The Good, the Bad and the Ugly Deborrah Glenn-Long MASFAA 2002

©2002 by Connecticut Student Loan Foundation. All rights reserved. Reasons for Consolidating Lower monthly payments Convenience of single payment Convert variable rate loan to fixed interest rate Cure a defaulted loan –Re-establish eligibility for Title IV aid –Deferment eligibility restored

©2002 by Connecticut Student Loan Foundation. All rights reserved. Loans Eligible for Consolidation Federal Stafford Loans Federal PLUS Loans Federal Direct Loans (Stafford and PLUS) Federal Perkins or National Direct Student Loans Federal SLS/ALAS Federal Insured Student Loans (FISL)

©2002 by Connecticut Student Loan Foundation. All rights reserved. Loans Eligible for Consolidation Health Education Assistance Loans (HEAL) Nursing Student Loans (NSL) Health Professions Student Loans (HPSL) Loans for Disadvantaged Students (LDS) Federal Consolidation Loans…sometimes

©2002 by Connecticut Student Loan Foundation. All rights reserved. Reconsolidating Generally, Federal Consolidation Loans cannot be reconsolidated Two exceptions: –Borrower has obtained a new eligible loan –Borrower is consolidating existing consolidation loan with at least one other eligible loan, regardless of when that loan was made

©2002 by Connecticut Student Loan Foundation. All rights reserved. Adding More Loans Borrower must request the addition of eligible loans within 180 days Addition of loans may change interest rate and/or repayment term May reconsolidate if more than 180 days have passed

©2002 by Connecticut Student Loan Foundation. All rights reserved. When? Borrower must be in grace period or repayment status for each loan being consolidated If in grace period, borrower has choice of delaying consolidation until end of grace period No other Consolidation Loan applications pending

©2002 by Connecticut Student Loan Foundation. All rights reserved. Selecting a Lender Single holder rule Exceptions to single holder rule –Unable to obtain Federal Consolidation Loan –Lender refused to provide income-sensitive repayment schedule Borrowers with at least two different loan holders may consolidate with any lender

©2002 by Connecticut Student Loan Foundation. All rights reserved. Maximum Interest Rate Weighted average of the interest rates on loans being consolidated Rounded up to nearest 1/8th percent Fixed for the life of the loan Will not exceed 8.25%

©2002 by Connecticut Student Loan Foundation. All rights reserved. Weighted Average Interest Rate Step 1:Multiply outstanding balance of underlying loans by each loan’s current interest rate Step 2:Add the totals from step 1 and divide by the total dollar amount of loans being consolidated Step 3:Round up to nearest 1/8th percent, but not to exceed 8.25%

©2002 by Connecticut Student Loan Foundation. All rights reserved. Example Student is consolidating $12,000 in Subsidized Stafford Loans Borrower is in repayment with current interest rate of 4.06% on Stafford Loans Student is also consolidating $7,000 in Perkins Loans with interest rate of 5%

©2002 by Connecticut Student Loan Foundation. All rights reserved. Step 1 $12,000 x 4.06% = $ $7,000 x 5.00% = $350.00

©2002 by Connecticut Student Loan Foundation. All rights reserved. Step 2 $ $ = $ $ ÷ $19,000 =.0441 (4.41%)

©2002 by Connecticut Student Loan Foundation. All rights reserved. Step % is rounded up to nearest 1/8th percent Weighted average interest rate = 4.50% Final interest rate cannot exceed 8.25%

©2002 by Connecticut Student Loan Foundation. All rights reserved. Grace Period Weighted average interest rate for Unsubsidized Stafford Loans is calculated using interest rate that is.60 percentage points lower than interest rate when in repayment : 3.46% vs. 4.06% Borrower will lose remaining grace period

©2002 by Connecticut Student Loan Foundation. All rights reserved. Repayment Consolidation Loan enters repayment when the loan is disbursed First payment is due within 60 days Student chooses repayment option on the Consolidation Loan application

©2002 by Connecticut Student Loan Foundation. All rights reserved. Repayment Plans Standard Graduated Income-sensitive Extended

©2002 by Connecticut Student Loan Foundation. All rights reserved. Maximum Repayment Period Amount of LoansMaximum Term Less than $7,50010 years $7,500 - $9,99912 years $10,000 - $19,99915 years $20,000 - $39,99920 years $40,000 - $59,99925 years $60,000 or more30 years

©2002 by Connecticut Student Loan Foundation. All rights reserved. Deferment & Forbearance Date of consolidation Whether borrower included all FFEL Loans in the Consolidation Loan Deferment eligibility of underlying loans Extent to which borrower has already obtained deferments Usual forbearance options still available

©2002 by Connecticut Student Loan Foundation. All rights reserved. Interest Subsidies Borrowers retain interest subsidies on Subsidized Federal Stafford Loans Loss of all interest subsidies on Federal Perkins Loans Borrowers should remember that they do not have to consolidate all loans

©2002 by Connecticut Student Loan Foundation. All rights reserved. Special Provisions Cancellation and forgiveness provisions may be forfeited Borrowers with HEAL Loans may lose internship/residency and primary care deferments

©2002 by Connecticut Student Loan Foundation. All rights reserved. Married Couples Joint and several liability for all loans –regardless of changes in marital status –even if spouse dies –even if spouse becomes disabled –despite discharge through bankruptcy Both borrowers must meet requirements for deferment, forbearance or discharge (except school closure or false certification)

©2002 by Connecticut Student Loan Foundation. All rights reserved. Borrower Benefit Programs Most borrower benefit programs are forfeited when loans are consolidated Loss of benefits must be weighed against the advantages of converting to a fixed interest rate loan Borrower’s point in the repayment process can be a critical factor

©2002 by Connecticut Student Loan Foundation. All rights reserved. Questions