A couple of student loan questions

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A couple of student loan questions

Postby CTBoss » Mon Apr 30, 2007 8:04 am

I am currently researching consolidating both my federal and private student loans and I've come upon a couple of questions I have. I've read several places that it's better to consolidate federal loans first because it supposedly improves my credit score. This sounds great considering the interest rate on private loans is based on my credit. But how does this work? My credit score is in the mid 700's I don't want to apply for a federal consolidation loan and then a private one if it is not true that the federal consolidation will improve my credit.

I've also read that often times federal consolidation loans are sold to other companies and the attractive interest rate reductions won't stay with the loan when it is sold. Has this happened to anyone? If so, is it common?


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Postby assassingalaxia » Mon Apr 30, 2007 12:19 pm

I've never heard the bit about consolidating your student loans to improve your credit score or about consolidations loans being sold. As far as I know, my loan won't be sold. I consolidated two student loans with the Department of Education. I chose to do so because my interest rate was then locked in at 2.85%. I jumped at the chance to consolidate because I didn't think I'd find a lower rate and I believed that rates would go up. (My younger brother has a student loan at 7%) I've been out of college now for three years and it hasn't gone up or been sold.

You do need to be aware, though, that if you consolidate your loans, you'll lose the six month grace period. You'll need to start payments right away. Depending on which repayment plan you pick (10, 20, or 30) and how much your actual loan is, it shouldn't hurt too much to start repayment immediately. (With the 30-year option, in my case, it would've been $40 a month.)

Also, remember if you further your education (grad school, community college) repayments can be put on hold.

I'm guessing you'll want to consolidate with a Direct Loan? You'll probably find http://www.ed.gov/offices/OSFAP/DirectLoan/index.html helpful.

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Postby onebigmortarboard » Mon Apr 30, 2007 1:28 pm

My undergraduate Stafford loans were sold by Wachovia to Sallie Mae, although those were not consolidated and that was quite awhile ago.

I believe that any improvement in your credit comes from the fact that it would reduce the number of credit lines being reported. If your score is already in the mid-700s, the improvement will probably be minimal, and (though I am no expert) probably not enough to draw down the interest rates that you'd pay on your private loans.

I heartily endorse the Dept. Ed. Direct Loan program for consolidation. I find the website easy to use and I received a very competitive fixed interest rate (2.75%) when I applied (although I think new consolidations are more likely to be variable rates, capped at 8.25 percent). One borrrower lodged a complaint claiming that their calculations were improperly capitalizing interest 10 days out of the year, but I've never noticed a problem.

If you'd like to see what incentives other lenders offer for consolidation loans, go here:

http://www.finaid.org/loans/consolidati ... unts.phtml

(I'd recommend spending a fair amount of time on Finaid, FWIW. They cover a lot of the issues involved with consolidating, including private loan consolidation.


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Postby emlombardo » Tue May 01, 2007 5:37 am

I had a lot of undergraduate loans and they were sold several times. However, once I consolidated it has been steady for a year or so. I go a 2% rebate for consolidating with Student Loan Xpress so you may want to look into that, it was a nice check and their rate was the same.

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Postby jgs9455 » Thu May 03, 2007 2:03 pm

I also heartily endorse the Education Deptartment Direct Loan program. I used them about 5 years ago to consolidate all of my loans (6-7) and they have never been sold. Their rates were better than anyone else's, before discounts. I got discounts for setting up automatic withdrawls and making x payments ontime. The BEST advantage is that their discounts applied from the START rather than after 3 years or whatever the competition offered. The interest I pay on my student loans is also tax deductible, another benefit.

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