Here's the Pitch .......

DEFAULT – such an ugly word and so much personal financial pain wrapped up in those 7 little letters.  In all of my many years of helping delinquent borrowers learn to manage their student loan debt more efficiently, the one thing that I believe to my very core is that very few borrowers set out to default on their loans. 

Life happens and often throws us some real curve balls. Probably 99% of the delinquent borrowers that I have worked with were in their situation because of an unrelated life crisis that overwhelmed or distracted them. By the time they realized they were behind on their student loan payments, the collection activity had already started – and the headaches that represents! I have always told my students that it is much easier to get results (and help) from customer service representative than from a collector. 

I was listening to Pandora this afternoon and I heard an ad "pitching" a company promising to help out if you had defaulted student loans, including stopping wage garnishment! Since I am always looking for additional sources of help for borrowers in distress, I wanted to check things out. Of course, as with most ads on Pandora, I couldn’t catch the company’s name from the ad’s speed talking announcer. After the third time, I did manage to get the full contact phone number, but I  still could not locate the company on the wide web.

Determined to track this source down, I decided to do a few internet searches for assistance with defaulted student loans or stopping wage garnishment. WOW – was I amazed by the results! I found over 10 companies promising to consolidate your loans. I found dozens of links to web sites promising assistance. It reminded me of the consolidation boom of early 2000 (when I first cut my teeth on the student loan industry). I was particularly surprised by the number of companies offering to help resolve a borrower’s default problems – especially since the ONLY way to consolidate Federal Student Loans and maintain your federal rights and entitlements is to use Direct Loans as your lending source. You can apply directly on-line ( http://loanconsolidation.ed.gov/ ) or you can ask your DOE loan servicer for assistance.

Buyer Beware:
I was unable to ferret out details about these companies, since their websites seemed to start with the application process.  Call me skeptical, but I am leery of any company that is not completely up front about their services, cost or affiliations.


I have urged this many times, but it bears repeating – you must take responsibility and become an educated consumer. Learn to make choices that are in your best interest. So when you are shopping for help on defaulted or very delinquent student loans, make sure you know exactly who you are dealing with. Unless you are using the approved source for Federal Student Loans, you will most likely be giving up some valuable rights and tools. 
 
Rights and Tools You May Need:
For example, when was the last time that the lender on your auto loan, mortgage or credit card said “oh, you’re out of work, we are very sorry. You don’t have to make you payment for the next 6 months”? I am assuming that would be a “NEVER”. If you use a private student consolidation loan, you will probably never have these options either.  However under the Federal Student Loan Program, you can temporarily defer loan payments if you are:

• Unemployed or
• Working less than 30 hours per week and looking for full-time employment or
• Are receiving state or federal assistance or
• Serving in the military

These are just a few of the deferment rights that borrowers are entitled to under the Federal Student Loan Program.  

OTHER BENEFITS:
When was the last time one of your creditors allowed you to select a new payment plan, because you had run into difficulties? Again, I am assuming that would be another “NEVER”. However, unlike private consolidation loans, the Federal Student Loan Program allows borrowers to change payment plans, then switch back again when things stabilize and change again later if the need arises.

Now, I am not going to kid you, the standard 120 month repayment plan is always the best way to pay your loans off. However, the alternative payment plans offer a lot of options to help temporarily manage loan debt. These plans can be very low, including $0 payments on the IBR (Income Based Repayment Plan). Now obviously, you are not going to clear your student loan debt with a $0 payment, but it can provide relief when you need it and allow you to get back on track when your finances stabilize. That is another benefit of the Federal Student Loan Program – there is never a prepayment penalty!

So to wind things up, I am not saying that the new companies are not offering a valuable product or service; however, I do urge borrowers to do their homework, shop wisely and consider the full picture. If you aren’t sure who to trust, contact your DOE servicer or your school’s financial aid department.

A Temporary Window of Opportunity is Closing Soon: Do You Need to Take Action Now?

When President Obama signed the Health Care and Education Reconciliation Act of 2010 (HCERA), Public Law 111-152, on March 30, 2010, the bill included temporary changes to the conditions under which a borrower may consolidate loans into a Federal Direct Consolidation Loan. These changes apply only to a Direct Consolidation Loan that is made based on an application received by the U.S. Department of Education on or after July 1, 2010 and before July 1, 2011.

Borrower Eligibility Under the HCERA Temporary Consolidation Authority
If a borrower's Consolidation Loan Application and Promissory Note is received by the U. S. Department of Education before July 1, 2011, the borrower may consolidate a loan that has not yet entered repayment status, including a loan that is in an in-school status, if the borrower meets the following requirements:
1. The borrower has one or more loans from two or more of the following categories: (i) FFEL Program loans that are held by an eligible lender; (ii) FFEL Program loans that have been purchased by the Department ("PUT" Loans); and (iii) Direct Loan Program Loans.
2. The borrower has not yet entered repayment on one or more of the loans in any of the categories in #1.
3. The borrower is not consolidating any loans other than loans from the categories listed in #1.

Interest Rate Calculation for Loans made under the Temporary Consolidation Authority
For any Direct Consolidation Loan made to a borrower under the temporary consolidation authority, the interest rate will be calculated as follows:
1. Unless the borrower is consolidating certain loans that have a variable interest rate (see below), the interest rate on the Direct Consolidation Loan is the lesser of (a) the weighted average of the interest rates on the loans being consolidated, or (b) 8.25% (that is, the interest rate is calculated in the same manner as the interest rate for a regular consolidation loan, but without the rounding up to the nearest higher one-eighth of one percent).
2. If one or more of the loans a borrower consolidates is a Federal Stafford Loan (subsidized or unsubsidized), a Direct Subsidized Loan, or a Direct Unsubsidized Loan with a variable interest rate that is lower during the in-school, grace, and deferment periods, the interest rate on the Direct Consolidation Loan is the lesser of (a) the weighted average of the interest rates on the loans being consolidated, rounded to the nearest higher one-eighth of one percent, or (b) 8.25% (that is, the interest rate is calculated in the same manner as the interest rate for a regular consolidation loan).

Factors for Borrowers to Consider Before Consolidating
Because a Direct Consolidation Loan enters repayment on the date the loan is made, there are important factors a borrower needs to consider before deciding to consolidate loans into a Direct Consolidation Loan under this temporary authority.

Grace Period: There is no grace period on a Direct Consolidation Loan made under the temporary authority. The 6 month grace period is a unique feature of the Federal Student Loan Program, designed to allow borrowers to become established in their new careers before they begin repayment on their student loans. As with an in-school deferment, the interest is paid on the borrower’s subsidized loans while they are in grace. This can amount to a significant savings.

If a borrower consolidates while still in school on at least a half-time basis and before the loan has entered the grace period, the borrower will not receive a grace period on that loan after the borrower ceases to be enrolled on at least a half-time basis. However, the borrower will be eligible for an in-school deferment on the Direct Consolidation Loan while enrolled at least half-time at an eligible institution. (Note: If the borrower’s loans enter grace before June 30th, and wants to wait to consolidate until the end of the grace period by completing Item 17 in section C1 of the Direct Consolidation Loan Application and Promissory Note. Another word of caution, borrowers who delay applying until their loans enter the grace period and whose application is received by the Department before the July 1, 2011 deadline may receive the modified interest rate associated with the temporary authority, provided that they are not consolidating certain variable interest rate loans, as explained above.) Contact Direct Loans for information regarding the effects of consolidation on your student loans. Call 1-800-557-7392 or on-line @ http://loanconsolidation.ed.gov/ .

PLUS Loans: Borrowers with Federal PLUS Loans or Direct PLUS Loans that were first disbursed on or after July 1, 2008, are eligible to defer repayment of these loans for a 6-month period that begins on the date the borrower (or the dependent student on whose behalf the borrower obtained the loan) ceases to be enrolled at least half-time. Parent PLUS borrowers are also eligible to defer repayment while the dependent student is enrolled in school on at least a half-time basis.

If a PLUS borrower consolidates a PLUS loan while the borrower (or the dependent student) is still enrolled in school at least half-time, or during the 6-month post-enrollment deferment period, the borrower will lose eligibility for these deferments. Again, for detailed information on Consolidating and its effects on your personal loans, contact Direct Loans. Call 1-800-557-7392 or on-line @ http://loanconsolidation.ed.gov/ .

Personal Financial Decisions Require Research, Analysis and Thoughtful Decisions
You have probably already received mail concerning your student loans and the June 30th deadline for this one-time opportunity. There are many benefits to consolidating, including: lower payments, combining multiple servicers & payments into one location/payment, and the return of deferment or forbearance rights on older loans that may have exhausted these options. However, as we all know, there are no perfect solutions that will work for everyone. As with any personal financial decision, make sure that you evaluate and weigh all of the facts before you make a decision.

Finally, there is one disadvantage a SWFC student or former student will encounter if you decide to consolidate your loans. As you know, SWFC’s Financial Literacy staff monitors the accounts of our loan borrowers and help students if their loans become delinquent. We gather our documentation based on an ID that identifies your loans as originating with SWFC. Once the loans are consolidated, this ID link is removed, so we no longer automatically have access to monitor the status of the consolidated loans. In an effort to help our former students who want to take advantage of student loan consolidation, we have established a special process to assist SWFC borrowers with their consolidated student loans. If you have questions regarding consolidation and your student loans, please contact us @ helpwithloans@swfc.edu and we will be happy to help you gather the information you need to make an informed decision regarding consolidation and your student loans.

Where ARE my Student Loans?

Before we see where those peaky loans have gone, let’s take a nostalgic look back: Once upon a time, not so very long ago, a student went to college and used Federal Financial Aid to help pay for their education. The student kept a copy of all of their loan paperwork, all of their loans were with one lender/servicer and, when their Repayment date arrived and the borrower was ready to make a payment, they had their payment coupon booklet in hand, with all of their payment coupons in place. The monthly payment amount was easy to locate, the mailing address was very clear – everything went smoothly. The borrower made regular monthly payments and received a Paid-in-Full statement after the 120th payment. Those were the days!

As many of you already know first-hand and many more of you will soon discover, the life of a student loan holder is not so simple anymore. The student loan industry has entered a brave new world! Over the past two years, many lenders have exited the student loan industry. Some will continue to service their FFELP loans until they are paid in full. However, many lenders choose to sell the FFELP loans and the next thing you know, you are getting letters and e-mail from lenders or servicers you never heard of. What’s a person to do?

It can become even more confusing for borrowers returning to school or who are still enrolled. If you are attending school and using federal student loan monies to fund your education, you have probably recently been contacted by your Financial Aid office asking you to stop in for an appointment. If you fall into this category, please make that appointment now! You will probably be asked to sign a new promissory note. This is necessary because, as of July 1, 2010, the U. S. Department of Education’s Direct Loans is the only source for federal student loans or consolidated federal student loans. For many borrowers, this will just add one more name to their ever growing list of loan servicers.

Now, more than ever, student loan borrowers must take control of their accounts and stay in contact with their lender/servicers. Do you know the answers to these 3 questions?

1. How many student loans do I have?
2. Who is servicing my student loan account(s)?
3. What is my approximate balance on my student loan account(s)?

You should know the answers to each question. Want to check your accuracy? Log onto http://www.nslds.ed.gov/ and see how you did. Were you correct? Any surprises? At this point, if you are still not completely comfortable with your student loan contact information, take a few moments to contact your lender or servicer and get everything straightened out. Even if you scored 100 on the 3 question quiz, follow these few simple guidelines to stay straight with your student loans. Notify your loan’s servicer if you:

· Change your mailing address
· Change E-mail address (Please note: if you no longer check an e-mail address, inactivate the account. If your lender/servicer has the address, they will send E-statements as opposed to “snail mail”. This will not help you if you never check or read mail in that mail box.)
· Change or disconnect your phone
· Change Employers or become unemployed (Remember there is an Unemployment Deferment available for anyone who is not working or is working less than 30 hours per week)

One final piece of advice; be sure to keep your school in the loop too. Lenders do not notify the borrower’s school when loans are bought or sold, so make sure you keep your alma mater updated on the latest changes to your accounts. Your alma mater is also a great source for answers to the latest, confusing correspondence you've received. Your school’s Default Management office still speaks and can translate that foreign language called Financial Aid!

Coming Next Month: The Rates are Falling, The Rates Are Falling …… July 1st means the annual adjustment in variable rate student loans – and they are falling. Is it time to finally consolidate your student loans?

Other Coming Attractions:
A Rose is a Rose is a Rose … Names can be confusing. You thought you paid that loan and now you are still getting late notices! What’s going on???

In-School Consolidation – What’s the Buzz? A look at the pros and cons of this 1 year window for in-school consolidation; it’s not for everyone.

It’s Like Money in the Bank!

If you have variable rate student loans (loans issued between 7/1/1988 to 6/30/2006) & you will be entering Repayment between July 1, 2009 and June 30, 2010, this may be the year you want to consolidate those student loans.

Effective July 1, 2009, interest on variable rate Subsidized and Unsubsidized Stafford Loans issued between 7/1/1998 to 6/30/2006 will drop to 2.48%. This could allow you to save from $1,470 to over $5,100 over a 10 year loan period! *

There are a variety of lenders who are consolidating student loans. Just two pieces of advice:

• First, make sure that you are consolidating only your Federal Student Loans, and are consolidating under the Federal Student Loan program. This will allow you to maintain your borrower's rights, including deferment and forbearance rights!


• Next, shop around. Any loan is a consumer purchase and should be made after comparing all rights, benefits and terms or conditions. While most borrower rights, benefits and terms are defined by the Federal Loan program, there may be some discounts or costs that can vary by lender.

Be a wise consumer and check out all of your options before you "sign" or the dotted line (or the electronic "e-signature line")!

*Based on $15,000 balance, with 10 year repayment period, calculated at 2.50%, 4.25% and 8.25% interest rates.