A Few Things To Know About Student Loan Consolidation

A consolidation loan is just what it sounds like: You can take two or more outstanding loans and re-finance them into one. To a college grad that is overwhelmed with multiple student loans that are coming due, loan consolidation is an enticing option. When you consolidate, a lending institution pays off your existing balances and replaces them with a new, consolidated loan.

CONSOLIDATING OFFERS SEVERAL BENEFITS:
1. You have just one check to write each month and just one repayment plan to track.
2. You lock in a fixed interest rate that takes the sweat out of variable-rate loans. When interest rates are low, consolidating loans can save a great deal of money.
3. You can extend your repayment timetable from 10 years up to 30 years, depending on the size of your debt, so you can shrink your monthly payments. A consolidation loan may lower your monthly loan payments by as much as 40 percent.

FEDERAL VERSUS PRIVATE CONSOLIDATION
The key terms for federal consolidation loans do not vary by lender: no application or origination fees are allowed and there are no prepayment penalties. Federal law sets the period of time for paying back the loans and sets a ceiling on the interest rate.
Private consolidation lenders, on the other hand, are not subject to those terms and may include variable rates and any number of fees. Also, some benefits of a federal consolidation loan, such as interest subsidies on deferred loans, are not available on private loans.

CONSOLIDATION FREQUENTLY ASKED QUESTIONS
With all the hype, student loan consolidation isn't for everyone. Here are some frequently asked questions and answers that may help you in deciding if this is for you.

SHOULD I CONSOLIDATE?
If you need more cash in your pocket right now, consolidation can help by extending the life of your loan and reduce your monthly payments. Be aware, the length of your repayment terms will depend on the amount of debt you have, and you may not be able to extend at all. But if interest rates are low, you can lock in long-term savings, since less of your money will go to interest. You may also have access to a new repayment schedule that's a little easier on your wallet. If you don't care about the extra cash and just want a consolidation for the simplicity of a single monthly payment, you can use any savings to pay down the principal. There are no prepayments penalties for student consolidation loans.

WHEN IS CONSOLIDATION A BAD IDEA?
If you have only a couple more years or a few thousand dollars to go until you pay off your student loans, consolidation is probably not a great idea. Switching to a new lending institution might eliminate any benefits you've earned, like lower interest rates for on-time payments over the years. Consolidating could take away the opportunity for you to have a Perkins Loan forgiven or reduced. If you can handle your monthly loan payment as is, carefully investigate how consolidating will change the total amount you're expected to repay.

WHO CAN CONSOLIDATE MY LOANS?
You can get a consolidation loan from any private lending institution with government approval, or from the Department of Education. But, not all consolidators are the same. Some offer favorable terms such as interest-rate reduction for making on-time payments or choosing automatic withdrawal; others may offer repayment plans that better fit your financial situation. http://www.finaid.org/ maintains a list of student loan institutions, including large banks; private companies like Sallie Mae; and state education system lenders like the California Student Aid Commission http://www.csac.ca.gov/. You should do research and be able to negotiate the most favorable terms. Public and private loans can't be combined, but if you have multiple private loans, you can consolidate those, too; contact your lending institutions to find out how.

WHEN SHOULD I DO IT?
If you're just finishing college, you'll want to consolidate your loans after you graduate but before your grace period ends, so that you can take advantage of the lower in-school interest rate. You'll need to complete all the paperwork and have it processed and approved before repayment begins. The downside is that your grace period will end once your consolidation loan goes through. If you've already been paying off your loans for a while, you can consolidate at any time.

HOW CAN I GET THE BEST INTEREST RATE?
The interest rate on your consolidation loans is the weighted average of the interest rates on the loans you have now, rounded up to the nearest 1/8 of a percent and capped at 8.25 percent. Interest rates are determined by the federal government and change each year on July 1.

CAN I CONSOLIDATE MORE THAN ONCE?
Current law dictates that you can only consolidate once, so if you consolidate at a 6% interest rate and rates later drop to 3 percent, you're out of luck. There are two exceptions: if you've since gone back to school and acquired new student loans, or if an outstanding loan was excluded from your original consolidation. In those case, you may be able to consolidate again.

CAN I CONSOLIDATE MY STUDENT LOANS WITH MY SPOUSE'S?
A married couple can jointly consolidate their loans, but it may not be a good idea. To do so, you'll both have to agree to assume full responsibility for payment of the debt. So if your marriage ends in divorce, your loans will still be living together and one ex-spouse will be held responsible if the other refuses to pay.

WILL I LOSE THE INTEREST SUBSIDY ON MY SUBSIDIZED LOANS?
No. Although your existing loans will be packaged as one larger loan, your subsidized and unsubsidized loans are grouped so that you won't be held responsible for extra interest on subsidized loans.

HOW IS LOAN SERIALIZATION DIFFERENT FROM CONSOLIDATION?
With loan serialization, a single lender buys your student loans and "stacks" them; you maintain your original terms and interest rates, but pay the loans off one at a time, starting with the loan with the worst interest rate. Unlike with refinancing, serialization won't lock in a good interest rate. Perkins Loans cannot be serialized.

WHAT FEES CAN I EXPECT TO PAY?
You shouldn't pay origination or any other fees to get a consolidation loan.

HOW CAN I APPLY FOR A CONSOLIDATION LOAN?
Most lending institutions, including the federal government, offer both online and paper applications. If you have all Direct Loans, you can even apply by phone. Along with basic personal contact information, you'll need to be able to provide data on the type of loan you have, the balance, and the current loan holder. You will be asked to provide your employer's name and contact information, the name of your school, and the names of several references. Ask the lender you've chosen for an application, complete it, and then wait for them to send you the paperwork to sign. Go over everything carefully for accuracy, because the lending institution will check to verify that the information you provided is true. Once your loan has been approved, you'll receive notification and a new repayment schedule from your new loan holder.

Complied by the NICCP

Good News for Stanford Applicants

Many schools that compete with Harvard and Princeton just got more competitive. According to a report in the Wall Street Journal, "early action" applications are up 36% at Yale, 42% at the University of Chicago, 16% at Boston College, 30% at Georgetown and 12% at Norte Dame. The good news for Stanford applicants is the fact that applications are down slightly from last year.

Last year both Harvard and Princeton announced that they would abandon their early admissions programs in an effort to increase access for disadvantaged students. Unlike early decision programs which are binding early action programs allow students to wait until National Deposit Day May 1, 2008 to make a final decision.

Homer Sweeney

Seven Question To Ask the Financial Aid Officer

Do your financial due diligence while visiting prospective colleges. College visits are one of the most important steps in the process towards college selection. Too often, however, they consist of a student-guided tour that is carefully planned yet shallow in substance. If you've accompanied your college-bound child, don't leave campus until you have visited the financial aid office.

Call the financial aid office ahead of time to make sure that a financial aid officer (FAO) will be there to help you. People sometimes find FAOs more difficult to deal with than other administrative people. Keep in mind that they are often caught between a "rock and a hard place," trying to help out everyone as much as possible. They have a tough job, so be patient and diplomatic when dealing with them. Face-to-face contact now may "pay off" in the spring of your child's senior year.

Don't forget: When you're asking financial aid questions, ask the financial aid office instead of the admissions office. Don't trust what you hear from admissions about financial aid or vice versa. They may have a general idea, but not all the details.

THE QUESTIONS

By asking a FAO these questions at each school in which your child is interested, you will get a much better idea of the ones that are financially feasible for your child to attend. Once you have had a couple of these dialogues with FAOs, you'll get more comfortable with it and will be able to discern the "good answers" from the less attractive ones.

1. WHAT ARE THE FINANCIAL AID DEADLINES?

This soft opening question will reveal what forms you need to submit, to whom, and when. There may be both the usual ones, the FAFSA and PROFILE, plus the college's own forms. There may also be different forms for need-based aid and merit-based aid. It's best to clarify all this in your mind now. By the way, it usually works out that the more forms they require, the more money they have - but also the tighter they may be with it.

2. WHAT IS YOUR COST OF ATTENDANCE (COA) FOR THE CURRENT YEAR?

If your child is a junior, colleges won't have the numbers for the freshman college year until April or even June of the senior high school year, so you will have to base your estimate on this year's numbers. There are precisely six components to a college student's complete budget:

Tuition - Fees - Room and Board - Books and Supplies - Personal expenses - Transportation.

Many budgets you will see include only Direct Costs (which are the first three items listed) and what you will pay directly to the bursar's office. However, the Department of Education requires that colleges fully inform you as to all of the above costs, so find out specifically what those amounts are.

3. HOW MUCH OF AN INCREASE IN THE COST OF ATTENDANCE (COA) DO YOU PROJECT FOR NEXT YEAR?

When you ask this, ask to get the components separately. Tuition and room and board increases are independent of each other. For example, at one school they may expect an increase of 5 percent in tuition and fees, but a 10 percent increase in room and board. Even if it makes little difference in dollars, just asking detailed questions like this gives the impression that you know what you are talking about.

4. DO YOU USE YOUR OWN INSTITUTIONAL METHODOLOGY TO DETERMINE NEED?

If you ask this question, the FAO will know that he is having a conversation with an educated customer! Your goal here is to get a sense of how deeply they will delve into your financial profile.

5. ARE YOU ABLE TO MEET 100 PERCENT OF FINANCIAL NEED?

If they say "no," find out why, and get details. Is it "first come, first served"? What's the average percentage of need they can meet? What percentage are grants and what are loans? Do they have a dollar amount they leave as a gap (unmet need) for everyone?

6. IN WHAT ORDER DO YOU CREATE THE FINANCIAL AID PACKAGE?

That is, when creating the package, do they first fill the aid package up with loans, or do they figure a grant for the student first? The answer to this question may tell you a few things. A financially strong school that wants your child to attend will say "grants before self-help." But so will a college that understands good marketing - they know that's what you want to hear. Most colleges will actually begin to build the financial package with student loans, no matter what they claim. You may learn more from how the answer is given, rather than what is said.

The University of California builds their financial aid packages starting each student with a $9600 loan for the current 2007-08 school year.

You should also ask if the financial aid office treats parent loans (PLUS Loans) as an option when figuring how the school will meet your need. If so, this is a financial sleight of hand, which usually means that the school simply doesn't have the money. Remember, PLUS loans are for helping your Expected Family Contribution (EFC) after the aid given is subtracted from the full cost of attendance, as outline in Question 2. Families implementing the MMA program do not need PLUS loans and very seldom need to consider student loans. Information about the MMA program can be found at www.U1stfinancial.net/TheCollegePlan.

An important fact to keep in mind is that the higher your child is in the applicant pool, the greater the chance for more grant assistance. This is called "financial aid leveraging" in financial aid parlance. So you and your child should remember to apply to colleges where he will stand above other applicants like being in the top 75th percentile in test scores. Check out www.nces.ed.gov/ipeds/cool to discover were your child stands in regard to test scores for each school of interest.

7. DO YOU OFFER MERIT SCHOLARSHIPS, AND HOW DO YOU TREAT PRIVATE SCHOLARSHIPS THAT MY CHILD MAY EARN ON HIS OWN? (You may have to visit Admissions office with this question.)

If a Merit Scholarship is being awarded, it normally goes into the package first, reducing the amount of need-based aid. Find out if a merit award reduces the self-help in the package, or if it replaces other need-based grants. A true Merit Scholarship can go beyond the "need" level which means that it can lower your EFC. If it doesn't go beyond your "need" level then the college is being misleading by advertising a need-based award as non-need based. Or at least the award is limited by need, which in effect limits the need-based grant.

Note: The Ivy 's and some other prestigious schools do not offer Merit Scholarships. The scholarships and grants offered at these schools are based on the particular formulas they use to determine need.

If you can get accurate answers to these seven questions you'll be prepared to sit down with your future college student and discuss the academic, social and financial pros and cons of each college.

Written by Eric Goodhart of Smart College Planning, Lunenburg, MA

"Helicopter" Parents Shocked!

College planning can be both an economic and emotional shock. Parent's have heard about economic sacrifice. They really had no idea. First they find out that financial aid for the most part is government propaganda. . . mostly loans making college more expensive. The government decides how much a family is expected to pay for college. This is called EFC. A family of four making around $100,000 a year would have an EFC of about $21,000. If a family doesn't have $21,000 floating around loans are available so both the parent and student's debt grows each year. Don Betterton Director of Financial Aid and Admissions at Princeton for many years said, "that EFC is only the first step in getting to what really matters . . . the family's actual yearly payment to the college. Unfortunately, the actual payment can easily vary by thousands of dollars from the EFC. And to make matters worse, the out-of-pocket expense is almost always higher."

The tremendous financial burden of college can be very emotional and quickly turn to hysteria once parent's become aware of the fact that they have no control. In high school is was easy to follow a student's progress, college is just the opposite. Those attempting are usually labeled "helicopter parents." Colleges do not have to be cooperative because they have the law on their side. Students are legally considered adults at age 18 and college administrators say federal and state privacy laws generally prohibit them for sharing student information.

In 1974 Congress passed the Family Education Rights and Privacy Act or Ferpa. This anti-family law eliminated parent's rights to know about their student's education record which includes grades, transcripts and reports of disciplinary action and campus violations. The law does allow colleges to break confidentiality in case of a "health and safety emergency" and if there is a drug or alcohol violation.

Colleges can choose to share information with parents who claim students as a dependent on their tax returns which is common. Sounds reasonable! Most colleges however don't see it that way. Colleges tell parents that they are not required to share information because it is the philosophy that college is a place for young people to become independent.

The best way a family can handle the shock value of starting college is to plan ahead.

- Investigate the Money Merge Account program if you currently have a first mortgage

You can find that "Magic $100,000" for college without refinancing, increasing monthly payments, altering your current cash flow or taking out a college loan.

- Explore colleges and ask questions that are important to you. If confidentiality is crucial then research the policy of the college.

- Discuss confidentiality with your student and reach a family decision on whether to grant the college written permission to share information.

- If the college does not offer a waiver form, help your student draft a letter to sign.