Student Loan & Student Loan Consolidation

When you are in school, fraud money…you aren’t very concerned with where the money is coming from. You are more concerned with making persuaded your tuition is paid for every semester…some how, some way. What a quota of student do not realize is that loans that come from the Federal gov’t cannot be combined with inside school loans when you graduate. Actually, to revise that a bit…they can be combined all together, if you pay off your Federal loans with a private loan…which is never something I would recommend. The undivided faultless stop in taking out Federal loans is since they are better loans to owe than private loans…so what would that achieve if you forfeited that Federal loan status, just so you had one monthly payment per month? You would end up paying MORE in the long run, and you would further lose many benefits that Federal loan carry…for example:
1) loan forgiveness should the borrower mature into deceased
2) the ability to consolidate at a FIXED interest rate
4) many deferment and forbearance options

So, if you are a college student borrowing both Federal and private school loans…keep in head that when you are done with school…you cannot consolidate all these together. You will ever have 2 monthly payments. You can consolidate all your private loans together…and all your federal loans together….but they will always remain 2 separate types of loans. For more information about both types of consolidation, you can visit: Student Loan Consolidator

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If you’ve recently tried to compact your federal student loans, you may keep found it difficult to locate a company willing to help. Some of the biggest lenders in the market are temporarily not offering federal loan federation. So what does that mean for you?

Before we discuss your options, lets first look at why so many lenders have stopped offering consolidation. Two disparate issues are causing the consolidation pause, legislation and credit markets.

Back on October 1, 2007, legislation was passed which contained provisions aimed to shrink the profit margin lenders were earnting on federal consolidation loans. The smaller margin allowed for much less profit with zero room for lenders to offer discounts and borrower benefits. It’s important to understand, prior to the October 1st legislation, lenders were taking portions of their own profits and returning it to their borrowers in the form of rebates, interest rate discounts and cash back. Granted, the borrower benefits were a great marketing veryl and attracted droves of borrowers to specific programs - on the contrary they lifeless helped the borrower save money. Although these changes had a negative impact on many FFELP lenders, the legislation did contain great provisions that would lower interest rates on federal loans over the next several years.

Next we have the credit market crunch - an indirect result of the sub-prime collapse. In order for a lender to consolidate a borrowers federal student loans, that lender has to pay-off the borrowers previous lenders. This requires that the lender have capital available. Now, there are a number of different ways that a lender can do this, (which we won’t get into during this blog) the most common is securing a line of credit with a bank or outside funding source. The outside funding source provides the line of credit with the notion that the lender will be able to package up a bunch of federal consolidation loans and sell them to other investors (securitization). At which point the lender will replenish their line of credit, and be able to write extra consolidation loans. For many lenders out there right now, they are not able to secure a funding source, and therefore not able to write consolidation loans. From an investment standpoint, there is a feeling that federal consolidation loans are no longer valuable. I said feeling, because I don’t believe this to be completely exact or do I think it will stay this way for too long.

So, the smaller profit margins, coupled with the shaky credit markets have caused a ‘pause’ in the federal consolidation market. And yes, it is a bit more complicated than what I just described, but you get the basic idea of what’s going on.

Now, you need to consolidate your federal loans, but you have no place to go? The Department of Education is still helping borrowers consolidate their federal loans. However, I would wait until after July 1, 2008. For those of you who still have variable rate Stafford and PLUS loans (taken out prior to July 1, 2006), it looks like your interest rate MAY be going down. Not a definite - just a maybe.

Just to point out, the above changes and the federal consolidation pause have not and will not involve private student loan consolidation.

I will be posting more on this topic in the coming weeks - please send along all your questions and comments.

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