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06-22-2006, 06:11 AM
SOURCE (http://www.usatoday.com/money/perfi/columnist/block/2006-06-19-single-holder_x.htm)
End of 'single holder rule' lets student loan consolidators shop around
Updated 6/19/2006 9:57 PM ET
If you're planning to consolidate your student loans, you no longer have to dance with the date that brung you.
An emergency spending bill signed into law last week eliminated a decades-old rule that required borrowers whose student loans were all from one lender to consolidate with that lender.
The end of the "single holder rule" comes at an auspicious time. On July 1, the rate for federal Stafford loans will rise to 7.14% — the highest rate since 2001 — from 5.3%. But borrowers who consolidate their loans before July 1 can head off the increase. If you're already making payments on your Stafford loans, you can lock in a rate of 5.375%. If you recently graduated and are still in your grace period — the six-month interim before you're required to start making payments — you can lock in an even lower rate of 4.75%.
Even before Congress killed the single holder rule, borrowers were being blanketed with marketing pitches from lenders eager to consolidate their loans. Look for those efforts to accelerate now that borrowers can consolidate with any lender. While competition is a good thing, exercise care in selecting a lender, because loan consolidation is a long-term commitment.
Federal rules bar most student loan borrowers from consolidating more than once. Once you consolidate with a lender, you're stuck with that lender until you pay off your loan, says Keith New of the American Education Services, a student loan lender. For borrowers with loan balances of $60,000 or more, that could take up to 30 years, so you need to select a lender you can live with.
Sorting through the hype isn't easy. Here's what to consider in selecting a lender:
•Borrower benefits. The federal government sets the rate for Stafford loans, but that doesn't stop lenders from sweetening the deal. Most lenders will reduce your rate by a quarter-point if you agree to have your payments automatically withdrawn from a bank account. Some also offer an additional rate cut — typically 1 percentage point — if you make a certain number of payments on time.
These benefits can save you money, but look past the marketing materials and read the fine print. In addition to the quarter-point reduction, most lenders provide a rate cut after 36 on-time monthly payments, and a few will reduce your rate after just 24 months of good behavior.
Lenders also have different definitions of what counts as an on-time payment. Some mark a payment late if it arrives a day after the due date. Others are more flexible. ALL Student Loan, which offers a 1.25 percentage point rate cut after 24 on-time payments, considers a payment on time if it arrives within 15 days of the due date, says Chief Executive Officer Christopher Chapman.
You should also ask the lender what would happen if you made a late payment after your rate had been reduced. Some lenders, including ALL Student Loan, will rescind your rate cut if you subsequently make a late payment. At American Education Services, the rate cut is permanent, even if you make late payments in the future.
•Customer service. Because you could be paying off your loans for many years, you should work with a company that will treat you right. Be wary of lenders that have no track record, says Mark Kantrowitz, a financial aid consultant and founder of FinAid.com. "A lot of fly-by-night outfits and new companies have popped out of the woodwork to consolidate loans," he says.
One good source of information is your college's financial aid office, Kantrowitz says. Financial aid administrators will tell you if they've heard complaints about a lender.
You can also assess a lender's customer services practices by the way you're treated when you call to inquire about loan consolidation. Reputable, well-established lenders have bulked up their customer service lines to handle a rush of last-minute loan consolidations. You probably don't want to link up with a lender that puts you on hold for a long time or transfers you to someone who can't answer your questions.
Finally, don't spend so much time comparing offers that you lose sight of the big picture. Most lender discounts and incentives are relatively small, and borrowers often have a hard time qualifying for them, Kantrowitz says. But the benefits of consolidating your loans before July 1 are indisputable. Depending on the size of your balance, locking in current rates — no matter which reputable lender you choose — could save you thousands of dollars over the life of your loan.
If you're worried about missing the deadline, sticking with your original lender might be your best option, Kantrowitz says. That lender already has all your paperwork, so it can process your application quickly. Having trouble tracking down your loans? Use the "Loan Locator" tool at www.studentclearinghouse.org.
End of 'single holder rule' lets student loan consolidators shop around
Updated 6/19/2006 9:57 PM ET
If you're planning to consolidate your student loans, you no longer have to dance with the date that brung you.
An emergency spending bill signed into law last week eliminated a decades-old rule that required borrowers whose student loans were all from one lender to consolidate with that lender.
The end of the "single holder rule" comes at an auspicious time. On July 1, the rate for federal Stafford loans will rise to 7.14% — the highest rate since 2001 — from 5.3%. But borrowers who consolidate their loans before July 1 can head off the increase. If you're already making payments on your Stafford loans, you can lock in a rate of 5.375%. If you recently graduated and are still in your grace period — the six-month interim before you're required to start making payments — you can lock in an even lower rate of 4.75%.
Even before Congress killed the single holder rule, borrowers were being blanketed with marketing pitches from lenders eager to consolidate their loans. Look for those efforts to accelerate now that borrowers can consolidate with any lender. While competition is a good thing, exercise care in selecting a lender, because loan consolidation is a long-term commitment.
Federal rules bar most student loan borrowers from consolidating more than once. Once you consolidate with a lender, you're stuck with that lender until you pay off your loan, says Keith New of the American Education Services, a student loan lender. For borrowers with loan balances of $60,000 or more, that could take up to 30 years, so you need to select a lender you can live with.
Sorting through the hype isn't easy. Here's what to consider in selecting a lender:
•Borrower benefits. The federal government sets the rate for Stafford loans, but that doesn't stop lenders from sweetening the deal. Most lenders will reduce your rate by a quarter-point if you agree to have your payments automatically withdrawn from a bank account. Some also offer an additional rate cut — typically 1 percentage point — if you make a certain number of payments on time.
These benefits can save you money, but look past the marketing materials and read the fine print. In addition to the quarter-point reduction, most lenders provide a rate cut after 36 on-time monthly payments, and a few will reduce your rate after just 24 months of good behavior.
Lenders also have different definitions of what counts as an on-time payment. Some mark a payment late if it arrives a day after the due date. Others are more flexible. ALL Student Loan, which offers a 1.25 percentage point rate cut after 24 on-time payments, considers a payment on time if it arrives within 15 days of the due date, says Chief Executive Officer Christopher Chapman.
You should also ask the lender what would happen if you made a late payment after your rate had been reduced. Some lenders, including ALL Student Loan, will rescind your rate cut if you subsequently make a late payment. At American Education Services, the rate cut is permanent, even if you make late payments in the future.
•Customer service. Because you could be paying off your loans for many years, you should work with a company that will treat you right. Be wary of lenders that have no track record, says Mark Kantrowitz, a financial aid consultant and founder of FinAid.com. "A lot of fly-by-night outfits and new companies have popped out of the woodwork to consolidate loans," he says.
One good source of information is your college's financial aid office, Kantrowitz says. Financial aid administrators will tell you if they've heard complaints about a lender.
You can also assess a lender's customer services practices by the way you're treated when you call to inquire about loan consolidation. Reputable, well-established lenders have bulked up their customer service lines to handle a rush of last-minute loan consolidations. You probably don't want to link up with a lender that puts you on hold for a long time or transfers you to someone who can't answer your questions.
Finally, don't spend so much time comparing offers that you lose sight of the big picture. Most lender discounts and incentives are relatively small, and borrowers often have a hard time qualifying for them, Kantrowitz says. But the benefits of consolidating your loans before July 1 are indisputable. Depending on the size of your balance, locking in current rates — no matter which reputable lender you choose — could save you thousands of dollars over the life of your loan.
If you're worried about missing the deadline, sticking with your original lender might be your best option, Kantrowitz says. That lender already has all your paperwork, so it can process your application quickly. Having trouble tracking down your loans? Use the "Loan Locator" tool at www.studentclearinghouse.org.