Student Loan News

Refinancing education loans can be so simple and attractive that many borrowers tend to overlook some critical points about student loan refinancing. Sometimes what you don’t know can save you a great deal of money, time, and frustration. Below you’ll find a few little know facts that can save you big bucks when refinancing your education loans.

Consolidation Loans have a fixed interest rate versus a variable interest rate

Most education loans have a variable interest rate which can mean significant changes in the monthly payments if interest rates increase as they did on July 1st, 2006. With a fixed interest rate, the monthly payments and total payoff balance is a set amount. Some education loans such as the Perkins Loan and the HPSL (Health Professionals Student Loan) are fixed rate loans. Before consolidating it’s important to weigh the repayment benefits of rolling these kinds of loans into the consolidation.

Consolidation lenders vary significantly in terms of money-saving incentives

What separates one lender from another when it comes to consolidating education loans are the types of incentives each offers. Lender incentives can greatly reduce monthly payments and the total amount owed over the lifetime of the loan. Many lenders offer interest rate incentives for auto-debit payments and making on time payments. When shopping for a lender to consolidate your education loans, look for one that offers the best incentives.

Your loans must be current in order to consolidate education loans

If you’re behind on your loan payments, you’ll need to get caught up before refinancing. Once you refinance, you’ll most likely enjoy much lower monthly payments to ease your budget once you are caught up.

Private education loans and federal education loans cannot be combined when refinancing

While federal student loans are funds lent by the government, private student loans are those offered by independent lenders and tend to have a higher rate of interest. Those who have both types of education loans will need to secure 2 different consolidation loans. It’s best to consolidate federal education loans first and then start the process of consolidating your private education loans. You can however, consolidate federal subsidized and unsubsidized loans together. They do need to be tracked separately, but a quality lender will take care of this for you.

Your deferment and forbearance limits start over when you consolidate

One of the most important benefits of education loans is that they allow students to put their loans in to deferment or forbearance status during difficult times encountered while building their careers. When you refinance, you are essentially getting a whole new loan, meaning that your deferment and forbearance limits are reset.

Consolidating during the post graduation grace period allows you to lock in the lowest rate

Interest rates during the grace period (6 months after graduation) are .60% lower than after the grace period when loans move into repayment status. Consolidating before the grace period is over helps to lock in this much lower interest rate. It’s best to start the consolidation process soon after graduation to ensure that there is adequate processing time. You can specify that your new consolidated loan begin at the end of your grace period so that you may enjoy both benefits.

Borrowers can no longer reconsolidate student loans

For many years, borrowers have had the opportunity to reconsolidate their education loans if they were unhappy with their lender or found a better loan offer elsewhere. As part of the Federal government’s July 1st 2006 student loan changes, borrowers now face major restrictions when it comes to finding a new lender for already consolidated loans. Unless you plan to take out new loans that would allow you to reconsolidate, it pays to shop around and find a lender you are going to be happy with because you only have one opportunity to consolidate.

Refinancing education loans is one of the easiest ways to lower monthly bills and make paying back your college education affordable. Keeping these little known facts in mind can save you a great deal of money and make consolidating your education loans a smooth and simple process.

ScholarPoint Financial, Inc. is a national online consumer lending company specializing in student loans. We believe in combining state-of-the-art technology with world class service to help students and parents easily gain access to data, become informed, and enjoy the process of obtaining a college loan. Learn more about Student Loan Consolidation at http://www.scholarpoint.com

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It’s that time of year again when global issues take second place in the British media, to make space for the great ‘A’ level debate. Packed with case studies of “Laura achieved nine A grades and was still rejected from her first choice”, you have to wonder how long students can maintain the will to study. It’s not just the fact that companies and newspapers are debating whether students are actually getting more stupid (’A’ levels are the new GCSEs apparently), students are debating themselves whether they are getting more stupid by even considering going to university in the first place.

Lazy British journalists are still reciting that the average graduate starting salary is still around

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Federal student loan consolidation is a free federal program that allows anyone with outstanding federal student loan debt to combine their loans, extend their repayment term, and lock in their interest rate.

The terms and conditions on all federal student loan consolidations are set by the U.S. Department of Education, meaning that all federal student loan consolidations are, at least initially, created equal. There are no prepayment penalties or fees, and every lender has to offer the same federal forbearance and deferment options and the same initial consolidated interest rate. This rate is based on a weighted average of the interest rates of all the outstanding student loans rounded to the nearest 1/8th percent.

So, if every lender is offering the same federal terms and conditions, and every consolidated loan will have the same initial rate, what’s the difference between consolidation lenders? The difference between lenders is in the borrower benefits that are offered. These differences can be pretty substantial, and by asking the right questions, smart borrowers can get the best deal on their federal student consolidation loan.

Interest Rate Reductions

The most common benefit offered on a federal student loan consolidation is an interest rate reduction. This benefit is usually offered in two parts: a .25% reduction for auto debit and a 1% interest rate reduction after 36 months of on-time payments.

This is a great benefit that can greatly reduce the total amount of interest paid on the consolidated loan. On a $30,000 loan, this benefit alone can save a borrower over $6,500 in interest!

Although this is an attractive benefit, there are a couple things to ask your consolidation lender before proceeding with the loan:

1. Ask the lender if the benefit will lock in after you’ve made 36 months of on-time payments.Most consolidation companies will add the 1% back in if any payment is late after the benefit has already been awarded. Many people don’t worry about this, assuming that they will always make their payment on time. However, most consolidation loans will take over 10 years to pay back and the odds are a payment will be late eventually. Clarify with the lender when a payment is considered late. Any reputable company should provide at least a 10-day grace period before a payment is considered late. Remember, just because you have your payments set up to be auto-debited from a bank account doesn’t mean they will always be on time. If there are insufficient funds in the bank account, the payment can be rejected and considered late. This means that, after the 1% interest rate reduction is awarded, the benefit can never be taken away, even if payments are made late in the future.

2. Ask the lender if the on-time payments have to be consecutive to receive the interest rate reduction. Many companies will take away the benefit if you put the loan into a forbearance or deferment. This can even include a deferment on payments if you decide to go back to school. Reputable lenders will not take away your benefit for exercising your federal right to put your consolidation loan into a deferment or forbearance.

3. Ask the lender what will happen to the benefit if the loan is sold. Regardless of what a lender tells you, many consolidation loans are sold. Make sure that if your loan is sold, you will not lose your rate reductions. There are horror stories of borrowers making 30 on-time payments to find out that their consolidated loan had been sold to a new lender who will not honor the 1% rate reduction they were initially promised.

Cash Back Rebate

A relatively new benefit being touted by consolidation companies is the cash back rebate. This is usually a percentage of the principal loan balance that is either applied to the outstanding loan or sent to the borrower as a cash payment. This can be a very attractive offer, especially when in the form of a cash payment to the borrower.

It’s hard to resist a check for thousands of dollars, but when compared to the savings from the interest rate reductions, the cash back rebate is usually not the best financial discount.

For example:

One lender is offering a 1.25% rate reduction for on-time payments, and the other lender is offering a 3% cash back rebate on a $60,000 consolidated loan. The lender offering the cash back rebate will mail the borrower a check for $1,800 after they make 10 payments on time. The other lender will give the 1% rate reduction after 3 years of on-time payments. The cash rebate sounds tempting, but when you realize that the 1.25% rate reduction could save over $32,000, it is clear the interest rate reduction is the superior benefit.

1. If you decide to go with a company offering the cash rebate option, make sure to read the fine print. Many companies require that a rebate form be submitted by a certain deadline to process the cash back benefit. If the cash back rebate form is not received, they will disqualify the borrower from the rebate.

2. Ask the lender what exactly is required to receive the cash back rebate before submitting a signed consolidation loan application. Many companies combine the cash back rebate with other borrower obligations. One company requires that a borrower enroll in their electronic newsletter with a valid email address before the rebate is awarded.

The federal student loan consolidation program is an excellent way to manage student loan debt as well as save thousands of dollars in interest payments. By asking the right questions and knowing what to look for, you can maximize your savings and make sure that you get the best deal possible on your consolidation loan.

Joe Elias is a partner in 4.0 Student Loans, a financial aid company that provides student loan information and consolidation for students and parents. http://www.40studentloans.com

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