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April 13, 2006
What I learned about student loan consolidation...
I attended a quick seminar yesterday morning on student loan consolidation. I'm a bit thick-headed when it comes to finances. There was a lot of talk about consolidation last year, but I was too confused and busy to do anything. And the letters and flyers from banks encouraging me to consolidate now! finally prompted me to go see what this was all about, and I'm glad I did. Here are some key points for others who may feel as confused as I did.
Many student loans have variable interest rates. These rates can be changed (usually they increase) every year on July 1. Students are encouraged to consolidate their loans. The reason I was confused is that I had already consolidated my loans a few years back and took consolidation to mean "combine into one." Well, now I understand that consolidation really means "lock in the interest rate." And you can consolidate just one loan, if you want. What happens is that you take out a new loan that pays off the other(s) and fixes the interest rate. When you consolidate two or more loans with different interest rates, the interest rate for the new loan is a combination of the existing loan rates, calculated as a weighted average. If you have any variable interest rate loans now, you want to consolidate by June because the new interest rate starting July 1 will probably go up from this year's 4.7% to 6.8%!
Those wishing to consolidate are strongly encouraged to do so now and not wait for the June rush. Consolidating your loans isn't too complicated once you understand what you need. First, you need to know what kind of loans you have. To find out, go to the National Student Loan Data System where you will see a history of all of your Federal Title IV Loans by clicking on "Financial Aid Review". To access your loans, you will need to use your FAFSA pin number (the same one you use to access your Federal Student Aid). UPDATE (6/27/06): Make sure your PIN is a four-digit number. The NSLDS web site only accepts 4-digit PINs. If you have a six-letter PIN (or something else), you must got to the PIN web site and change it. I found this out the hard way.
When you log on, you will see a page with a list of your entire loan history. Keep in mind that some of these loans may have been paid off. You only need to worry about those that have "Outstanding Principal" greater than $0 (second-to-last column). It is very important to check this NSLDS site first because it shows all of your loans. The Direct Loan Servicing page of the Federal Student Aid agency only shows your Direct loans. There are two main types of loans when talking about consolidation: Direct and non-Direct. Direct are the "Direct Stafford Subsidized" and "Direct Stafford Unsubsidized" loans. Other, non-Direct, loans don't have the "direct" in the title, like "Stafford Subsidized", etc.
One quick aside: if you have a Perkins Loan, you probably don't want to consolidate it along with the others because there are many forgivenesses -- like if you become a teacher or join the Peace Corp. These forgivenesses are nullified by consolidation because you take out a new loan with new terms.
If you only have Direct loans, you can consolidate any/all of them with a simple phone call. Just call 1-800-557-7392 and they can take care of consolidating your Direct loans. But the operators at the Department of Ed can only see your Direct Loans on their screen -- they can't tell you if you have other loans.
If you have a mixture of Direct and non-Direct, you can consolidate by filling out some forms on-line at the Department of Ed consolidation website. But you need to take some information from the NSLDS web site (the "Financial Aid Review" page I mentioned above). You can find the information you need about each loan by clicking on the round, yellow number button that precedes each loan on the list. It may be helpful to download the paper form to see what information you'll need for the electronic form -- the PDF is here.
The information you need about your loans is:
• Loan Lender Name, Address, and Phone number -- this is at the bottom of the loan page. For all Direct loans, the address is probably not listed (not very helpful), but that information is:
Direct Loan Servicing Center
Borrower Services Department
P.O. Box 5609
Greenville, TX 75403-5609
1-800-848-0979
• Loan Type -- Stafford Unsubsidized, Direct Stafford Subsidized, etc.
• Account Number -- for all of your loans, this is your Social Security Number
• Current Balance -- outstanding principle
Now, with this information, you are ready to complete the on-line consolidation form. Be aware that you don't have to consolidate through the Department of Education. There are many banks and loan servicing companies that are more than happy to have your business, but just keep in mind the DOE is a sound, secure thing. If you do decide to consolidate with a bank, make sure it's a trusted bank with a long, stable history. You don't want to wind up in the situation where your loan is sold and passed around from place to place, because you have to be really on top of things so you don't default. Many servicing companies will offer incentives like reducing your interest after you make a number of on-time payments. But if your loan is sold, you probably won't get that deal anymore or you'll start back at square one. And make sure, whether you consolidate with DOE or someone else,that you fully understand what constitutes an "on time" payment. Finally, if you are looking for a deal (who isn't?) just about anyplace, including the DOE, will give you a quarter point interest rate reduction on your loan repayments when you sign up for automatic electronic payment through your bank account.
Okay, kids, have at it!
Posted by rigd0003 at April 13, 2006 11:38 AM | PhD Process
Comments
Great tutorial--you should get a commission. Suppose you could publish this?
Posted by: Mom Rigdon at April 13, 2006 1:37 PM
that is totally a good tutorial! I consolidated way back in 1996...and I always thought that it meant "combine into one" too, and never looked back...It's been 10 years now (!!) and I only have like one year left. *wheew!*
Posted by: naomi at April 13, 2006 4:29 PM
You rock! This is a totally amazing step-by-step breakdown with all the info you need to get the job done. You are a natural at technical writing!
Posted by: mira at June 29, 2006 1:47 PM