Consolidating student loans lower rate gets tougher

When college alumni show up for homecoming weekend and hold forth about how much better things were when they were in school, it's usually the beer talking. But graduates who boast about the great deals they got on their federal student loans probably aren't exaggerating. As recently as three years ago, savvy borrowers who consolidated their loans were able to lock in rates as low as 2.88%.

In late 2005, though, Congress set a fixed rate of 6.8% for Stafford loans, the most popular kind of federal student loans. If you have federal loans issued after July 1, 2006, consolidating will no longer affect the interest you pay.

That doesn't mean the benefits of loan consolidation have completely disappeared. If you're graduating this spring, you may still have loans issued before July 1, 2006. Consolidating those loans, which still carry a variable rate, would enable you to lock in a rate below 4% for the life of those loans, says Mark Kantrowitz, publisher of FinAid, a financial aid website.

But snagging that low rate won't be easy. Among the challenges:

•Timing your consolidation. To take advantage of falling rates, you must wait till July to consolidate your loans. Rates for variable student loans are adjusted every July 1, based on the rate for Treasury bills at the last auction in May.

FIND MORE STORIES IN: Congress | Federal Reserve | Treasury | Your Money | Stafford | Timing | FinAid | Kevin Walker
Kantrowitz predicts that the rate for variable-rate loans will drop to about 3.75% on July 1, down from the current variable rate of 6.62%. If the Federal Reserve decides to cut short-term rates at its meeting Wednesday, he says, the rate for variable loans could fall even further on July 1.

Graduates who consolidate during their grace period — the six-month window before they have to start repaying their loans — could lock in a rate of about 3.12%, Kantrowitz says.

•Finding a lender. In the past, lenders battled for consolidation loans, offering borrowers discounts and other perks. Now, those perks are gone, along with most of the loan consolidators. A handful of lenders still offer loan consolidation, but Kantrowitz predicts they'll all leave the business before July 1.

The credit crunch and a reduction in federal subsidies for student lenders have made those loans unprofitable, he says. "Every time a lender makes one of these loans, it's taking a loss."

Fortunately, borrowers who can't find a private consolidator can consolidate through the government's Federal Direct Loan Program.

There are two types of federal student loans. One type, Federal Family Education Loans, is offered by private lenders and guaranteed by the government. The other: Federal Direct student loans, which the government offers directly to students at schools that take part in the direct lending program.

Even if your loans come through the FFEL program, you can consolidate them through the Federal Direct Loan Program, Kantrowitz says. You can find more information at www.loanconsolidation.ed.gov.

In the loan pool

Though you can include your fixed-rate loans when you consolidate, there's no financial benefit to doing so, Kantrowitz says. The rate for your consolidation loan is based on the weighted average of all the loans you consolidate, rounded up to the nearest one-eighth of 1%. Which means you can't lower the rate on your higher-interest loans by including them in the loan consolidation.

If all your loans carry fixed rates, there's no benefit to consolidating them, either. Consolidating fixed-rate loans will actually raise the rate slightly, to about 6.88%, Kantrowitz says. If you're looking to lower your monthly payments by extending the repayment term, consult your lender. You may be able to negotiate an extended repayment plan without consolidating your loan, Kantrowitz says.

One other thing to keep in mind: Because borrowing limits on federal loans haven't kept up with tuition inflation, students are increasingly turning to private loans to cover their college costs. Be aware that these loans typically carry variable rates, aren't guaranteed by the government and can't be included when you consolidate your federal student loans.

Some private lenders let borrowers consolidate their private loans and lock in a fixed rate. But the fixed rate is often 1 or 2 percentage points higher than current variable rates, Kantrowitz says.

In addition, some private consolidation loans impose prepayment penalties and other fees that could add to the cost of the loan, says Kevin Walker, CEO of SimpleTuition, a website that lets borrowers compare rates for student loans.

"If I were a borrower, I would be skeptical," he says. "I would lean toward not consolidating my private loans."

Consolidating student loans at a lower rate gets tougher
by Sandra Block
Sandra Block covers personal finance for USA TODAY. Her Your Money column appears Tuesdays

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The Regional Report / Wells Fargo no longer consolidating student loans

Wells Fargo & Co. said Monday that it no longer will accept applications to consolidate student loans and has suspended participation in that federal program. Consolidation loans enable students with several types of federal loans to refinance with a single lender and make one monthly payment. Existing Wells Fargo consolidation loan borrowers and borrowers who completed an application before May 15 aren't affected, the company said. To date, 83 lenders have exited one or more federal loan programs, including nine of the top 10 consolidators, said Mark Kantrowitz, publisher of FinAid.org. San Francisco-based Wells Fargo is the largest bank in Minnesota by deposit market share.

ResCap extends bond-tender deadline
Residential Capital LLC, the distressed mortgage-finance company, said it has enough support from bondholders to proceed with its offer to exchange or buy back $14 billion of debt in an attempt to stave off bankruptcy.

Bloomington-based ResCap, owned by GMAC LLC, received the "requisite consents" from holders to move ahead with the plan, the company said Sunday. ResCap is offering investors as little as 80 cents on the dollar to extend maturities and reduce debt.

ResCap also extended the early deadline for the offer until Wednesday. The tender expires June 3. The exchange is contingent on the company getting a new $3.5 billion credit line from GMAC.

Best Buy venture may get U.K. review
The joint venture Best Buy Co. announced earlie

this month with London-based Carphone Warehouse Group PLC may be referred to the U.K.'s Competition Commission for investigation. The Richfield-based electronics retailer planned to open its first stores in Europe next year by investing 1.1 billion pounds ($2.15 billion) in Carphone. The U.K. Office of Fair Trading may refer the venture if the "creation of a relevant merger situation" takes place and it hurts competition in the country, the agency said Monday. Carphone Warehouse is Europe's largest handset retailer.
Piper fined for underwriting during ban
The Financial Industry Regulatory Authority fined Minneapolis-based Piper Jaffray Cos. $25,000 and ordered the company to disgorge profits of $260,158 for underwriting two municipal securities transactions in Minnesota during a two-year ban on its business with state issuers.

The ban stemmed from a $700 contribution made by Addison "Tad" Piper to Gov. Tim Pawlenty's 2006 re-election campaign, which violated the Municipal Securities Rulemaking Board's Rule G-37 on political contributions that states that municipal dealers and their professionals may only give $250 to any elected official that can influence bond business. "We take these matters seriously and are pleased to put it behind us," said Rob Litt, a spokesman for Piper Jaffray.

Briefly

Bloomington-based HealthPartners introduced a new health plan for individuals that offers a set of basic benefits, including three free visits per year, a $5 co-pay for generic drugs, 100 percent coverage for up to $200 preventive care annually and $250 co-pay for an emergency visit. Premiums start at $69 per month. ... VeraSun Energy will begin production at its ethanol plant in Hankinson, S.D., by the end of June. The Brookings, S.D., company became the second-largest ethanol producer when it acquired Inver Grove Heights-based US BioEnergy last month. ... Fridley-based Medtronic Inc. announced the U.S. launch of the Profile 3D Annuloplasty Ring used by heart surgeons to repair a failing mitral valve. ... Mocon Inc., Brooklyn Park, increased its quarterly dividend to 8.5 cents per share from 8 cents, payable Aug. 15 to shareholders of record Aug. 1. ... Great River Energy, Maple Grove, closed its issuance of $400 million in 30-year, first mortgage bonds. The new debt will be used to pay down the balance on its credit facility, capital projects and other general purposes. ... Law firm Stull, Stull & Brody said it has filed a lawsuit against Minneapolis-based RBC Wealth Management on behalf of purchasers of auction-rate securities.

— From staff and wire reports



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Regional Report / Wells Fargo no longer consolidating student loans
Pioneer Press

Article Last Updated: 05/19/2008 09:09:22 PM CDT

http://origin.twincities.com/business/ci_9315195?nclick_check=1

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The Sallie Mae No Longer Consolidating Student Loans

Imagine my surprise when I call to get some information on my loans and what my payments will be once I finish my program, Sallie tells me they are no longer consolidating loans because the government tightening has made it no longer profitable for them.

From their website:

Private student loan consolidation

Thank you for your interest in Sallie Mae, the nation’s leading provider of saving- and paying-for-college programs. We have temporarily suspended offering our private consolidation loan program. No new private consolidation loan requests will be processed at this time.

Federal student loan consolidation

Sallie Mae’s Federal Consolidation Loan service is not available at this time.

Severe legislative cuts made by Congress made federal loan consolidation uneconomical. This, combined with the credit market deterioration, has caused us to suspend participation in the federal consolidation loan program.

Then the rep tries to put a spin on it by stating that it may not be beneficial for the borrower because we would be locked in with no opportunity to get a lower rate if it comes along. But the rest of us know that this also leaves us open to increasing rates if we do not consolidate.

I am too through with Sallie Mae at this point, I’ve actually liked them even while every one else sang their hatred from the mountain tops.

At this time, I need options, and I need them fast. I will be done in December with the possibility of going back to school in January, however, I need o figure out how to switch lenders so that I can consolidate when the time comes. Shoot me in the comments for this but can I call a customer service center that doesn’t link to somewhere in India?? I want to RIP my hair out every time one of them picks up the phone and its muffled and I can hardly understand them while it sounds like they are reading from a script! I have no issues with THEM being Indian, I have issues with Sallie using this method of customer service which only further infuriates me while I repeat each and every question. My option? Hang up, call back and o through the same dance with another rep.

ARGHH!

Oh and my payment when I graduate? $825. You read that right, $825, but Im not worried, we have a plan to knock out the loans in 2 years so Im cool on that, I just need to consolidate and get a lower rate.

Any recommendations? Advice? Suggestions?

Sallie Mae No Longer Consolidating Student Loans
form http://www.girlsjustwannahavefunds.com/2008/05/sallie-mae-no-longer-consolidating-student-loans/

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Kennedy to Colleges: Have Back-Up Plan for Students

In a letter sent to the American Council on Education on April 15, Sen. Edward Kennedy, D-Mass., the chairman of the Senate Education Committee, urged colleges to sign up for the Department of Education’s Federal Direct Loan Program as a preventive measure against the potential funding inadequacies within the Federal Family Education Loan Program.

His recommendation to colleges and universities to enroll in the direct-lending program as a backup option for student loan funding is yet another one of Kennedy’s attempts to help protect students against a federal funding nightmare this fall.

Kennedy has also introduced the Strengthening Student Aid Act of 2008 into the Senate that would, in part, allow the federal government to inject liquidity into the student loan market and enable the Department of Education to purchase FFELP loans from failing lenders.

Kennedy’s efforts to help secure the federal student loan sector come at a time when almost 50 FFELP lenders have suspended their federal student loan programs in recent months, including 21 of the top originators of federal student loans and five of the largest holders of student loan portfolios, according to FinAid.org.

Several schools had already made the move to the Direct Loan Program before Kennedy sent his letter to the ACE, including Pennsylvania State University, which, at $276 million, has a substantial federal student loan volume. Secretary of Education Margaret Spellings has assured schools that the Education Department is equipped to handle double the volume within the Direct Loan Program, if necessary.

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Your Money: Careful when consolidating student loans

If you plan to graduate from college this spring, your mailbox may soon be filled with congratulatory cards from family friends, checks from distant relatives and reminders from your alma mater that your diploma will be rescinded unless you pay your overdue parking tickets. But if you borrowed to pay for college, much of your mail will come from lenders, urging you to consolidate your student loans.
Loan consolidation pitches aren't new. For years, loan consolidation has allowed borrowers to reduce their monthly payments and avoid interest-rate increases. But lenders will be even more aggressive this year than in the past, predicts Kevin Walker, CEO of SimpleTuition, a loan comparison website.

In part, that's because a law enacted last year eliminated the decades-old "single-holder" rule. That rule required borrowers who had all their federal student loans with one lender and wanted to consolidate to use that lender. Now, borrowers can consolidate with any lender. Smaller lenders are eager to lure student loans from the major players, Walker says.

In addition, lenders will have to work harder this year to convince borrowers that they should consolidate their loans. In the past, consolidation let borrowers lock in interest rates for the life of their loans, avoiding future increases. But last year, Congress eliminated variable rates for federal Stafford loans. All loans issued after July 1, 2006, have a fixed rate of 6.8%, so consolidating no longer affects the interest rate those borrowers will pay.

Why consolidate?

While there are still advantages to loan consolidation, recent investigations into some lenders' marketing tactics have pointed up the need for vigilance. Rep. George Miller, D-Calif., chairman of the House Education and Labor Committee, has asked the Federal Trade Commission to investigate "unfair and deceptive" marketing practices by lenders seeking to consolidate student loans. And New York Attorney General Andrew Cuomo is investigating whether some college alumni groups received payments from Nelnet, a major loan consolidator, to steer students to Nelnet.

Reasons to consider loan consolidation:

•You still have variable-rate loans. Unless they've already consolidated, this year's graduating seniors will have a combination of variable-rate and fixed-rate loans, says Rob LaBreche, president of consumer marketing for College Loan Corp. By consolidating, you can lock in the rate on the variable-rate loans, avoiding future rate increases.

If you consolidate your variable-rate loans during your grace period — the six-month window before you're required to start paying off your loans — you can lock in a rate of 6.54%. If you include your fixed-rate loan in the consolidation, your rate will be 6.875%, Walker says.

The new rate for variable-rate loans, which is tied to short-term Treasury bills, will be calculated at the end of May. Mark Kantrowitz, founder of FinAid.org, predicts that the repayment rate for variable-rate Stafford loans will rise to 7.2% on July 1. But many lenders let you hedge your bets. Lenders with "best rates" programs will accept your application but won't process it until the new rate is determined. If the new rate is higher, they'll consolidate your loans before July 1; if the rate falls, they'll wait until after July 1.

•Lower payments. The standard repayment for a federal Stafford loan is 10 years. By consolidating, you can extend the term to up to 30 years, thereby reducing your monthly payments.

If you're worried that you can't afford your monthly payments, consolidating will make your debt more manageable. It's important to understand, though, that extending the term of your loan will increase the amount of interest you'll pay over the course of the loan. Ideally, you should increase your monthly payments as soon as your finances improve.

•Fewer bills to pay. If you have loans with several lenders, consolidation allows you to combine them into one loan.

•Borrower benefits. Even though the maximum rate for Stafford loans is set by the federal government, some lenders offer discounts for good behavior. Most will cut your interest rate by a quarter point if you agree to have your payments automatically deducted from a bank account. And many will reduce your rate by 1 percentage point once you've made a certain number of consecutive on-time payments (see box).

If your current lender doesn't offer discounts, consolidating with a lender that does could save you money. But be sure to read the fine print, Walker says. Ask the lender how it defines an on-time payment and whether your discount can be revoked if you make a late payment in the future.

"Borrower benefits have the potential to save you hundreds, if not thousands, of dollars," Kantrowitz says. "But you need to be very realistic about your ability to get those benefits."

by Sandra Block

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