May 2005

Student loans...

Professionals to save thousands of dollars through federal program

by Michael Alexander

In today's economy, saving for the proverbial rainy day is more important than ever. But how can the federal student loan program help the professional student loan borrower who has an increasingly high amount of debt after school is over? Student loan borrowers have had an incredible opportunity over the past year to lock in extra low interest rates, reconsolidate Direct (William D Ford) loans and save more than $40,000 on the repayment of their consolidation loan with a repayment of $100,000 or more. Unfortunately, with the rise in interest rates and the indecisiveness in interpretation of the higher education act, this opportunity may soon be over.

This past year, the interest rates on federal Stafford loans have been as low as a variable 2.77%. This interest rate is federally mandated and determined by the last 90‑day Treasury‑bill auction in May. Over the last nine months, 13‑week Treasury bill rates have been trending upward, increasing an average of 0.039% per week, indicating that by the end of May the rate will be approximately 3.233%. This means the current 2.77% rate realistically could go up to 4.57% or higher.

"With no credit checks, no fees, and no early repayment penalties, there's absolutely no reason for graduates not to consolidate their loans. However, they need to act now," urges Phillip Goerisch, chief executive officer of EduCare Financial. "Even if the student doesn't graduate until June, EduCare will be able to 'courtesy holds' the application until separated from school."

EduCare is one of the few leading consolidation consulting firms that has grown several times over by catering to the busy professional. The firm assigns a single professional assistant to handle everything from filling out the federal forms and placing all guarantees in writing, to even arranging a complimentary FedEx pick up so the borrower isn't inconvenienced to go to a mailbox. Express mail is important due to the amount of time left to get paperwork in and lock in the current low rates. Mr. Goerisch advises that "with recent T‑bill activity, the new rate will almost double the current rate, costing our average borrower $40,000 over the life of their loan."

But what if you already consolidated, how does the consolidated borrower save money?

A select few student loan borrowers who have already consolidated have a unique opportunity to save money as well. Although it may soon change, the current opportunity has been introduced to the student lending industry through a "Dear Colleague" letter (http://ifap.ed.gov/dpcletters/FP0407.html), signed by the Assistant Secretary, Office of Postsecondary Education, stating that Direct Loan borrowers may convert their Direct Consolidated loan into a Federal Family Education Loan (FFEL) Consolidation without losing benefits. This may sound like industry jargon, yet it simply means that if the borrower consolidated with Direct Loans (US Department of Education) he or she can now re‑consolidate with any company offering the FFEL Consolidation Program.

To consolidate or not to consolidate seems like a pretty easy question to answer given the savings and benefits that you can receive before May 24th. But before signing paperwork, borrowers will want to make sure there are additional discounts in place and all promises have been put in writing.

If it sounds too good to be true, it just may be. Due to sold loans, one‑day late payments, and using forbearance rights, a high number of previously consolidated borrowers have lost eligibility of interest rate reductions promised. Consequently, while choosing the company that's right for you, make sure to request all criteria clearly outlined, in writing, before signing consolidation paperwork. But remember to act soon. Rates are going up and this decision by the government is an interpretation that may change overnight as it has twice before without warning.

To find out more about federal consolidation, visit online at www.educareloans.com, or call 888‑662‑2273 for the most professional service available.