By Ed Mervine
How many student loan lenders do you have?
If you borrowed through the Federal Student Loan Program over the past two to three years, you could have more lenders than you think you have. This can be confusing but now you have a chance to make your life similar.
Until June 30, 2011, you can consolidate loans from multiple lenders into a new Direct Consolidation Loan while you are still in school. This is open only to borrowers who have multiple lenders. If all of your loans are with the Direct Loan Program, you to do not meet the criteria and would in fact not benefit.
Here are the Pros and Cons:
Pro: After consolidation, you will made payments to only one lender versus making payments to several lenders. This could result in a lower total monthly payment and reduce risk of default and bad credit. Every year, borrowers who are diligently making payments fall into default because they lost track of a loan with a different lender.
Con: Borrowers will lose the grace period on a FFEL Subsidized/Unsubsidized Stafford Loan or Direct Subsidized/Unsubsidized Loan by consolidating. Similarly, PLUS borrowers will lose the six month post-enrollment deferment period.
Why is this being offered now?
For a brief moment in 2008, banks stopped making Federal Student Loans, potentially turning the lives of millions of students upside down. An infusion of federal funds averted chaos.
A year later, the Federal Government moved the Federal Student Loan lending from the Banks to the Direct Loan program administered by the U.S. Department of Education. Students borrowing during this period have at least two lenders and may have three. This is how it happened.
Let’s say Johnnie borrowed through Bank of America in 2007 and 2008 and through the Direct Loan Program in 2009. How many lenders does he have? If you counted two, you’re wrong. Let’s count again: Bank of America was Johnnie’s lender in 2007, that’s 1. Bank of America processed his loan in 2008 but the lender was the U.S. Department of Education, that’s 2. After the Student Loan program was moved to the Direct Loan Program in 2009, Johnnie’s borrowed through the Direct Loan Program, that’s 3.
Confused?
The Department of Education thought you might be and has opened a window so borrowers could move all of their loans to one lender.
For more information and to begin the application process, go to http://www.studentloans.gov/. Look for Direct Loan Consolidation under ‘Tools and Resources.’
(You can also talk to Ed in the Administration Office!)