FAFSA Loan - The Truth About FAFSA Loans: FAFSA Stafford Loans,
FAFSA PLUS Loans and FAFSA Consolidation Loans

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Education Loan Variable Interest Rates

We would explain that they currently have variable rate loans and that those rates go up or down on a yearly basis. This program lets you lock in the current rate for the life of the loan.

We would tell them that the rates on the Stafford loans could go up as high as 8.25% in the next few years. The interest rates on those loans must have risen a lot since I was there so maybe 8.25% isn't so scary any more. Plus Loans are capped at 9%.

How Consolidation Loan Rates are calculated

It was very important for us to make the following statement:

The Federal formula for your new rate is the weighted average of your current loans base rates rounded up to the nearest 1/8% and that rate is fixed for the life of the loan.

Given that, at the current rates it may not be worth consolidating . Because we are in an environment of high interest rates, and since they round up the weighted average, you may end up paying more. I gather now that they are probably urging people to consolidate before rates climb any higher.

We then offered a ¼% discount to take them down to X%.  The ¼% was if they had payment made by automatic payment direct debit from their bank account.

We'd then tell them how much that they would save in a year compared to that 8.25% cap.

Consolidation Benefits - Forbearance and Deferment.

We'd list for them the benefits of consolidation such as 3 years of forbearance and up to three years of deferment.

The Consolidation Loan has an extended loan term compared to the original FAFSA loans, so they can lower their monthly payment by as much as 50%. But, since there are no prepayment penalties, they can pay off earlier and save on the interest over a longer term. However, we wouldn't mention, that as a consequence of extending the term, the borrower may end up paying more interest in total.

We'd emphasize the it was free federal program with no fees, and no credit checks.

Spousal Consolidation

This is possible where husband and wife could consolidate their loans into one. This is one area where homosexual couples who want the same rights as married couples may have a legitimate complaint. Gay and lesbian couples would only be able to consolidate their loans separately. It may be discriminatory though of course it is totally legal.

Consolidation of Education Debt from a single other loan holder.

If a someone with Federal education loan debt had only one private loan holder (one FFEL holder) he or she needed to give the current holder the first right of refusal to refinance their debt into a consolidation loan. We'd then send them the information package and application hoping that for some reason the borrower would not get around to asking loan holder and would send in the application anyway. Our defense would be that as far as we knew the borrower had given their existing lender and potential loan consolidator a chance but they had declined (which would never happen!). It was our version of "don't ask, don't tell".

This would only work with non "Dirty Thirty" lenders of course. Those companies would refuse to co-operate with another FFEL lender to consolidate loans to one of their customers.

The Single Holder Rule has been repealed as of 2006.

FAFSA Loan Consolidation (continued)

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