MEDebt Solutions

With the passage of the Deficit Reduction Act of 2005:

$12.7 billion was cut out of the federal student loan program.
Student and parents will pay higher interest rates.
Stafford loans first disbursed before July 1, 2006 will continue at variable rates, adjusted annually on July 1, capped at 8.25%.
The current Stafford rate for pre-July 1st through June 30, 2007 is 7.14% during repayment and 6.54% during in-school, grace, and deferment.
The Stafford rate on new loans issued beginning July 1, 2006 switched from a variable rate set annually to a 6.8% fixed rate.
The change represents a 44.6% for current borrowers.
Variable rate loans taken out by parents, known as PLUS (Parent Loan for Undergraduate Students) loans, are now fixed at 8.5% but in an apparent legislative oversight the fixed interest rate for PLUS loans from the Direct Loan Program is 7.9%.
Students and parents will be able to borrow slightly more money but the aggregate maximum will remain unchanged.
First-year loan limit increase from $2,625 to $3,500 and from $3,500 to $4,500 in the second-year.
Aggregate loan limits are not increased.
Unsubsidized loan limits for graduate and professional students are raised from $10,000 to $12,000.
The law makes parent PLUS loans an option for grad students
Loans made to Grad PLUS borrowers are the same as those that apply to PLUS Loans made to parents of dependent undergraduates.
The main difference between the Grad PLUS Loan and the Parent PLUS Loan is that graduate and professional students who are denied a PLUS loan because of an adverse credit history will not be eligible for increased Stafford Loan limits.
All Grad PLUS applicants must complete and submit the Free Application for Federal Student Aid (FAFSA) before applying for a PLUS Loan.

In-school and re-consolidation options eliminated.
A borrower with a defaulted loan can receive a Direct Loan consolidation loan to resolve the default.
Spousal consolidation eliminated.
The anticompetitive “single holder” rule which limits a student's choice of lenders for consolidation was repealed effective June 15, 2006 by the Emergency Appropriations Act of 2006.

The Deficit Reduction Act of 2005 & the Grad PLUS Program

With the passage of the Deficit Reduction Act of 2005 effective July 1, 2006 graduate and professional school students became eligible for the PLUS loan program. Prior to the passage of this legislation only parents of undergraduate students were eligible for PLUS loans (Parent Loans for Undergraduate Students). Since July 1, 2006 graduate and professional school students can now apply on their own and receive without need of any parent involvement (unless they need a co-signer) Grad PLUS loans.

The Grad PLUS program represents a huge money saving advantage for graduate and professional school students because it offers a never before cost effective alternative to Alternative student loans. Depending on the loan balance, students who need funds beyond their federal Stafford limits or who have exhausted their Stafford eligibility can and will save thousands of dollars in repayment by utilizing a Grad PLUS loan instead of an Alternative loan. Virtually all Alternative student loans also known as Private student loans are credit based variable rate loans currently being offered at APR’s ranging between 10.39% and 13.59% depending upon the borrower’s credit score and debt-to-income ratio. In addition, Alternative student loans charge origination fees which currently range between 6.5% and 11.0% depending on the borrower’s or co-borrower’s credit history, credit score and debt-to-income ratio.

Eligibility for the Grad PLUS loan does not depend upon credit score or debt-to-income ratios. A graduate or professional school student can apply for and obtain a PLUS loan even if she or he has a bad credit score, so long as they do not have an adverse credit history (i.e., no more than 90 days late on any debt and no defaults, bankruptcies or other adverse action on any Title IV debt). There are no cumulative loan limits for the Grad PLUS loan.

The loan fees on a PLUS loan totals only 4%. The FFELP (Federal Family Education Loan Program – which are provided by private profit and non-profit financial institutions like banks and credit unions) Grad PLUS loan has a fixed interest rate of 8.5% with significant discounts and rebates available worth thousands of dollars in savings. Due to a legislative oversight, the interest rate on PLUS loans obtained through the Direct Loan Program are fixed at 7.9% with limited discount benefits. In addition, all Grad PLUS loans are eligible for federal Student Loan Consolidation which offers lower monthly payments, longer terms and discount benefits.

FFELP lenders discounts may make their Grad PLUS program significantly cheaper than the Direct PLUS program. Some Direct Lending institutions have a dual federal financial aid agreement with the U.S. Department of Education which allows the university to provide both “Direct” and “FFELP” loans. This is am important point because the Direct PLUS program may cost the student borrower nearly 13.0% more in interest payments.

The Direct PLUS Loan Program offers an up-front interest rebate equal to 1.5% of the principal amount of each loan the borrower receives. However, the Grad PLUS program offered via the MEDebt Solutions Program provides an immediate reduced fixed interest rate of 7.9% plus a 3.0% rebate of PRINCIPAL 30 days after the last disbursements plus a 0.25% interest rate discount for auto-debit and UPROMISE discounts representing a nearly 13.0% savings. As with all discount incentive offers be sure you understand and confirm the details of the fine print. For more detailed information visit www.MEDebtSolutions.com and click on Grad PLUS. For a recommended selection of Grad PLUS programs with excellent benefits or email info@MEDebtsolutions.com.com.

PLUS Highlights:

Loans made to Grad PLUS borrowers are the same as those that apply to PLUS Loans made to parents of dependent undergraduates.
The main difference between the Grad PLUS Loan and the Parent PLUS Loan is that graduate and professional students who are denied a PLUS loan because of an adverse credit history will not be eligible for increased Stafford Loan limits.
All Grad PLUS applicants must complete and submit the Free Application for Federal Student Aid (FAFSA) before applying for a PLUS Loan.
Before applying for a PLUS Loan, a graduate or professional student must also apply for and the school must determine the student's eligibility for the maximum annual Subsidized Loan and/or Unsubsidized Loan amounts.
PLUS loans interest rates are fixed at 8.5% and 7.9% from the Loan Program.
The loan fee on all PLUS Loans is 4% of the principal amount of each loan the borrower receives (3% origination and 1% guarantee).
A Grad PLUS applicant who is determined to have an adverse credit history may receive a PLUS Loan if he or she obtains an endorser who does not have an adverse credit history.
The Grad PLUS loan does not reduce eligibility for the Stafford Loan, but the PLUS loan limit will take the amount borrowed under the Stafford Loan into account.
There are no cumulative loan limits for PLUS.
The PLUS loan is limited to cost of attendance minus aid received, as certified by the school.
PLUS loan eligibility requires that the borrower not have an adverse credit history (defined in regulations as being 90 days or more delinquent on any debt, or having a credit report that shows default, discharge, foreclosure, repossession, tax lien, wage garnishment or write-off of a Title IV debt during the five years preceding the date of the credit report).
Grad PLUS loans do not use any kind of a debt-to-income ratio or FICO score, unlike private education loans.
The repayment period for a Grad PLUS loan borrower begins on the date of the final disbursement of the loan, and the first payment is due within 60 days after the date the loan is fully disbursed.
Grad PLUS borrowers may receive a deferment while enrolled on at least a half-time basis. Upon dropping to less than half-time enrollment status, the borrower is not entitled to a grace period on his or her PLUS Loans.
Grad PLUS borrowers must apply for an in-school deferment; eligibility is not automatically determined.
The Grad PLUS borrower may apply for an in-school deferment by submitting an In-School Deferment Request to their servicer.
You have the option of consolidating the Grad PLUS Loans to obtain new eligibility for deferments, since a new loan resets the clock on deferments.
Interest continues to accrue during periods of deferment and forbearance.
There is no grace period with PLUS loans.
The Grad PLUS loan presents a never before available cost effective alternative to private education loans.
Eligibility for private education loans typically depends on a borrower’s debt-to-income ratio and FICO score.
Eligibility for the PLUS Loan does not depend on these factors. You can get a PLUS loan even if you have a bad credit score, so long as you don't have an adverse credit history (i.e., no more than 90 days late on any debt and no defaults, bankruptcies or other adverse action on any Title IV debt).
Most private education loans are variable rate loans with an interest rate that depends on the borrower's (and/or co-borrower's) credit score.
The PLUS loan has a fixed interest rate of 8.5% (7.9% from the Direct Program) that does not depend on your credit score.
The loan fees on a PLUS loan total 4%, while the loan fees on private education loans depend on your credit score and can be as high as 11%.

The PLUS Loan Loophole:

The PLUS loan interest rate loophole can reduce the interest rate on 8.5% fixed rate PLUS loans by 0.25% through consolidation and this doe not include any borrower incentive rate discounts.

With the PLUS Loan Interest Rate Loophole, you can use consolidation to reduce the interest rate on 8.5% fixed rate PLUS loans by 0.25%. The Higher Education Reconciliation Act of 2005 increased the interest rates on PLUS loans starting July 1, 2006, to a fixed rate of 8.5%, but left the interest rate formula on consolidation loans unchanged. In particular, it left the cap at 8.25%. So a PLUS loan borrower can reduce the interest rate on a PLUS loan by 0.25% simply by consolidating it, so long as the PLUS loans are consolidated by themselves.

You don't want to include other types of loans in the consolidation loan because the weighted average will reduce the interest rate before applying the cap. Consolidating PLUS loans by themselves maximize the impact of the 8.25% cap.

There are no reasons why a parent or graduate/professional school graduate shouldn't consolidate a PLUS loan. It is recommended that all borrowers of 8.5% fixed rate PLUS loans consolidate them to reduce the interest rate. Parents of undergraduate students will be able to consolidate them soon after the PLUS loan is fully disbursed. Graduate and professional students, however, will need to wait until they graduate to consolidate, since in-school consolidation was repealed effective July 1, 2006. Since PLUS loans do not have a grace period, there is no reason to not consolidate them.

Source: FinAid.com - http://www.finaid.org/loans/consolidation.phtml

IMPORTANT NOTE: As with all consolidations, it is vital that you consult with an experienced, knowledgeable, trustworthy consolidation counselor/specialist who will answer all of your questions and inform you of all of your options. Consolidation is very personal because it is based upon each borrower’s unique individual circumstances: amounts borrowed, loan types, personal and professional goals and attitude and tolerance for debt. MEDebt Solutions Program counselors are committed to assisting physicians-in-training in understanding consolidation and how it best works for you; whether you use the program or not.