Here are some facts you will need to know about student loan consolidation and some tips you should understand in evaluating the “Interest Rate Discounts & Benefits” being offered by consolidation programs.
FACTS:
By Federal Law….
It is important to know and understand that by federal law, there are no fees, cost, income verification, credit checks or prepayment penalties with federal student loan consolidation.
What is FFELP vs. Direct Consolidation
Federal student loan consolidation is a program regulated by legislation, the Higher Education Act, which provides government – backed Stafford student loans through private lenders such as banks (this is called the Federal Family Education Loan Program or FFELP) or directly from the government via the U.S. Department of Education (Direct Program). The FFELP and Direct program are governed by the same legislation and are virtually the same in all-programmatic aspects.
Determining the Consolidation Interest Rate
The interest rate for federal student loan consolidation is not a preset percentage. The interest rate on a all consolidation loans, for both FFELP and Direct is fixed for the entire life of the loan and is based on the weighted average of the interest rates (as certified by the holder) of the loans being consolidated, rounded up to the nearest 1/8 of one percent, not to exceed 8.25%. Consolidation rates may be higher for some borrowers based on the type(s) of Federal loans included in the consolidation.
Borrower Discounts & Benefits Offered by Lenders are NOT Guaranteed
The formula determining the consolidation interest rate is the only “federally guaranteed” interest rate of your consolidation. There are stipulations with all borrower benefits, which allow lenders to modify or discontinue discount benefit programs at any time without notice.
You must be aware of the details regarding key definitions and terms such as “on-time payments”, “initial payment”, “principal reduction” and “grace period”. Your signature on the consolidation application/promissory note obligates you to the terms of the consolidation loan so you want to be certain that you know what is being offered and what you must do to obtain and maintain the benefit.
An “Honest” Reduced Discount Interest Rate
The MEDebt Solutions Program provides an “honest” reduced interest rate. For example, a 1.0% reduced interest rate immediately following the achievement of thirty-six (36) on-time regular monthly payments and a .25% reduction for auto-debit payments so long as you have sufficient funds in your checking account on all due dates adds up to an achievable 1.25% discount. In this case, regular mean during any period or required repayment and does not require that the payments be made consecutively. This 1.0% would not be discontinued if you become delinquent in month 37 or beyond. Additionally, after you have received this discount, your loans will be re-disclosed (re-written) to include the discount you have earned. This discount will also be reflected in your monthly payments giving you more disposable funds earlier than expected.
Thoroughly Understand the Details of Borrower Benefits
Although appearing too many to be the same, the same borrower benefits can and do significantly differ in their details from lender to lender. Not understanding these details and fine print can cost you hundreds or thousands of dollars in benefits never realized. These unrealized benefits represent money that belongs to you that should be available to you for more productive uses like living expenses and other personal goals such as buying a home, savings/investments and kids’ education, and retirement.
Although all lender borrower benefits are subject to change without notice, be sure you understand and receive in writing key explanations/definitions regarding the specifics of the type of payment and all other circumstances and conditions that are required to meet the criteria for the borrower benefits offered by lenders.
With these fundamentals in place, here are some important facts you need to know when evaluating those “non-legislated” benefits being marketed to attract your consolidation business:
