student loan consolidation
a.j. rittler
HALO)...is this a "gimmick" or is it something i should consider
doing. right now i pay out roughly $450 a month (for 10 years) for my
student loan...
any help would be great.
Steve Blank
Stafford loans have a variable rate that is adjusted each sumer based on
a relationship to t-bills, with a cap of 8.25%. Current rates are 4.06%,
the lowest they have ever been. In the future that rate will change, up
or (not too likely) down, each summer.
Borrowers may choose to "consolidate", meaning that all Stafford loans
are brought together as one loan and the interest rate becomes fixed at
the current rate plus a small amount. Current consolidation rate is 4.13%.
On the likely assumption that rates will go back up over the life of
your loans, locking in a permanent low rate is beneficial.
But, most lenders automatically consolidate Stafford's into a long-term
loan unless you request otherwise and the extra years of interest will
offset your savings - request a shorter term, or if they can't do that
then simply pay an additional amount each month to still wipe it out at
the end of the current ten year term - there should be no penalty for
prepayment.
You don't need to change lenders - your current lender probably offers a
consolidation program. But check out the competitors - some offer
promotional bonuses.
--
Steven B. Blank
College Financial Aid Consultants
29 Ives Hill Court
Cheshire, CT 06410
(203)250-7761
Gary
Hi Steve:
I was under the impression that loan consolidation, even when the
current rate is low, doesn't really lower the rates on the original
loans. But your response below (''...the interest rate becomes fixed
at the current rate plus a small amount.'') seems to indicate
otherwise. Which is really the case??
Thanks in advance,
Gary/
jrmorrow1
When you do a consolidation loan, the lender takes a weighted average of all
loans you are including in the consolidation and rounds it to the nearest
1/8 percent. So a consolidation loan could raise or lower the interest
rate. Most lenders have a calculator on their site which allow you to see
if it would be to your advantage to consolidate. Of course, the biggest
advantage is that your interest rate is fixed for the life of the loan.
With interest rates now at the lowest point they've ever been, to many that
is a strong reason to do a consolidation loan.
For those of you receiving mass mailings, my suggestion is be careful who
you work with. Due to the huge increase in consolidation loans, many
companies have entered the lending field over night to capitalize on this
business.
Also, keep in mind that, if you have all of your loans with one lender, then
you must do a consolidation loan with that lender. This is a Federal reg
called the One Lender Rule. There has been talk about removing this reg
during Reauthorization, but that'll be a couple of years down the road.
"Gary" <gber...@berlindpr.com> wrote in message
news:2718a52.02111...@posting.google.com...
Gary
1. The interest rates on pre-existing loans don't really change very
much, if at all.
2. It's only any ''new'' loan taken out at time of consolidation that
has the ''current'' low rates applied to it.
Right???
Gary/
"jrmorrow1" <jrmo...@cox.net> wrote in message news:<PyYA9.17161$hb.1...@news1.central.cox.net>...
Steve Blank
>Thanks. Please tell me if I am understanding things corectly:
>
>1. The interest rates on pre-existing loans don't really change very
>much, if at all.
>
No. You're missing the point. Say you started paying off $10,000 in
Stafford loans when you graduated three years ago and the rate then was
7%. You made payments including interest of $700 per thousand for that
year. If the rate drops to 6% in the second year, you will pay interest
of $600 per thousand still owed. If the next year it is 8% you will pay
$800 per thousand. Each year you should have received a notice from the
lender that the rate and your monthly payment changed, up or down.
Current rates are actually 4.06% so you are now paying only $406 per
thousand. But it could go back up as high as 8.25%.
If you consolidate you combine the existing Stafford loans into one new
one and freeze the rate permanently at today's consolidation rate. It
will *never* change again. If you do not consolidate, the rate will
continue to change each year.
>2. It's only any ''new'' loan taken out at time of consolidation that
>has the ''current'' low rates applied to it.
>
No. You are paying the current rate on your old loans right now. The
difference with consolidation is that it stops changing each year.
>
>Right???
>
>Gary/
>
If I'm still not making this clear for you, you might want to visit a
local bank and talk to a loan officer face to face.
--
Steven B. Blank
College Financial Aid Consultants
29 Ives Hill Court
Cheshire, CT 06410
(203)250-7761
>
TabbyG
average" thing then? I have one loan at 9%. Are you saying that I
could actually get that refinanced at 4.1%? That would make a huge
difference to me. I had always thought that I would be consolidated
at 8.25 if I ever did that, so it really wasn't worth it.
Gary
I'm with Tabby: if what you say is true, then what is the ''weighted
average'' thing?
Geez, I hope what you say is true, and that my friend can consolidate
and lock in at today's 4.06 percent rate!
Holding my breath...
Gary/
Tabby...@hotmail.com (TabbyG) wrote in message news:<59edd793.02111...@posting.google.com>...
Steve Blank
This is getting confused. First, as I mentioned, the rates (and some of
the rules) are different for loans taken before July 1998. Second, I
didn't post anything about weighted averages - somebody else did, and it
comes into play only for some of those older loans. Third, the rates and
rules have been changed over the years by the government so it gets very
difficult to discuss specific student's rates and the affect of
consolidation for them - what's been posted on the subject may not apply
to every other person, particularly older loans from before 1992 which
generally were not a variable rate.
You can see current rates for loans from various dates (at least back to
1994) at http://www.finaid.org/loans/scripts/interest.cgi
And you can see even more details at
http://www.nchelp.org/elibraryII/Main/10-RefMaterial/10A-RateInfo/default.htm
click on 2002-2003 interest rates.
To get definite details that apply to your Stafford loans, particularly
if they are very old - simply contact your lenders and ask them to do
the computations specific to your particular loans if you can consolidate.
--
Steven B. Blank
College Financial Aid Consultants
29 Ives Hill Court
Cheshire, CT 06410
(203)250-7761
jrmorrow1
works...
1) Write down the current outstanding loan amount and interest rate for
every loan you have.
2) Multiply each loan amount by its current interest rate to get each loans
"Per Loan Weight Factor (PLWF)"
3) Add all the loan amounts together
4) Add all the PLWFs together
5) Divide the total PLWF figure by the total loan amount and multiply by
100 (Total PLWF / Total Loan Amt * 100 = Weighted Average)
6) Take the weighted average and round it up to the nearest 1/8 percent
(.125, .25, .375, .5, .625, .75, .875, .0)
7) Compare the weighted average to 8.25 and take the lower of the two. You
now have what would be the interest rate on your consolidation loan.
For example, let's say you have two Stafford loans, one $2000 loan at 6.75%,
one $3000 loan at 8.25%.
Step 2) 2000 * 6.75% = 135 3000 * 8.25% = 247.5
Step 3) 5000
Step 4) 382.5
Step 5) 382.5 / 5000 * 100 = 7.65
Step 6) 7.65 rounded up becomes 7.75
Step 7) 7.75 < 8.25
So if you did a consolidation loan in this example, you would now have one
loan for a total of $5000 at a fixed interest rate of 7.75%. You then need
to decide if it's to your advantage to do the consolidation loan or not.
Sorry this is so long but hope it clears up the "weighted average" term.
"Gary" <gber...@berlindpr.com> wrote in message
news:2718a52.02111...@posting.google.com...
Gary
Thanks for the more detailed explanation.
But how come you're talking about weighted averages if, in fact, many
loans are variable rate loans? Or is that not the usual case?
Gary/
"jrmorrow1" <jrmo...@cox.net> wrote in message news:<cvCC9.78031$hb.5...@news1.central.cox.net>...
jrmorrow1
go into effect until 96 or 97.
"Gary" <gber...@berlindpr.com> wrote in message
news:2718a52.02112...@posting.google.com...
David Ames
> Gary wrote:
>
> >Thanks. Please tell me if I am understanding things corectly:
> >
> >1. The interest rates on pre-existing loans don't really change very
> >much, if at all.
> >
> No. You're missing the point. Say you started paying off $10,000 in
> Stafford loans when you graduated three years ago and the rate then was
> 7%. You made payments including interest of $700 per thousand for that
> year. If the rate drops to 6% in the second year, you will pay interest
> of $600 per thousand still owed. If the next year it is 8% you will pay
> $800 per thousand. Each year you should have received a notice from the
> lender that the rate and your monthly payment changed, up or down.
>
Um, let's watch the decimal point. That should be "$70 per thousand"
instead of "$700 perthousand." Similarly for the others mentioned.
David Ames