How to Consolidate Your Loans

You’re ready to consolidate your loans, now you just have to complete

the process using the following steps:

1. Gather information on your loans. Grab the Personal Student

Loan chart you completed in Chapter 1. You will need to have the

following information on your open loans: the servicer, the interest

rate, and the loan status. Whether you consolidate with direct

lending or one of your current lenders, you’ll be asked for this

information online or over the phone for the following reasons:

• Servicer: The consolidator has to know who to contact to pay

off the old lender in order to transfer the loan.

• Interest rate: So your new interest rate can be calculated, your

new lender needs to know what all your old interest rates were.

Your consolidated loan interest rate is the weighted average of

your current loans.

• Loan status: You can’t consolidate a defaulted loan until you’ve

made payment arrangements with your guaranty agency and

followed the payment plan for at least three months. Unsubsidized

versus subsidized is also important for the loan status. If

you have both kinds of loans, you will have one consolidated

subsidized loan and one consolidated unsubsidized loan.

Finally, if your loans have already been consolidated, you can

reconsolidate only in two circumstances: if you have unconsolidated

loans to add into your consolidated loan, or if you are

reconsolidating into direct lending.

2. Fill out the forms. With direct lending, you can fill in all your loan

information online and e-sign the form. You can also print the

forms and mail them in. If you are consolidating with another

lender with whom you currently have federal loans, you should

contact them to ask whether applications are accepted online, by

mail, or by giving information to a representative over the phone.

Even if you are diligent, you still want to watch to make sure the

first payments post, especially if you filled out a direct debit form.

3. Don’t stop making payments on your old loans until you know

your consolidation is complete. This is the easiest way that good

intentions can go horribly wrong. You consolidate your loans to

make sure you never miss a payment, then you do miss a payment

while waiting for your loan to be consolidated. Wait until you have

some sort of written confirmation of your consolidation’s completion

and the date of your first payment before you stop making

payments on your previous loans.

4. Follow up, follow up, and follow up some more. Keep track of

your loan consolidation process by checking either online or making

a phone call every two or three weeks. If you forgot to sign

mailed-in forms or if there’s some other holdup, you want to know

right away what it is so you can fix it.

What Your Award Letter Means

The schools you included in your application will receive the results of your FAFSA. They will use this information and the cost to attend their institution to put together an award package for you which will include federal student loan and grant money you’re eligible for, state aid, institutional aid and other sources of aid to help pay your costs. Some schools might include private or commercial loans. Make sure you understand what you’re receiving and what the terms are

Every loan award package is individually tailored. Contact the school, your lender or the U.S. Department of Education, if you have any questions or need clarification. Everyone is here to serve you. You’re the customer and there are options out there for you.

Not all award packages are the same. You’ll receive different award packages from different schools.

Should I accept all the money included the award letter?

Only borrow what you need and what you’ll be able to repay. Remember that student loans have to be paid after your leave school, attend less than half time or graduate. When you receive your award letter, start by accepting scholarships and grants you’re eligible for—be sure you understand any conditions/requirements to receiving these “free funds.” Then accept the loans with the most comfortable terms; that is, federal student loans (subsidized and unsubsidized federal student loans from the federal government or guaranteed by the federal government), and state aid. If you see private or commercial loans in your award letter ask why this type of loan was included, find out the terms, and reject the private loan if the terms aren’t favorable. Exhaust all options before looking into private loans. Private loans and credit cards should be your last resort.

Before you accept any aid, you should

• get a breakdown of the direct expenses (tuition, room, board, and fees) and estimates of indirect expenses (travel, books, etc.) for one year of college;

• know the actual net amount (cost of attendance minus financial aid) that you’ll have to pay to attend one year of college;

• know what amount of awarded financial aid that doesn’t have to be repaid such as scholarships and grants and the conditions under which they are renewable each year;

• know the amount of work-study and the conditions under which one has to fulfill the work-study;

• find out which loans you’re eligible for;

• find out which loans your parents can get to help pay for your education;

• know the interest rates, loan terms, monthly repayment amounts, and total repayment amounts of your loans;

• know where you can get additional information or have your loan questions answered.

Always consider what you’ll have to repay. Repayment of student loans should only be a small percentage of your salary. If you expect to pay more than 15 percent of your annual salary for student loans, you might have difficulty making your monthly payments. Ask your school’s financial aid office for starting salaries of recent graduates in your field of study to get an idea of how much you are likely to earn after you graduate. Estimates of salaries for different careers are available in the Occupational Outlook Handbook at www.bls.gov/oco and research employment opportunities advertised in the area where you plan to live.

You should know the full cost of attendance for the total number of years you plan to attend school. This will give you an idea of the total cost of the federal student loans you may be taking out. Once you have an idea of the total amount you’ll end up borrowing, you can see what the estimated monthly payment amount will be under different repayment plans

Additional Loan Forgiveness Programs

Public service loan forgiveness is only the tip of the loan forgiveness

iceberg. There are numerous other programs that may give you money

to pay off your student loans. Unfortunately, though, some of these

programs could melt before you get a chance to use them, such as

state programs that depend on the money being available in your

state’s budget. Other programs, though not necessarily loan forgiveness

programs, are better bets because you can get the money up

front, such as companies you work for that will pay for your tuition

ahead of time or offer semester-by-semester reimbursement when you

return to school, making it easy to take out a loan and be reimbursed

within a few months.

Demystifying Loan Forgiveness Programs

Thomas L. Harnisch of the American Association of State Colleges and

Universities lets you know what you should be aware of if you have or

wish to utilize a loan forgiveness or tuition reimbursement program.

Myth: Loan forgiveness programs apply to all types of student loans.

Fact: It depends on the program. For instance, some federal programs

may forgive Perkins Loans, but not Stafford Loans. Private

student loans are often excluded from these programs. Choose a

loan forgiveness program based on inclusion of the type of loans

that you have.

Myth: You have to work for the government to qualify for a loan forgiveness

program.

Fact: Some corporations and nonprofits may pay for coursework relevant

to an industry, such as an MBA program. Check with your

supervisor and human resources department for program requirements.

You may have a tuition reimbursement program for returning

to school or a loan forgiveness program where you work right now.

Myth: The new programs are the most lucrative for paying off loans.

Fact: The U.S. military’s loan forgiveness program has been around

for decades and will currently pay back up to $65,000 worth of federal

student loans.

Myth: You have to be right out of school to enroll in a loan forgiveness

program.

Fact: Not always. It depends on the program requirements. You can

often enroll in a loan forgiveness program if you have been out of

school for a number of years.

Myth: State-funded loan forgiveness programs are reliable and can

assist with your loans when you graduate.

Fact: State-funded loan forgiveness plans are at the mercy of overstressed

state budgets. Some states have reduced funding to these

programs, while other states have discontinued programs entirely.

Myth: Once you are enrolled in a program, the amount of your loan

forgiven will not change from year to year.

Fact: Especially on the state level, as budget demands change, the

amount you are given for loan forgiveness can change.

Myth: You can’t confirm you’ll receive the money on any state loan

forgiveness programs.

Fact: There are both in-school and out-of-school programs. In-school

programs will pay for your schooling “up front” in exchange for a work

commitment after you graduate. On-the-job loan forgiveness does not

pay for schooling, but allows you to “work off” the student loans.

Myth: If a federal or state agency offers loan forgiveness programs,

you will automatically qualify if you get the job.

Fact: Not always. Check with the human resources department in

each agency, as these programs have different requirements for

each agency and job position. Some federal or state agencies may

offer generous forgiveness programs, while others may not offer any

programs.

Bottom line: As long as you know the restrictions and play by the

rules, loan forgiveness programs can help your financial bottom

line. Just make sure you are entering a career you love. Otherwise,

the partial or total forgiveness of your loans may not be worth what

you could be making, in a job that you might enjoy more.