Generation Debt

I thought about doing this too! Checked with the lender and after running the numbers--consolidate my 7.25 loans with a 4% and the prevailing interest rate ended up being close to 6.9% (???) I guess it's the "weighted average" they use...

Yes I looked at this too - that is what they do. They would just add the latest loan you take out and average the rate you get with all your current loans - so you are not going to see much relief...

i have also looked into this. at first, i thought that the costs for tuition did not justify the savings, but the bigger picture questions are:

1. when you're in school, the interest on your subsidized portion does not accrue, right? if yes, than include this "savings" in your calculations. if your sub'd principal is $40k and your interest is 5%, then you've got an immediate $2k/year savings to use towards tuition or to pay down your principal.

2. what's the minimum number of credit hours necessary to qualify for sub/unsub stafford loans? if it's 6 hours, then you need to pay ~$1800/semester (at $300/credit hour) to play the game. i don't think things work out at that cost.

3. true you don't save much considering the "weighted average" if you only borrow what you need for the classes, but what if you take the maximum allowable stafford loans? what's the maximum sub'd/unsub'd staffords you can take out? if you can take out ~$18000/year, then you could perhaps make a serious dent in your total debt by borrowing all you can and using those funds to pay down your existing loans with the new loans at cheaper rates.

if you consider the fact that the fed pays the interest on your sub'd portion while you're in school (that savings can be applied towards tuition expenses), then the actual savings would really be the difference in the weighted average interest between your loans prior to and after taking new classes. does anyone want to build a spreadsheet to try this?

~ian

Ian, your the man, I've thought about all of this alot and your 3rd point is a good one. My wife and I have around 120k consolidated at 9%. I know, I know, it sux. Anyway, we're both wanting to start on our masters. We can both borrow as much as possible and pay it on our high debt loans. If we were able to borrow 18k each per year, we'd have paid back 72k after 2 years. We'd then have 72k to consolidate with 48k. This could be big. Thanks for the idea!!!!

Borrowers who have a "direct" consolidation with the govt can now "convert" the consolidation loan into a ffel and receive an interest rate reduction depending on what the company is offering.

WHAT IS A FFEL?

FFEL = Federal Family Education Loan - it's a loan your parents take out on your behalf, I believe.

FFEL (Federal Family Education Loan) means it is a federal student loan and the money comes from a private lender and can be either a parent loan or a loan directly to the student. If the goverment itself is the backer of your federal student loan it falls under the Federal Direct Student Loan program. FDSL

I work in the student loan consolidation industry and am an employee of a company affiliated with the website provided within your link. One of the most common mistakes when considering re-consolidation under the current guidelines is the belief that it will imediately reduce the burden of student debt. Unfortunately this is rarely the case due to the "weighted-average" iterest rate formula used. The oppourtunity for borrowers is in the area of interest rate reduction incentives. As you well know the goverment strictly mandates the interest rate on all consolidation loans. So the "base" rate you get will be the same no matter where you go. In the private sector of federal student loans an incentive was created that rewards borrowers for making on time payments. If you are in a situation where you are recieving this interest rate reduction incentive it is important to note you are "most likely" in the best possible program at the moment and this course of action may actually !

be to your detrement.

If you are one of the millions of people who were not offered an interest rate reduction for on-time payments, you most likely were not eligible to consolidate with the company of your choice or decided to stick with the DOE itslef. These people may benefit significantly by taking a small new loan to be able to consolidate again and become eligible for the interest rate reduction. The industry standard is pretty much a 1% reduction after 36 consecutive on-time payments. There are other programs available and my company has a new program that is more beneficial for those that do not stretch their payments out to the longest possible term. You could opt for a 0.75% interest rate reduction after only 12 consecutive on time payments.

Taking new loans to become eligible for a consolidation is an attractive offer for those that are at the cap of 8.25% on a 20 or 30 year term with no way to reduce the rate other than automatic withdrawl for a 0.25% (in my experience I have yet to find an organization that does not offer this benefit). If you only have a few to 7 years left before your loan is paid in full I strugle to see any reason to seek this avenue for my clients.

As a consolidation consultant I would like to make any resources I have or knowledge available to people. Even reading this website there seems to be alot left out. My personal email is infernobydante@yahoo.com.

This is not a solicitation for services. Some of us out there are truly trying to help people. 8-)