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bumblebee


Dooney & Bourke

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student loans/explanation needed
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i owe $18,500--the full max amount for one year of grad school, in the usual split ($10K and $8,500).  it has been deferred twice because i ended up going on extended leave of absence and then enrolling in a certificate program.   no one at my school has ever explained how the whole thing works, but now i'm going to have to start paying them back this fall, and i want to be prepared. 


1. is it in my best interest to consolidate? i don't even understand what this means, but i get things in the mail encouraging me to do it just about every day.


2. is the interest rate that i borrowed the money at (super low in 2002, like 2%) the rate i will pay on it, or will the rate go up because interest rates in general have gone up? i don't understand whether the rate is based on the rate when i borrowed the money or the rate when i start paying it back. 


if anyone has any books or websites that they could recommend that give info on this stuff, that would also be much appreciated.  thanks. 



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blubirde


Chanel

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I'll try and help out here because I've been through this but I'm not sure I can answer all your questions.


1. Consolidation - generally speaking I think the answer is yes, it's generally best. However, if you have a fixed APR of 2% then you probably can't consolidate for less than that and it would be cheaper in the long run to not consolidate. I consolidated my federal loans about 1.5 years ago and the payments went from over $550 to around $275 per month. (Not including private loans.) As far as who to consolidate with, who are your loans with now? I had mine through WellsFargo (my bank) and consolidated with them, too. It was super-convenient. I believe salliemae (or something like that) has a lot of online information about loans. I called them on the phone and asked them a bunch of questions when I was doing it.


2. interest rate - I think it depends on what kind of rate you got. Is it fixed? If it's fixed, it won't change and that would be really awesome. If it's the other kind (i think a variable rate?) then it changes every year and then you should definitely consolidate b/c you get a fixed apr with consolidation.


3. Like I said, I think salliemae has some stuff on their website. The federal loan websites probably have information or at least links to information.


Hope that helps at least a little bit!



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valenciana


Dooney & Bourke

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consolidating means that you take all the loans you have (many people have a variety, perkins, stafford, federal, subsidized, unsubsidized, blah blah blah) and consolidate them so that you only have to make one payment.  this also allows you to lock in one interest rate for all your loans.  i think they take the average of your interest rates for all your loans OR give you the current rate, i'd assume whichever's lower.  once you've consolidated, you can't reconsolidate or unconsolidate or whatever (except under certain circumstances, like you get married and want to consolidate your loans with your spouses).  you can also extend the length of your loans, so you can repay them for 20 years, instead of 10, thus decreasing your payments (but perhaps costing more in the long run...gotta crunch a few numbers and decide if it's worth it).  so far as i know, but don't quote me on this, if you haven't already consolidated, then yes, you're still using the rate from the time the loans were taken out.  so if your rates are at 2% currently, and you only have two loans (and therefore two bills to pay), it might make more sense to leave them as they are...i think.


i can't seem to find any info out there on the internet, but there's got to be something...


ETA: okay, i just realized that i have a financial planning book here at work (exciting lunchtime reading, woohoo)...here's what it says about student loan consolidation (i'm prob going to edit and summarize some):


reduces your paperwork...your consolidation service pays off your old loans and issues you a new one, with a fixed interest rate equal to the average of the rates on your old loans (rounded to the nearest 1/8th of a percent).  interest rate on the new loan is guaranteed to remain under 8.25%


makes it easier to keep track because you only have one bill each month...also...only by consolidating can you take full advantage of special repayment plans offered by private lenders, in particular, stretching out your repayment over a longer period of time.


okay...i have no idea exactly what this means, but i'll type it up anyway, cause it sounds serious.   -- "Annoyingly, Sallie Mae and the other servicers won't give you the 2% timely-discount break if you consolidate your loans.  So if you don't need to stretch out your repayment, don't consolidate."  ah, okay, i found it...some servicers, including Sallie Mae, offer a reward for borrowers who make their first 48 payments on time, by reducing their interest rate by 2% for the remaining loan term.  hm, not a bad deal, but apparently a no-go if you consolidate.


here are some recommended websites (the book, by the way, is Get a Financial Life by Beth Kobliner):


www.loanconsolidation.ed.gov


www.usagroup.com (loan calculators on their site)


www.ed.gov/offices/OPE/DirectLoan (also has calculators)



-- Edited by valenciana at 15:57, 2005-04-19

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