Current Issues/Concerns

We realize that some of you have been receiving information on loan consolidation in the mail from various sources.  Unfortunately, we cannot advise you to consolidate or not, however you may want to do some research into consolidation.

It appears that some of you have received notices indicating a deadline date to lock in a low interest rate of 6%, however the interest rate on loans borrowed after 07/01/98 is good until June 30, 2002.   This offer may be true for that guarantor, however Direct Lending may offer a better interest rate.  Since we are a Direct Lending school I would advise you to investigate them first.  They may have a better deal to offer.  Once again, please be advised that the interest rate on all loans taken after July 01, 1998 is 5.39% (loans that are in an in-school, grace and/or deferment status) and 5.99% for loans in forbearance or repayment.  These rates are good until June 30, 2002.  The interest rate on loans borrowed prior to this date may vary.

If you are considering consolidating you may want to wait until May 28th when the T-bill will be auctioned off again to determine what the new interest rates will be.  If the T-bill is auctioned off at 3.69% or higher you will need to be prepared to send in your consolidation application right away to take advantage of the current interest rate.  If the T-bill is auctioned off at 3.69% or lower you may want to consider consolidating after July 01, 2002 when the new rate takes effect.

What is loan consolidation?
Loan consolidation is when you take at least two federal loans and combine them into one new loan.  It simply means paying off or refinancing multiple loans with one new loan.

Borrower Eligibility?
Borrower eligibility depends on the status of the loan and the type of borrower.  Is the loan in an in school, out of school or in default status?  The different status types determine what interest rate is given to a borrower when consolidating.  The borrower type depends on whether you are a student, parent or a married couple applying for consolidation.

Advantages & Disadvantages
There are six advantages to consolidation:

Disadvantages
Fixed interest rate-You cannot later take advantage of a lower interest rate; you are locked in.May lose benefits associated with individual loans-incentives or dischargesMay lose deferment and forbearance provisions associated with individual loans

FFELP vs. Direct Loan Consolidation
FFELP is offered through “traditional lenders”-FFELP consolidation lenders compete against each other for the borrowers business

The federal government offers direct loan consolidation
Direct loan competes with the FFELP lenders

FFELP Consolidation
Available to all Stafford borrowers, it doesn’t matter if the loans are with FFELP or Direct Lending.Available only after school (during grace, deferment, forbearance, and “active” repayment)

Direct Loan Consolidation
Available for all Direct loan borrowersAvailable to FFELP borrowers out of school who either cannot obtain a consolidation loan with their FFELP lender or cannot obtain acceptable income sensitive repayment terms with their FFELP lender

Consolidation Loan Interest Rate
The interest rate on a new consolidated loan is determined by taking the weighted average of the interest rates for loans being consolidated and round up to the next one-eighth of a percent.  The new rate will be a fixed rate and will not exceed 8.25%.

Questions to Consider Before You Consolidate
Why do you want to consolidate?How long does your internship/residency take to complete?What benefits will I loss if I consolidate my individual loans into one bigger loan