Special Consolidation Loans

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Anonymous User
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Special Consolidation Loans

Postby Anonymous User » Sat Mar 03, 2012 8:11 pm

I figure I can't be the only 3L thinking about how to pay their loans back. I keep getting this offer from the Feds about special consolidation. From my understanding, I reduce my interest rate, get all my loans from one servicer, and everything else stays the same.

I'm really not the financially savvy type some of you guys are, and I would love some insight into whether or not this is a good option.

I can't see any reason not to do it, but in my experience things that are too good to be true - usually are.


Link to info below:

http://studentaid.ed.gov/PORTALSWebApp/ ... dation.jsp

bdubs
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Re: Special Consolidation Loans

Postby bdubs » Sat Mar 03, 2012 8:41 pm

How are you planning to repay your loans? If you wanted to pay off the high rate (grad plus) loans first, this will eliminate your ability to do that. You would need to work out a repayment schedule with and without the consolidation to see if you would end up saving money on the whole by doing it.

Anonymous User
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Re: Special Consolidation Loans

Postby Anonymous User » Sat Mar 03, 2012 8:50 pm

bdubs wrote:How are you planning to repay your loans? If you wanted to pay off the high rate (grad plus) loans first, this will eliminate your ability to do that. You would need to work out a repayment schedule with and without the consolidation to see if you would end up saving money on the whole by doing it.


Well, that's what I thought. But then I read this:

"When you consolidate into a traditional Direct Consolidation Loan, you combine all of your eligible loans into one new loan with new terms. When you consolidate your eligible commercially-held FFEL loans into a Special Direct Consolidation Loan, your consolidation loan will be composed of individual parts corresponding to each loan that you consolidate, and each part will retain some of the terms of the original loan. The .25% interest rate reduction will be applied to each eligible loan that is consolidated."

Doesn't that mean these "special consolidation" loans don't do that?

bdubs
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Re: Special Consolidation Loans

Postby bdubs » Sat Mar 03, 2012 8:57 pm

Anonymous User wrote:
bdubs wrote:How are you planning to repay your loans? If you wanted to pay off the high rate (grad plus) loans first, this will eliminate your ability to do that. You would need to work out a repayment schedule with and without the consolidation to see if you would end up saving money on the whole by doing it.


Well, that's what I thought. But then I read this:

"When you consolidate into a traditional Direct Consolidation Loan, you combine all of your eligible loans into one new loan with new terms. When you consolidate your eligible commercially-held FFEL loans into a Special Direct Consolidation Loan, your consolidation loan will be composed of individual parts corresponding to each loan that you consolidate, and each part will retain some of the terms of the original loan. The .25% interest rate reduction will be applied to each eligible loan that is consolidated."

Doesn't that mean these "special consolidation" loans don't do that?


I guess the question is if they allow you to apply pre-payments of principal to individual parts of your consolidated loan, or if the principal is allocated in a predetermined way.

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Big Shrimpin
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Re: Special Consolidation Loans

Postby Big Shrimpin » Sat Mar 03, 2012 10:10 pm

If someone has the motivation to call and figure out whether you can target payments to individual loans while getting interest rate deduction as well, plz poast back here tytyty.

I think there's some xoxo threads on this, but I'm too lazy to look them up. :wink:

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dingbat
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Re: Special Consolidation Loans

Postby dingbat » Sun Mar 04, 2012 2:12 am

No.

Once you consolidate your loans, you cannot cherry-pick which ones get paid back first.
Your old loans are cancelled and you end up with one new loan, which interest rate is a weighted average of your previous loans. Any interest reduction will also be applied on a weighted average basis.

The big disadvantage is that you cannot pay your high rate loans off first.
The big advantage is with regards to IBR* and Loan-forgiveness: your new loan is elligible in its entirity for the new loan forgiveness program

*caveat: I don't know much about IBR, particularly outside of a loan-forgiveness setting

Anonymous User
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Re: Special Consolidation Loans

Postby Anonymous User » Sun Mar 04, 2012 1:07 pm

dingbat wrote:No.

Once you consolidate your loans, you cannot cherry-pick which ones get paid back first.
Your old loans are cancelled and you end up with one new loan, which interest rate is a weighted average of your previous loans. Any interest reduction will also be applied on a weighted average basis.

The big disadvantage is that you cannot pay your high rate loans off first.
The big advantage is with regards to IBR* and Loan-forgiveness: your new loan is elligible in its entirity for the new loan forgiveness program

*caveat: I don't know much about IBR, particularly outside of a loan-forgiveness setting


Dingbat,

That's the case with a regular consolidation loan. But this is a special consolidation loan - and if you read my quote above - there is language that implies you could cherry pick...

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dingbat
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Re: Special Consolidation Loans

Postby dingbat » Sun Mar 04, 2012 2:24 pm

Anonymous User wrote:
dingbat wrote:No.

Once you consolidate your loans, you cannot cherry-pick which ones get paid back first.
Your old loans are cancelled and you end up with one new loan, which interest rate is a weighted average of your previous loans. Any interest reduction will also be applied on a weighted average basis.

The big disadvantage is that you cannot pay your high rate loans off first.
The big advantage is with regards to IBR* and Loan-forgiveness: your new loan is elligible in its entirity for the new loan forgiveness program

*caveat: I don't know much about IBR, particularly outside of a loan-forgiveness setting


Dingbat,

That's the case with a regular consolidation loan. But this is a special consolidation loan - and if you read my quote above - there is language that implies you could cherry pick...


I just reread the language. it's kind of half and half.
Let's say you have a loan on a 10 year schedule, at $200 per month, and a second loan on a 20 year schedule at $50 per month.
After consolidating, you will be paying $250 per month for the first 10 years and $50 per month thereafter.
However, my interpretation is that if you decide to pay any extra money, it shortens the duration of the loan (i.e. the extra money gets taken off the backend)

Therefore, you will still be paying $250 per month for the first 10 years, then $50 per month until the loan is gone.
The entire loan is at the weighted average interest rate.

Had these loans not been consolidated, any extra money could have been used to pay off the first loan, meaning that you would only have to pay $250 per month for, let's say, 9 years, and then $50 per month for another 11.
The advantage here is that if the first loan has a higher interest rate and you continue to pay $250 per month into the 10th year, it would shorten the duration of the $50 per month (second loan) to a greater extent than under the consolidated loan. (effect of compounding of interest at a lower rate)

Note that my interpretation could be wrong, so feel free to read the fine print yourself




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