May 23, 2007

Consolidation Season

Posted in Consolidation, Graduate Students, Parent PLUS Loans, Stafford Loans, Student Loan News at 2:15 PM by Joe From Boston


Tis’ the season – for consolidation that is!

Now that you or your child has graduated, it’s time to start looking into consolidation.  Here are some reasons why it’s a good idea for most people:

  1. If you have loans from before July 1, 2006  those loans are variable interest rates and those rates will most likely rise this July 1st.  I’ll post when I learn what the new rates are.
  2. Consolidate while in your grace period – this could save you thousands of dollars because consolidations are simply a weighted average of all your federal loans and their interest rates.  For example with Stafford loans, during your grace period your rate is 6.543% while once you enter repayment your rate is 7.143%.  Consolidate before your rate rises and you will save a LOT of money!

May 18, 2007

Student loan consolidations will bottle neck this summer because lendes have been locked out of the governement’s student loan database

Posted in Consolidation, Student Loan News, The Financial Aid Process at 7:57 AM by Joe From Boston


Student loan consolidations will bottle neck this summer because lenders have been locked out of the governement’s student loan database.

Lenders need to verify the correct amount of a prospective borrower’s loans because if they’re off by too much on the initial application, the lenders need additional signed paperwork from the borrower, which extends the time to funding even further.

Student loan logjam

Thursday, May 17, 2007

Borrowers who are trying to consolidate their college loans before rates change July 1 might encounter some holdups because lenders have been temporarily banned from a government database of loan information.

Fortunately, the rates on variable-rate government guaranteed loans (those issued before July 1, 2006) won’t go up much, if at all, July 1. And even if the database snafu causes a processing delay, most lenders say they will give borrowers today’s rate if they get their applications in before July.

On April 17, the U.S. Education Department blocked all lenders and guarantee agencies from accessing the National Student Loan Data System after the Washington Post reported that some lenders might have been using the database improperly to gather information they could use to market loans. Access by authorized college financial aid officers and borrowers was not restricted.

The department had previously blocked almost 250 users from the student loan industry for inappropriate use of the system.

The database contains information on people who have obtained government-guaranteed Stafford, Plus and Perkins loans, and Pell grants.

By entering a borrower’s Social Security number, a user could get the borrower’s name, date of birth and loan data such as outstanding balance and payment status.

The database does not provide the borrower’s address, e-mail addresses or phone number. Nor does it include sensitive information students must enter on the federal financial aid applications, such as income or assets.

Lenders or others might have improperly gained borrower information by entering thousands of actual or random Social Security numbers into the database, then combined that with information from credit bureaus or other sources to target customers for consolidation loans, says Mark Kantrowitz of Finaid.com

On May 2, the department restored access to the system for 35 guaranty agencies, which are state agencies or nonprofits that act as middlemen for the federal government.

It also added beefed up security by requiring users to enter a series of numbers and letters in a text box and provide the borrower’s date of birth and first name, in addition to Social Security number.

The department has not said when it will restore access to lenders. In the meantime, that’s causing headaches for lenders who want to process consolidation loans.

After they leave school, borrowers can combine existing college loans into a single consolidation loan with an existing lender or a new one.

On the application, borrowers must list the existing loans they want to consolidate and their balances.

In the past, lenders could help borrowers fill out an application, or do it for them, by looking up that information in the database. They also could use the database to verify information borrowers provided.

With access restricted, borrowers must fill out the applications themselves.

“Most borrowers have no idea what their balance is and who the loan servicer is,” says Frank Ballman, executive vice president of Educational Direct, which makes consolidation loans.

“The borrower can go into the NSLDS themselves and get that information, but they need a PIN number. Even if they once had their PIN they’ve forgotten it. It creates a major barrier to consolidation that, unless the borrower understands how valuable consolidation is, many times they are not motivated to move forward.”

Ballman says his firm is still processing loan applications, but it’s taking longer than usual.

Christopher Chapman, president and chief executive of All Student Loan, says that if applicants have access to the database while they are on the phone, “We help them walk through it and figure out what parts they need to put on the application.” Alternatively, applicants “can print it out and we’ll talk to them later or they can mail us a copy.”

Chapman says his firm is not attempting to verify information on the loan application before sending a request for payoff to existing lenders. However, if there is an error on the application, the existing lender will kick it back, delaying the completion of the loan.

A Sallie Mae representative says that if current customers want to consolidate their loans with Sallie Mae, “we will automatically prefill their consolidation application for them with the relevant Sallie Mae loan information. Those who apply to consolidate loans from non-Sallie Mae lenders must now ‘self serve’ by looking up their loan information on NSLDS and entering that information on the consolidation loan application.”

Most lenders say they will give borrowers the rate that is in effect when their loan application is submitted. “As long as you have a substantially complete application with us, we will honor the rate,” says Tim Bornemeier, a managing director with Nelnet.

For a variety of reasons unrelated to the database, the rush to consolidate college loans before July 1 is expected to be much less frenzied than in recent years.

For starters, many students who have variable rate loans have already consolidated them.

Stafford and Plus loans issued before July 1, 2006, have variable rates that change once a year on July 1. The rate is tied to the yield on three-month Treasury bills at the last auction in May.

Consolidation loans, on the other hand, have fixed rates. The rate is a weighted average of the loans being consolidated, rounded up to the nearest one-eighth.

In years past, many students were eager to convert their variable rates loans into a fixed-rate loan by consolidating them.

On July 1, 2005, and again on July 1, 2006, rates on student loans shot up by almost two percentage points and the rush to consolidate before those deadlines was fierce.

Over the past year, however, short-term interest rates have been stable. Come July 1, the rates on variable-rate loans are likely to be no more than one-eighth of a percentage point higher than today.

What’s more, all Stafford and Plus loans disbursed since July 1, 2006, have fixed rates, which eliminates one of the big reasons to consolidate.

Another impediment: Before July 1, 2006, students could consolidate while they were still in school. Today, they must wait until they have left school.

That said, there are still some reasons to consolidate.

One, it’s easier to make one payment per month than several.

Two, six months after students graduate or stop attending school at least half time, the rate on their variable-rate Stafford loans goes up by 0.6 percent. If they consolidate before the end of that six-month grace period, they can lock in the lower in-school rate. (This does not apply to fixed-rate loans disbursed since July 1, 2006.)

Students who graduated in December are approaching the end of their grace period and should move quickly if they want to consolidate their variable-rate loans.

A final consideration: The standard repayment period for Stafford and Plus loans is 10 years. Consolidation loans generally allow repayment over 20 or 30 years, which is a blessing and a curse.

Moving from a 10-year to a 20-year repayment period “cuts your monthly payment by one-third, but more than doubles the total interest paid over the life of the loan,” says Kantrowitz.

If possible, it’s better to choose the shortest repayment period. However, if a borrower also has higher-rate private loans or credit card debt, it would be better to pay that off quickly and stretch out payments on lower-cost government loans by consolidating, says Kantrowitz.

April 27, 2007

Sallie Mae under investigation for illegal practices

Posted in Consolidation, Legislation Affecting Students, Stafford Loans, Student Loan News tagged , , , at 11:44 AM by Joe From Boston


The largest student loan company in America is now under fire for potentially illegal and aggressive tactics. You can read the entire article at the Washington Post.
Probe Launched on Sallie Mae Collection Tactics

By Amit R. Paley

Sallie Mae, the nation’s largest student loan company, may have violated federal laws by repeatedly using aggressive tactics to collect loans from student borrowers, Senate investigators said yesterday.

Aides to Sen. Edward M. Kennedy (D-Mass.), chairman of the Senate education committee, said they believed the Reston lending giant tried to collect debts that were not owed, fired employees who attempted to help borrowers and intentionally sent payment notices to an incorrect address to force a borrower into default.

“I am concerned that several student loan lenders may be engaging in harsh and inappropriate tactics” that “are prohibited by federal law and regulations,” Kennedy wrote in letters sent yesterday to Sallie Mae and Nelnet, a Nebraska student lender, that requested documents about their collection practices.

Both companies defended their policies and said they would cooperate with the inquiry. “We are proud of our record of helping more than 20 million Americans pay for college,” Tom Joyce, a Sallie Mae spokesman, wrote in an e-mail.

Kennedy’s probe of improper loan collection practices comes in the midst of a nationwide investigation into the $85 billion-dollar-a-year student loan industry. The unfolding scandal has revealed kickbacks and conflicts of interest among lenders, universities and government officials, prompting pledges from lawmakers of both parties to reform the system.

One of the stories highlighted by Kennedy centered on Britt Napoli, 48, a former special education teacher whom Sallie Mae put into default after he lost his home in a 1994 California earthquake. Investigators said the company violated Education Department policy.

Napoli said in an interview that he did not receive letters from Sallie Mae telling him he was going into default because he was living in a tent city without access to mail and surviving on help from the Red Cross. He said the company refused to negotiate with him and insisted that he immediately pay the $26,000 balance of his loan. Napoli said that over the past decade Sallie Mae has improperly taken $32,000 by garnishing his wages and seizing his tax refunds. The company has added interest and fees and says he still owes $72,000, Napoli said. His payments do not reduce the principal of the loan, he said.

“This is a nightmare,” said Napoli, now a college professor in Sacramento. “The people at Sallie Mae won’t compromise or listen. And at this rate, I’ll be paying them the rest of my life.”

Asked to respond, Sallie Mae provided a letter from the Education Department’s Office of Federal Student Aid, which indicated that the company had the right to put Napoli in default.

Napoli and Kennedy aides disagreed with the letter’s conclusions.

In its investigation of loan collection practices, Kennedy’s office interviewed about a dozen borrowers and former Sallie Mae employees, an aide said. Investigators said that Sallie Mae threatened a borrower would be sent to jail if he did not pay his loan. It also harassed the neighbors, family and co-workers of borrowers, the investigators said.

Joyce, the Sallie Mae spokesman, said the company followed the law and had “an excellent compliance record in performing post default collection activity.” He also attacked Kennedy’s office for publicizing the inquiry. “It raises the question as to whether the facts are important in this inquiry, and whether the matter has been pre-judged,” Joyce said in the e-mail.

In his letter to Nelnet, Kennedy said the company may have refused to provide loan and payment history information to defaulted borrowers and inappropriately consolidated loans with the borrower’s consent.

Ben Kiser, a Nelnet spokesman, said the company has “extensive systems, policies and procedures in place to stay in compliance with the law.”

March 29, 2007

Details on the lawsuit against the Dept. of Education

Posted in Consolidation, Student Loan News, The Financial Aid Process at 9:26 AM by Joe From Boston


Here’s an article you all should read from the Forest Lake Times regarding the lawsuit against the Dept. of Education that began last week:

Frustration fuels local woman’s role in lawsuit

Cliff Buchan
News Editor

Dr. Brenda Pfeiffer wonders how many former students are in the same boat as she is when it comes to student-loan payments.

For 10 years she has wondered, but now the owner of Pfeiffer Chiropractic in Wyoming is hoping a legal challenge against the U.S. Department of Education will shed light on a federal system that she says is not right.

Pfeiffer, 41, made national news last week when she became the lead plaintiff in a class action suit filed against the DOE in federal court in Washington, D.C. The suit accuses the DOE of illegally charging late fees and interest payments against loan holders even though loan payments were made on time.

Pfeiffer sparked the lawsuit after several years of trying to talk to DOE officials about her situation with little satisfaction.

Now, as the suit enters its first phase, Pfeiffer wonders how many former students may be in the dark and unaware of the DOE’s billing system.

Pfeiffer’s story

A native of South Dakota, Pfeiffer went back to college to earn her doctorate of chiropractic after teaching mathematics. By the time she earned her chiropractic degree in 1994, she was faced with a $90,000 debt load.

She financed her post-graduate degree through the DOE’s Direct Loan Program and received funds for her education from the income contingent repayment plan, or ICR, she said this week.

Three years after graduation, she did what many college students do — she consolidated several college loans to ease the repayment schedule. There began the trouble, but it took Pfeiffer several years to figure it out.

Under the loan payment plan, Pfeiffer’s monthly payment date was on the 21st. According to the suit, she made payments on time and sometimes early.

However, the DOE attached a penalty to Pfeiffer for not making a separate payment for the time between June 21 and June 30, even though her next payment was not due until July 21. In her case, that meant a penalty attached from June 21. And in fact, she said, the penalty was capitalized and added to the principal of the loan.

It was the ever-growing year-end balances that triggered Pfeiffer’s alarm.

“I started investigating it in 2002,” she said. “I didn’t discover it at first.”

But after hours of review, second reviews and mathematical calculations, she finally understood what was happening.

“This thing took me a while to pull out,” Pfeiffer said. “I spent a lot of hours trying to determine where that money was coming from.”

Over months and months, she wrote and called DOE officials to point out the problem and argue that she was being unfairly penalized by the system.

During the course of her talks with the DOE, Pfeiffer says she was told that it was a computer misstep and that it shouldn’t happen. But yet the problem continued.

After numerous conversations with the DOE, Pfeiffer said she was left with the frustration that the federal agency would take no action because “‘That’s the way the system is.’”

The frustration swelled, she said, because she had acted in good faith to point out the problem. “Why they wouldn’t change it, I don’t know,” she said.

When Pfeiffer finally sought legal help in 2005, she was convinced that the DOE was “going to do it again and again.”

Pfeiffer says in the suit that over the past five years more than $1000 was incorrectly billed to her. She will be required to pay interest on that sum over the life of the loan if the issue is not resolved, she says.

Pfeiffer says students should be able to place trust in federal loan programs, but when situations like this arise, the trust is breached.

The case

According to the suit, the DOE computer billing system may have caused more than 3 million student loan holders to be charged hundreds of millions of dollars more than they owed. The suit contends the DOE is breaking the law in doing so.

The suit contends that the complex billing system used by DOE has impacted students and former students with consolidated loans that total more than $72 billion.

Mara Thompson, an attorney with Sprenger & Lang, which has offices in Washington and Minneapolis, said Monday there has been no response yet from the DOE.

If the education department wants to litigate the issue, Thompson said it could take more than two years to resolve the case. “If that is the case it will take that long,” she said.

The suit calls on the DOE to end the billing practice and return the money it incorrectly billed to student loan holders.

March 15, 2007

Why You Should Not Consolidate Private Loans with Federal Loans

Posted in Consolidation at 9:32 AM by kpops


I often hear from borrowers that want to include a private loan with their Federal Loan Consolidations. This is something that simply cant be done at all because you can not turn Private Loans into Federal Loans. You can however consolidate Federal Loans into a Private Loan Consolidation although this is HIGHLY Discouraged. Why? When you consolidate these loans together all of the loans then become one and your Federal Loans are no longer backed by the Government. Federal Loan Consolidation carries benefits such as Loan Forgiveness, Discharge, Fixed Interest Rates, and Deferments or Forbearances. Private Loan Consolidations on the other hand are entirely Credit Based, stay a a Variable Interest Rate and are rarely ever Fixed, do not necessarily have Deferments or Forbearances, and can most often not be discharged. Do the benefits that Federal Loans have sound like something you want to give up? I would say most often not! What you can do though is consolidate both with the same company. Contact The Student Loan Network to find out how to apply for Federal and Private Loan Consolidation.

The Student Loan Network: Stafford Federal Student Loans, Parent PLUS Loans, Student Loan Consolidation, Private Student Loans

March 9, 2007

Save .25% on Your Parent Plus Loans

Posted in Consolidation, Misc, Parent PLUS Loans, The Financial Aid Process at 11:18 AM by kpops


What most parents dont know is that the Interest Rate Cap for Federal Loan Consolidation is 8.25%. The Interest Rate Cap on Parent Plus Loans is 9%. For all of the parents out there that borrowed a Plus Loan after July 1st, 2007 at 8.5% can save .25% instantly just by consolidating your loans. In addition, you may be eligible for Consolidation Incentives. For instance, The Student Loan Network offers the following…

  • .25% Rate Reduction for ACH Payments
  • 1% Rate Reduction after 36 on-time payments

So, your already looking at a new rate which is 1.5% less than what you already have. Need more information? Contact a representative at The Student Loan Network for additional details at 877-328-1565 or apply online.

The Student Loan Network: Stafford Federal Student Loans, Parent PLUS Loans, Student Loan Consolidation, Private Student Loans

March 8, 2007

Can’t Afford Your Monthly Payments?

Posted in Consolidation, FAFSA, Graduate Students, Saving for College, Stafford Loans, The Financial Aid Process at 1:29 PM by kpops


So many students are overwhelmed with the expected monthly payments when they get there first coupon booklet from lenders upon graduation. The obvious reaction for those who have not yet established a job and finances is to freak and think “Oh my god, how am I going to afford this?”. You need to know, you have rights as a borrower of Federal Loans so don’t freak just yet!

Not only do Federal Loans have better interest rates than private but they also carry certain benefits to borrowers in order to make your college education affordable. The first thing you want to consider when you graduate is consolidating your loans. Not only will this lock in your interest rate for your loans and combine them all into one payment but consolidation will also extend your loan term. This makes a huge difference in your monthly payment. Extending the loan term is sometimes enough for students in order to afford their monthly payments.

Although, others still need more time to get established in a career. Again, because this is a Federal Program all lenders have to also offer additional repayment plans aside from the standard Level Repayment Plan. Often you will find that borrowers will request the Graduated Payment Plan. This is when you would start a lower monthly payment and gradually increase your payment over the course of the next 2-5 years. This again gives borrowers time to get there feet on the ground and establish a steady income.

Another great option is the Income Sensitive Payment Plan. Once your consolidation is finalized with a specific company you can c0mplete an application for the repayment plan. The lender will review your Debt to Income Ratio and determine an affordable monthly payment plan for you based on guidelines set forth by the Department of Education.

Its important to know your rights as a borrower of Federal Loans. There are options out there to make your education affordable and keep your from defaulting on your loans. The most important thing is to make contact with your lenders or a consolidation company and discuss your options.

In addition, here is an article discussing the Student Borrower Bill of Rights.

The Student Loan Network: Stafford Federal Student Loans, Parent PLUS Loans, Student Loan Consolidation, Private Student Loans

November 17, 2006

Determining the best borrower benefit for you

Posted in Consolidation at 11:38 AM by Joe From Boston


There are lots of consolidation companies out there, promising all sorts of borrower benefits. Some are really great deals. Some sound great… but really aren’t so hot once you do the math. Here’s an article I linked to earlier this week from StudentLoanConsolidator.com, but that I think you all should read. It’s a great explanation of what I’m talking about:

I should point out that this article uses last year’s interest rates. This year’s rates are:

  • In school/in grace: 6.543%
  • In repayment: 7.143%
  • New Stafford Loans (disbursed after July 1, 2006) will be fixed at 6.8%

Comparing Student Loan Consolidation Benefits

  • What’s the best benefits plan?

There are a lot of companies advertising a lot of different discounts and borrower benefits. How do you tell which is the right plan for you? Let’s look at some popular plans.

  • A: 0.25% off for auto-debit
  • B: 0.25% off for auto-debit, 1% after 36 months (ours), $20k balance for full savings
  • C: 0.25% off for auto-debit, 1% after 24 months, $50k balance for full savings
  • D: 2% instant cash back
  • E: 3% instant cash back
  • F: No benefits

So, how much will you actually save? Let’s use our statistical average loan balance of about $35,000 as our reference point, and the current Stafford Loan repayment rate of 5.3%. Statistically, in an average pool of students with loans that need to be consolidated, 19% of them will have balances over $50k, meaning that 81% of students, or 4 out of 5, will not qualify for plan C, which at first appears to be the best deal. 64% of students are likely to have balances over $20k, meaning that 3 out of 5 will get our benefits.

  • A: Total interest: $20,204.40. Savings: $1,633
  • B: Total interest: $15,761. Savings: $6,076 (the most savings)
  • C: Total interest: $20,204.40. Savings: $1,633 (no additional savings because of low balance)
  • D: Total interest: $21,837. Savings: $700
  • E: Total interest: $21,837. Savings: $1,050
  • F: Total interest: $21,837. Savings: $0

October 24, 2006

Consolidation – why is it important?

Posted in Consolidation at 4:20 PM by Joe From Boston


There are a few critical reasons why it’s important to consolidate as soon as possible after graduation:

1) Lock in the lower interest rates.

Why? Congress can raise interest rates every July 1, if it so chooses. You should lock in before a year has passed to avoid getting higher rates.

2) Lock in during your grace period – even lower rates.

Why? A grace period is usually 6 months after your graduation date where your interest remains at the lower, in-school rate. After 6 months, the rate goes up and you begin to pay the loan back. If you consolidate while in your grace period, you lock in the grace period rate instead of the post-grace-period rate. What does this mean in plain English? You save money.

3)Lower your monthly payments

Why? You’re just out of college, paying for a new apartment,  gas to get to your new job, paying your own health insurance, making a starting salary – face it, you’re probably not rich. Consolidation lengthens the amount of time you have to pay off your student loans. Most Federal loans give you only 10 years to pay it back. If you have thousands of dollars in loans, that may not be enough time. Consolidate to spread the payments out over time, and shrink what you pay each month.

Also, since we’re talking about Federal loan consolidation, there is no early payment penalty. You can consolidate and get the 15-30 year term period, and pay extra each month to get the loan paid off sooner – you won’t be charged a penalty for this!

October 17, 2006

Student Loan Consolidation – Why you should consolidate

Posted in Consolidation at 9:19 AM by Joe From Boston


Why is federal student loan consolidation the best option?

Consolidating your federal student loans is important. Your Stafford, PLUS, and Perkins loans qualify, but you should NEVER consolidate yout private loans with your federal loans (more on that in a future post). Student loan consolidation is a refinancing program that:

* Reduces your monthly payment up to 60%
* Locks in your interest rates
* Simplifies your finances by creating one low monthly payment
* Improves your credit rating
* Saves you money today when you need it most
* Provides flexible repayment options
* Reduce your interest rate as much as an additional 1.25% through a borrower benefits package.

Consolidation can significantly reduce your monthly payment burden. Student loan consolidation allows you to stretch your repayment period from the standard 10 years to up to 30 years, depending on the amount of your education debts. The lower payment means you’ll have more money available to meet other household expenses, including car payments, childcare, and career-related necessities.

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