nearly every year since 1990, when it peaked at 22.4 percent. The fiscal year 2001 rates released represent the most current data available and include data on borrowers who attended some 6,200 schools that participate in the Federal Family Education Loan and William D. Ford Federal Direct Loan programs. The FY 2001 default rate is a snapshot in time of borrowers who began repaying their loans between Oct. 1, 2000, and Sept. 30, 2001, and who defaulted before Sept. 30,2002.

Paige also said the department has been working with its student-aid partners to increase efforts to identify borrowers who appear to need repayment assistance and to generally improve the overall management of the student-aid programs.

Paige noted that the current interest rates on federal Stafford Loans are now at an all-time low of 3.42 percent, making loan payments more affordable. As recently as three years ago, the interest rate was more than double--8.19 percent. The president's FY 2004 budget request would provide more than $62 billion in student aid to 9.2 million students, an increase of $3.1 billion from the previous year. The Pell Grant program would increase to $12.7 billion --$4 billion more than when the president took office.

Borrowers needing assistance on repaying their student loans should contact the holders of the loans to learn about repayment options. For help locating their loan holders, borrowers may access or contact the department's Federal Student Aid Information Center at 1-800-4FED-AID (433-3243).

(source: loan.vip.sina.com)

The Politics of Student Loans and Consolidation - Part II

2005-06-11T04:13:00.000-07:00

What's the solution to make everyone happy? Well, there really isn't one per se. You could reduce the number of slices of bread - disqualify more students and their families - or you could increase the supply of butter - via more taxes. Either way, the government would have to do something unpopular, and unpopular is something the government - particularly elected officials - strive very hard not to be.

In the meantime, what can you do to get more aid, more dollars for education? As fewer dollars become available from the government, students will need to seek more non-governmental assistance. Here's your options:

1. Get scholarships. Free money. The only cost is postage, time, and effort, and optionally a reputable search service like www.FinancialAidOfficer.com. Visit http://www.financialaidofficer.com/scholarship_search/ to see the service.

2. Get federal loans if you can. File a FAFSA and then, if eligible, apply for federal student loans. Federal student loans are a good bet for low interest loans. Visit http://www.StaffordLoan.com (for students) or http://www.ParentPLUSLoan.com (for parents).

3. If you've already graduated, consolidate your federal student loans. Visit http://www.StudentLoanConsolidator.com to do so - and soon. Rumblings from the government indicate less than positive signs for the federal consolidation program in the months to come. As noted above, there are already fewer dollars allocated for the program, and President Bush has indicated an interest in further reducing the availability of student loan consolidation.

4. Get private loans. Private student loans provide alternative sources of financing at competitive rates, and are not dependent on the government. No FAFSA, no worries about the Department of Education eliminating the program. Visit http://www.AlternativeStudentLoan.com for more details.

5. Solicit help. There's nothing wrong with setting up your own web site and PayPal account and requesting assistance. Sure, it requires swallowing your pride, but if the cost of your pride is no education... well, it's your life.

6. Vote. Not just in the Presidential Election, but in every election you are eligible for. Federal, state, and local. Why? Because a lot of the very quiet little local and state elections put officials in office who contribute to the overall big picture. That House of Representatives mid-term election candidate might be the deciding vote in an education bill in two years, so vote early, vote often. Visit DeclareYourself.com and register to vote.

(source: The Student Financial Aid News)

The Politics of Student Loans and Consolidation - Part I

2005-06-11T04:09:00.000-07:00

Financial aid is a lot like bread and butter. Let's say that you have a pile of bread slices and a tub of butter. The slices represent all the students who want to go to college but can't afford to pay full price. The butter represents the federal student aid program - Pell Grants, Perkins Loans, Stafford Loans, student loan consolidation, PLUS loans, etc. Why is it so hard to get federal student aid? Because you and the Department of Education have contrary goals.

You, as a diner of the slice of bread, want as much butter as possible - i.e. you want as much of your education subsidized by the government as possible. This is not an unreasonable request since the government's funds are paid for by taxpayers, which you or your parents probably are.

The Department of Education, however, has a different goal. The US Department of Education has set aside $68.7 billion for student financial aid of every kind. Their goal - to get butter - any amount - on as many slices of bread as possible. So they will work very hard to make sure as many slices of bread get butter as possible, but that butter is going to be awfully thin - so thin that you may not even taste it. With more than 10 million students applying for federal financial aid every year, every dollar has to be spread more thinly.

That's not all - federal financial aid is changing, and the 2005 budget submitted by President Bush and approved by Congress has made the new budget a certainty. What decreases are there in the 2005 budget?

* $239,000 fewer dollars available for Pell Grants
* $126,000 fewer dollars available for Perkins Loans
* Elimination of the Loan Forgiveness for Child Care Providers Program
* Elimination of the Leveraging Educational Assistance Partnerships Program
* $3,513,000 fewer dollars available for student loan consolidation

(source: US Department of Education web site )

What does this mean for you? Less butter for more bread - especially if you are a graduate who wants to make your student loans more affordable by consolidating.

(Source: Student Loan Financial Aid Newsletter)

Things they didn't tell you about student loans

2005-06-10T19:28:00.000-07:00

The Department of Education recently clarified that students borrowing under the Federal Family Education Loan Program who are still in school can consolidate their loans to take advantage of the current low interest rates.

It's a good thing, because for the first time in five years, the interest rates on student loans will be going up. Effective July 1, the new variable rate on federally backed student loans will increase by 1.93 percentage points to 4.70 percent for in-school borrowers and those in their six-month grace period. The rate will rise by 1.93 percentage points to 5.30 percent for borrowers currently in repayment. The rate on Parent PLUS loans will rise to 6.10 percent.

Students still in school who want to lock in the lower rates have until the end of the month to act. (And don't wait until June 30. Procrastinating could cost thousands of dollars over the life of the loan.)

There is a downside to consolidating while you're still in school (you knew there had to be a catch). Typically, borrowers get a six-month grace period after graduation before they have to begin repaying their loans. Consolidation eliminates the grace period.

However, even though students give up the grace period, they won't have to start making payments until they leave school. To do so, they can request an in-school deferment.

Marlene of San Diego asked what if you have all your loans with the same lender, can you shop around for the best consolidation terms?

The logical, free-market answer should be yes, right? But of course it's not that simple.

If all your loans are held by a single lender, you are required to consolidate with that lender. If your lender doesn't consolidate, or your loans are held by multiple lenders, only then can you shop around.

If you still have questions or are confused about your student loan, contact the Department of Education's federal student aid ombudsman at www.ombudsman.ed.gov or 877-557-2575.

(source: heraldnet.com)

Student loan consolidation pros and cons - Part III

2005-06-09T10:14:00.000-07:00

Why would I want to consolidate?
There are many good reasons to consolidate, including:

The potential of lower monthly payments.
One monthly loan payment (instead of several).
A low, fixed interest rate that cannot exceed 8.25% at any time, coupled with national interest rates at a 40-year low.
An easy application process that does not include a credit check or any application, origin or processing fees.
Flexible payment plans and terms that allow you to design a repayment plan that best suits your financial needs both now and into the future as your financial circumstances change.
While you don't need to consolidate in order to take advantage of this one, you can knock an additional .25% off your rate by making your monthly payment electronically. This electronic debit option does more than save you money - it decreases your chances of forgetting a payment.
The option to prepay your loan at any time without incurring a penalty.
Why wouldn't I want to consolidate?
Of course, consolidation has a downside:

Take note of interest rates. If you consolidate high-interest loans with low-interest loans, you may be paying a higher rate on average. So do your math; if the majority of your loans are high interest, you may want to pay that low-interest loan off separately.
Beware of payment flexibility. It's great to have the option to make low monthly payments over a longer span of time. Just keep in mind that the total amount you pay on a loan will end up being higher because of all that interest piling up.

(source: brokescholar.com)

Student loan consolidation pros and cons - Part II

2005-06-08T17:40:00.000-07:00

Pro's:

Lower Monthly Payments
Low Fixed Interest Rate
One Payment, One Lender

Con's:

Repayment term may be longer which means more interest paid over life of the loan
Possible loss of some repayment incentives
Possible loss of some deferment entitlements
Loss of six-month grace period if consolidating while in school

Student loan consolidation pros and cons - Part I

2005-06-08T11:36:00.000-07:00

Your alternatives depend on what you plan to accomplish by consolidating.

If a lower monthly payment is your goal, your current lender/ loan holder may already offer an alternative option.
If meeting your monthly payment is difficult, consider deferment or forbearance options that allow eligible borrowers to temporarily postpone or reduce their FFEL loan monthly payment.
If one lower monthly payment is your intention, ask about serialization, the combining of all loans held by one lender. It allows your lender to create one monthly payment that is proportionally applied across all of the underlying loans. Multiple loans with one lender are often "serialized" automatically.
You may also ask your lender to purchase your education loans held by another lender or servicer. This would allow for serialization and/or combined billing.

(source: edfund.org)

Education Financing - nonfederal student loan consolidation and goverment student loan consolidation

2005-06-08T06:25:00.000-07:00

Few students can afford to pay for college without some form of education financing. Two-thirds (65.6%) of undergraduate students graduate with some debt, and the average federal student loan debt among graduating seniors is $19,102 (Stafford and Perkins Loans), according to the 2003-2004 National Postsecondary Student Aid Study (NPSAS). (The median is $17,120. One quarter of undergraduate students borrow $24,936 or more, and one tenth borrow $35,193 or more.) These figures increase by about 3% or approximately $550 a year. When one includes PLUS loans in the total, the average cumulative debt incurred is $21,814. (Approximately one in ten (10.7%) parents borrow PLUS loans for their children's college education, with a cumulative PLUS loan debt of $16,218.)

Graduate and professional students borrow even more, with the additional debt for a graduate degree ranging from $27,000 to $114,000. The following table shows the percentage borrowing and average amount of cumulative debt among graduating students according to degree program. It provides the amounts borrowed for just the graduate education and also the combined totals for undergraduate and graduate education.

Graduate Education Debt All Education Debt
(Grad & Undergrad)
Graduate & Professional Degree Programs Percent Borrowing Cumulative Debt Percent Borrowing Cumulative Debt
Total 60.1% $37,067 70.1% $42,406
Master's Degree 58.4% $26,895 69.3% $32,858
Doctoral Degree 51.0% $49,007 58.3% $53,405
Professional Degree 86.5% $82,688 88.4% $93,134
MBA 53.0% $35,525 63.6% $41,687
MSW 76.5% $27,136 81.0% $37,029
PhD 40.0% $36,917 46.8% $41,540
EdD 53.4% $49,050 65.7% $47,725
Law (LLB or JD) 87.7% $70,933 89.7% $80,754
Medicine 95.0% $113,661 95.0% $125,819

Grants, scholarships, work-study and other forms of gift aid just do not cover the full cost of a college education. Many students find that they must supplement their savings with government and private loans. The Federal education loan programs offer lower interest rates and more flexible repayment plans than most consumer loans, making them an attractive way to finance your education. You can also deduct up to $2,500 in student loan interest even if you don't itemize deductions on your income tax return.
(source: finaid.com)

Why should I consolidate my student loans?

2005-06-07T06:29:00.000-07:00

Consolidation offers many benefits-even if you’re currently making your monthly payments without any difficulty.
• You can make monthly bill paying easier with one student loan payment to one lender.
• The rate on a Federal consolidation Loan is fixed for the life of the loan. Federal Stafford Subsidized and Unsubsidized Loans carry variable interest rates that are adjusted annually.
• Consolidating will help ease the pressure on your monthly budget by reducing your monthly student loan payment 10% – 60%.
• You can save money by using your student loan payment savings to pay off high-rate debt, such as credit cards.
• Consolidation will help your credit scores and debt-to-equity ratio, both key factors if you’re looking to purchase or refinance a home.

(source: nextstudent.com)

What about private loan consolidation?

2005-06-06T18:59:00.000-07:00

It's not a bad idea to consolidate your private student loans. What is a bad idea is combining federal and private student loans, which results in a consolidated private loan. This is bad for many reasons:

You cannot defer payments on a private loan consolidation if you want to go back to school. You can with federal loan consolidation.
You cannot forbear payments in case of economic hardship on a private loan consolidation.
You cannot claim interest as a tax deduction on a private loan consolidation.
You cannot apply for forgiveness on a private loan consolidation. Certain types of work, such as federal volunteer programs, teaching in economic development zones, and military service, among others, can qualify you to have part or all of your federal loans dismissed by the government.
If you should pass away, private loans are passed to your next of kin. Federal loans are forgiven.

(information provided by studentloanconsolidator.com)

What types of loans may be consolidated?

2005-06-06T18:34:00.000-07:00

Stafford Loans - Subsidized and Unsubsidized
Federal Direct Stafford Loans - Subsidized and Unsubsidized
HEAL/HPSL Student Loans
Parent PLUS Loans
Federal Direct Parent PLUS Loans
Federal Consolidation Loans
Federal Direct Consolidation Loans
Perkins Loans
Nursing School Loans and more...

(information provided by studentloanconsolidator.com)

Benefits of Federal Education Loan Consolidation:

2005-06-06T18:32:00.000-07:00

Reduce your monthly payment up to 60% or More! Beat inflation!
Apply now and lock in a lower rate for the life of the loan.
Reduce your interest rate 0.6% by consolidating in your grace period!
Make one loan payment a month.
Improve your credit rating!
Match your repayment plan and term to your financial situation.
Reduce your interest rate as much as an additional 1.25% through our benefits package.

Consolidation can significantly reduce your monthly payment burden. Student loan consolidation allows you to stretch your repayment period from the standard 10 years to up to 30 years, depending on the amount of your education debts. The lower payment means you'll have more money available to meet other household expenses, including car payments, childcare, and career-related necessitie

(information provided by stafford.com)

Federal Student Loan Consolidation Introduction

2005-06-06T18:29:00.000-07:00

How much can you save each month? Quite a bit, up to 60% of your current payment. Take a look at the chart on the right - this is an example of your average monthly payment* before and after consolidation. Find out how much you can save personally using our calculator!

What is student loan consolidation?

Student loan consolidation is a fixed-rate refinancing plan that cuts your monthly payments up to 60%.

Requirements to Consolidate your Student Loan:

Minimum amount of $7,500 in Federal student loans
Apply now for a free information packet and you could secure a low fixed interest rate for the life of the loan - locking in the lowest consolidation rates in 39 years!

(information provided by staffordloan.com)