The Bipartisan Student Loan Certainty Act of 2013 changed the formula for determining the interest rate for Direct Consolidation Loans. You may be able to combine your existing Federal education loans into one new consolidated loan that offers several advantages.
Should you consolidate?
1. Are your monthly payments manageable? If you have trouble meeting your monthly payments, have exhausted your deferment and forbearance options, and/or want to avoid default, a Direct
Consolidation Loan may help you. You can use the federal government’s online calculator to find out what your monthly payments would be under each of their payment plans:
https://loanconsolidation.ed.gov/loancalc/Controller?controller_task=startCalculator
2. Too many monthly payments driving you crazy? If you send payments to more than one lender every month, and want the convenience of a single monthly payment, consolidation may be right for you. With a Direct Consolidation Loan, you will have a single lender – the U.S. Department of
Education – and a single monthly payment.
3. What are the interest rates on your loans? If you have variable interest rates on your Federal education loans, you may want to consolidate. The interest rate for a Direct Consolidation Loan is fixed for the life of the Direct Consolidation Loan. The rate is based on the weighted average interest rate of the loans being consolidated, rounded to the next nearest higher one-eighth of one percent. The interest rate for Direct Consolidation loans that were made based on applications received prior to July 1, 2013, will not exceed 8.25 percent. Direct Consolidation loans that were made based on applications received after July 1, 2013 through June 30, 2014, there is no cap on the interest rate. Use the federal government’s online calculator to find out what your weighted average interest rate would be if you consolidate:
https://loanconsolidation.ed.gov/loancalc/Controller?controller_task=startCalculator
4. How much are you willing to pay over the long term? Like a home mortgage or a car loan, extending the years of repayment increases the total amount you have to repay.
5. How many payments do you have left on your loans? If you are close to paying off your student loans, it may not be worth the effort to consolidate or extend your payments.
How do you benefit from consolidating your federal student loans? 1. One Lender and One Monthly Payment
2. Flexible Repayment Options
3. No minimum or Maximum Loan Amounts or Fees 4. Varied Deferment Options
5. Reduced Monthly Payments 6. Retention of Subsidy Benefits
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To qualify for a Direct Consolidation Loan, borrowers must have at least one Direct Loan or Federal Family Education Loan (FFEL) that is in grace, repayment, (including deferment or forbearance), or default status. Loans that are in an in-school status cannot be included in a Direct Consolidation Loan.
Borrowers can consolidate most defaulted education loans, if they make satisfactory repayment
arrangements with the current loan holders or agree to repay their new Direct Consolidation Loan under the Income Contingent or Income Based Repayment Plan.
How do you apply for Federal Direct Consolidation of Loans?
1. Online Web Application: https://loanconsolidation.ed.gov/AppEntry/apply-online/appindex.jsp 2. Express Phone Application: 1-800-557-7392. Apply over the phone if you have all Direct Loans. 3. Paper Application:
a. Download a paper copy of the application and promissory note – including the complete contents of the application package: http://loanconsolidation.ed.gov/forms/forms.html b. Request an application package be mailed to you:
oPhone at 1-800-=557-7392 8AM to 8PM (EST) J(TDD 1-800557-7395) or (334) 206- 7400 outside USA
oE-mail at loan consolidation@hp.com What about Private Lender Student Loan Consolidation?
Some private lenders have also begun offering borrowers an opportunity to consolidate and refinance student loans. Among these lenders: 1) Discover Financial Services, 2) RBS Citizens Financial, and 3) Wells Fargo.
1. For Discover Financial Services Loan Consolidation Options, please call their loan center at 1-800- STUDENT, or you can go to their website below:
https://www.discover.com/student-loans/repayment/manage-debt.html
2. For RBS Citizens Financial Services Loan Consolidation Options, please call their loan center at 1-888- 333-0128, or you can go to their website below:
https://www.citizensbank.com/student-loans/education-refinance-loan.aspx
3. For Wells Fargo Loan Consolidation Options, please call their loan center at 877-454-5669, or you can go to their website below:
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GLOSSARY
Acceleration
Demand for immediate repayment of the entire unpaid amount of your loan.
Accrue
To accumulate interest on a loan. Annual Percentage Rate (APR)
The actual yearly cost of borrowing money reflected as a percentage rate.
Borrower
The individual who signed and agreed to the terms in the promissory note and is responsible for repaying a loan.
Capitalized Interest (Capitalization) Unpaid interest that has been added to the principal balance of a loan. Future interest is charged on the increased principal balance.
Consolidation
The process of combining one or more loans into a single new loan.
Consumer Reporting Agencies See credit bureaus.
Credit Bureaus
A credit bureau collects the credit information of individuals and makes it available to financial institutions, credit card companies, etc. Credit bureaus are also known as consumer reporting agencies (CRAs).
Credit Score
A number reported by credit bureaus and used by lenders to determine whether to lend you money, and what interest rate to charge you.
Credit Report
A collection of information about you and your credit history, kept by the three major credit bureaus.
Debt Consolidation
When a borrower contracts a third party company to manage his/her unsecured debt.
Debt-to-Income Ratio
The amount of debt compared to your overall income. Lenders use this ratio when determining whether to lend you money. A low debt-to-income ratio is more desirable.
Default
Failure to repay a loan according to the terms agreed to. For the FFEL and Direct Loan programs, your loan is in default if you fail to make a payment for 270 days, if you repay monthly (or 330 days, if your payments are due less frequently). Your lender is required to report the default to at least one national credit bureau.
Deferment
Allows you to temporarily stop making payments on your federal student loans. You are not charged interest on subsidized loans during deferment. Interest will continue to be charged on your unsubsidized loans and PLUS loans.
Delinquency
You become delinquent on a loan if you don't make a payment when due. Your lender is required to report the delinquency to at least one national credit bureau.
Direct Loan
See William D. Ford Federal Direct Loan (Direct Loan) Program.
77 Disbursement
A portion of a loan that is paid out from the school to the borrower by applying the funds to the student's account at the school or paying the borrower directly. Loans are paid out in one or more disbursements.
FFEL
Federal Family Education Loan (FFEL) Program. Federal student loans borrowed through private lenders and guaranteed by the federal government. FFEL Loans include the following types of federal student loans: Subsidized Stafford Loans,
Unsubsidized Stafford Loans, Federal PLUS Loans and Federal Consolidation Loans.
The FFEL Program ended July 1, 2010 and no new loans have been made since that date.
Forbearance
Allows you to temporarily stop making payments or reduce your federal student loans' monthly
payment. Interest will continue to be charged on your subsidized, unsubsidized and PLUS loans. Grace Period
A period of time that generally begins on the day after a borrower graduates, leaves school, or drops below half-time enrollment and ends on the day before the repayment period begins. A borrower is not required to make payments during the grace period. Grace periods occur for: subsidized and unsubsidized loans made under the Direct Loan (six- month grace period); and loans made under the Perkins loan program (generally nine-month grace period).
Grant
Student grants are monetary gifts to people who are pursuing higher education. Unlike student loans, grants do not require repayment.
Gross Income
Your total income before deductions. Half-Time Enrollment
The minimum hours or credit hours you need to be enrolled to be eligible for a federal student loan. Interest
The cost of borrowing money, charged as a percentage (interest rate) of the outstanding (unpaid) principal balance.
Interest Rate
The percentage charged when you borrow money. See also Annual Percentage Rate (APR).
LIBOR
The London Interbank Offered Rate (LIBOR) is the average interest rate paid on deposits of US dollars in the London market.
Loan
Money that you borrow and must repay with interest.
Loan Discharge (Cancellation)
The forgiveness of a loan debt under certain circumstances.
Loan Fee (Origination Fee)
A charge that occurs each time money is disbursed (paid out) to the borrower. The loan fee is charged as a percentage of the disbursement (gross), and reduces the actual amount received (net). Loan Forgiveness
The cancellation of a loan debt under various loan forgiveness programs.
Loan Modification Agreement
Temporary or permanent restructure of a mortgage loan.
78 Loan Period
The portion of the academic year that the loan is requested for.
Loan Reference Number
An identifying number associated to a Direct PLUS Loan Request. Used by an endorser when
completing a Direct PLUS Loan endorser addendum for a specific loan.
Loan Servicers
A company that collects payments on a loan, responds to customer service inquiries, and
performs other administrative tasks associated with maintaining a loan on behalf of a loan holder. Loan Term
The time period over which you must repay the loan. The standard loan term for federal student loans is up to 10 years.
Master Promissory Note (MPN)
A binding legal document in which you promise to repay your loans and any accrued interest and fees. It also explains the terms and conditions of your loans. An MPN can be used to make one or more loans for one or more academic years, for up to 10 years, except in certain circumstances.
Minimum Balance
The minimum amount of money a bank requires you to keep in your account to avoid fees. National Student Loan Data System (NSLDS) The central database for student aid. NSLDS receives data from schools, guaranty agencies, the Direct Loan program, and other federal student aid programs.
On-time
Payment made within 15 days of the scheduled due date.
Partial Financial Hardship
A circumstance in which the annual amount due on all eligible loans at the time you enter repayment as calculated under the 10-year Standard Repayment Plan exceeds 15% of the difference between your Adjusted Gross Income and 150% of the poverty line income for your family size.
Payroll Deductions
Amount withheld by an employer from employee's earnings. Some examples are: Federal Income Tax (withholding), Social Security, Medicare, State Taxes, Other Deductions (Health Insurance, Retirement Plan, etc.).
Perkins Loan
A loan made under the Federal Perkins Loan Program for students with exceptional financial need. Perkins Loans are administered by the school. PLUS Loan
Direct PLUS Loans are loans for eligible graduate or professional students and eligible parents of dependent undergraduate students to help pay for the cost of the student's education at participating schools.*
Includes Direct PLUS Loans (made through the William D. Ford Federal Direct Loan Program) and Federal PLUS Loans (made through the Federal Family Educational Loan Program.**)
The Financial Awareness Counseling Tool does not display to students the PLUS Loans taken out by parents on their behalf.
* Graduate or professional students should exhaust unsubsidized and subsidized loans before taking out Direct PLUS Loans.
** The FFEL Program ended July 1, 2010 and no new loans have been made since that date.
Prime
The interest rate banks charge their most creditworthy commercial customers.
79 Principal
The loan amount plus any capitalized interest added to the loan.
Rehabilitated Loan
A defaulted loan is rehabilitated if the borrower makes nine voluntary, reasonable, and affordable monthly payments within twenty days of the due date during ten consecutive months.
Repayment
To pay back money you borrowed by making scheduled payments to a loan servicer. Repayment Plan
A plan setup and agreed upon between a borrower and lender that determines the amount you pay each month and the number of payments you must make.
Satisfactory Repayment Arrangement Agreement between the debtor and the account holder detailing the terms of repayment.
Student Loan
Money you borrow for school and must repay with interest.
Student Loan Debt Burden
Student loan debt burden is the portion of a
student's monthly income dedicated to their student loan payments. The Consumer Financial Protection Bureau (CFPB) has the following categories for student loan debt burden: Low: Monthly payment less than 8% of monthly income
Medium: Monthly payment between 8% and 14% of monthly income
High: Monthly payment greater than 14% of monthly income
Subsidized Loan
A federal student loan for which in some cases, a borrower is not responsible for paying the interest while in an in-school, grace*, or deferment period. * Interest will be charged during your grace period, if your loan is first disbursed July 1, 2013 through June 30, 2014.
Tax Credit
Reduces the taxes owed. Tax - Tax Credit=Taxes Owed $1000 - $250 = $750 Tax Deduction
Reduces taxable income.
Income - Deduction=Taxable Income $45,000 - $5,000 = $40,000
Taxable Income
Adjusted Gross Income minus any applicable deductions or exemptions.
Tax Withholding Allowances
An allowance an individual claims on a W-4 Form. A withholding allowance is mainly used to assist an employer in calculating the amount of income tax to withhold from an employee's paycheck.
Unsubsidized Loan
A federal student loan for which the borrower is fully responsible for paying the interest regardless of the loan status.
Voluntary Payment
Payment made directly by the borrower and does not include payments obtained by federal offset, garnishment of income or asset execution.
80 William D. Ford Federal Direct Loan (Direct Loan)
Program
Student loans provided by the U.S. Department of Education to enable a student or parent to pay for education after high school. Eligible students and parents borrow directly from the U.S. Department of Education at participating schools. Direct Loans include the following types of federal student loans: Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans. Withholding
Amount withheld by an employer from employee's earnings. Some examples are: Federal Income Tax (withholding), Social Security, Medicare, State Taxes, Other Deductions (Health Insurance, Retirement Plan, etc.)
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