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Student Loan Consolidation Opportunity |
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May 20, 2005 |
Students and former students who have borrowed under the two major federal
student loan programs have what may be a unique opportunity to consolidate" their federal Stafford variable rate loans, and thereby receive and lock
in a fixed rate of 2.8% for the life of the loans, whether the loans are Federal Family Education Loans (FFEL) or Federal Direct Loans (DL), but only if
this consolidation takes place before June 30, 2005.
If borrowers' have high balance loans, these loans may also be eligible for extended repayment when consolidated. Interest savings to student borrows are
significant. Parent Loans to Undergraduate Students (PLUS) can also be consolidated. Rates on these loans are expected in increase in July to more than
6 percent from the current rate of approximately 4 percent.
The Department of Education has recently announced that borrowers in the FFEL program who are still enrolled in college are eligible for these consolidated
loans as well as borrowers who have left college, if the lender is willing. The lender, however, is required to follow certain federal procedures which
the Department has specified.
AASCU will send a message to federal student aid administrators in its member institutions that will include a draft message which could be sent to borrowers
alerting them to this consolidation option.
Economic experts consider it unlikely that federal interest rates will be as low as they are now for years. The interest rate on federal Stafford student
loans, which are the most common student loans, are based on three-month Treasury bills, which are anticipated to increase July 1, 2005, by as much as 2
percentage points.
Campus student aid officials, alumni groups and staff of development offices that make and maintain contact with students and graduates are positioned nicely
to advise students and graduates about these opportunities.
Borrowers are allowed to consolidate only once, however, so if they have consolidated in the past at a higher interest rate, they are not eligible for this
new lower rate, unless they return to school and take out additional loans.
Borrowers should question lenders offering to consolidate their loans regarding benefits they could lose, particularly if federal loans in addition to FFEL
and DL loans are part of the new consolidation loan. It may be to the borrower's advantage to leave certain loans out of the new consolidation loan.
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