June 07, 2005

Federal Loans Reminder

by PG

UPDATE: Divine Angst (via JurisPundit) has an excellent explanation of the whys and wherefores of loan consolidation.

Ah, this is why one attends an overpriced law school: because they send out e-mail notices about the best time to consolidate one's loans, even though the subject line looks like spam:


I am writing to suggest that you very seriously consider consolidating your federal Stafford loans before June 30, 2005, so that you can lock into a historically low long-term fixed interest rate. This may be your last opportunity to lock into a fixed interest rate on a consolidation loan. Proposed changes to the federal loan programs are expected to mandate a variable interest rate on future consolidation loans. Please read further for additional information regarding interest rates and the timing of consolidation.

Some of you may be aware that federal consolidation through a bank or financial institution previously was allowed only if you were out-of-school (graduated, withdrew, etc.). Until now, this was interpreted to mean that students who were continuing in in-school status were unable to consolidate their federal loans in order to lock into the very low fixed interest rates that are available currently.

The Higher Education Act does not allow federal consolidation loans to be made while a borrower is in school; borrowers must be in a grace, repayment, or default status. However, a separate section of the Higher Education Act states that borrowers can request early entry into repayment status. This means that you may request your federal loans to be placed in a repayment status even though you will be continuing your education. Once in repayment, you can consolidate the loans and receive a fixed rate of interest. If you consolidate before the end of this month (June), you will be able to lock into the lowest ever fixed interest rate for federal loans.

Because you will continue to be enrolled, a lender has the ability to immediately place your new consolidation loan in an in-school deferment status. While your consolidation loan is in deferment, your interest rate will be the fixed consolidated interest rate, even though interest rates on regular federal Stafford loans may be adjusted annually each July 1. The federal government continues to pay the interest on the portion of your new consolidation loan that previously was a federal subsidized Stafford loan; the portion that was a federal unsubsidized Stafford loan will accrue interest during deferment periods, but the interest will not capitalize again until you begin repayment. No payment is due during a deferment.

While you can consolidate all of your federally guaranteed loans, you should not consolidate loans with regulated low fixed rates (such as the Perkins loan) since the 5% fixed interest rate of Perkins loans is higher than the extremely low current federal consolidation loan rates and may drive up the weighted average rate of the federal Stafford loans you will be consolidating. Additionally, please be aware that if your future career plans include certain services (law enforcement, elementary/secondary school teaching, military service, peace corps, etc.), you may be eligible for partial cancellation benefits for federal Perkins loans.

SAVE ALMOST 2% ON YOUR LOAN INTEREST RATE! Interest rates on federal Stafford loans will be reset on July 1, 2005 as follows: for Stafford loans disbursed on or after July 1, 1998, the interest rates for the period July 1, 2005 through June 30, 2006 will be 4.7% during in-school and grace periods, and 5.3% during repayment. For your reference, the current interest rates for the period ending June 30, 2005 are 2.77% and 3.37%, respectively. While different rates apply for loans disbursed before July 1, 1998, they now are very low as well. If you consolidate before the end of June 2005, the current in-school/grace period rate (2.77%) will be used to calculate the rate of your consolidation loan (unless you also are consolidating loans for which you already used up your grace period). Check with your lender for the exact rate.

Keep in mind that the formula used to determine the interest rate on a consolidation loan is the weighted-average rate of the loans being consolidated rounded up to the nearest 1/8th of a percent.

By consolidating your federal loan(s), you will have a new federal loan, and you will forfeit the grace period you had for the original federal loans you consolidated. Thus, you will enter repayment immediately following graduation (or when your enrollment drops to less than half-time status), and you must plan accordingly. You will continue to receive a grace period on any future federal loans you borrow, as well as on any earlier loans you had but which you chose not to consolidate (unless you already used up your grace period).

FOR ACCESS GROUP BORROWERS: To consolidate your loans with Access Group, just visit www.federalconsolidation.org/preapply and complete the online form. By filling in your expected graduation date on the form, when your request is processed Access Group will send you two documents:
(1) a copy of your application for loan consolidation for your review
and signature, and (2) an Early Repayment Request Form. This will allow your loans to be consolidated and to receive an in-school deferment.
You MUST complete both forms and return them to Access Group in order to consolidate your loans while you are in school. Once the consolidation loan is processed by Access Group, please note that you will receive TWO notices; the first stating that the loans are now in repayment, and then a second stating the loans are in an in-school deferment status (Access Group must send both notices by regulation).

FOR BORROWERS FROM OTHER LENDERS: Please contact your federal Stafford loan lenders/servicers directly to inquire about consolidation or about the status of your loans in general. Most lender websites contain detailed information on federal loan consolidation. For your convenience we list some of these contacts on the chart at the end of this message. If after communicating with your lenders/servicers you need assistance from our Office, please call 212-854-6522 and we shall try to help you as best we can.

If you plan on participating in the Loan Repayment Assistance Program (LRAP) and are concerned about how your LRAP benefits may be impacted by federal loan consolidation, please contact our office at 212-854-6522. We can assure you, though, that federal loan consolidation does not mean that your eligibility for LRAP will be affected adversely.

I strongly encourage you to explore this wonderful opportunity to decrease
the cost of your federally guaranteed loans. If you have questions about
this process, please contact your lender directly.


|Access Group |www.accessgroup.org |800-282-1550 |
| |www.kheslc.com |888-250-6401 for |
| | |consolidation loans |
|Citibank |www.studentloan.com |800-745-5473 |
| | | |
|Sallie Mae |www.salliemae.com |888-272-5543 |
|also LawLoans, Nellie | |800-448-3533 for |
|Mae, and USA Group Loans| |consolidation loans |
|Total Higher Education |www.northstar.org |888-843-3095 |
|(T.H.E.) | |866-562-6672 for |
| | |consolidation loans |
|Key Education Resources |www.Key.com/educate |800-539-5363 |
| | | |
|Federal Direct |www.ed.gov/DirectLoan |800-557-7392 |
|Consolidation Loan | | |

June 7, 2005 10:11 AM | TrackBack
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