Government Debt Consolidation Loans – Update

Donald Saunders asked:


In 1965 the US Congress instituted the Federal Family Education Loan Program to give financial aid to students. One element of this program is Stafford loans which were initially intended only to assist students in very real financial need but which today make up over 90% of all Federal Government student loans.

Over time Stafford loans have altered with changing conditions and nowadays there are two forms of the loan – subsidized and unsubsidized Stafford loans.

When it comes to subsidized loans the Federal Government takes responsibility for the payment of any interest accruing on a loan from the date of issue until the date on which the student has to begin repaying the loan. In normal circumstances a student does not have to make repayments while he is enrolled on a program of study that is classed as being a ‘half-time’ or greater program and for a period of six months following the conclusion of his course. However, a student may begin to make payments sooner if he wants to do so.

Because interest on the loan is subsidized, these loans are normally only granted in cases of need and aid officials will consider both a student’s and the family’s income when deciding whether or not a student qualifies for a subsidized Stafford loan. Students have to complete a Free Application for Federal Student Aid application form that includes details of income and each student is then given a number called the Expected Family Contribution (EFC) calculated from the declared income.

Approximately two-thirds of subsidized Stafford loans are provided to students whose parents have an Adjusted Gross Income of less than $50,000 a year. Another one-quarter are provided to those in the $50-100,000 a year bracket. At this point however the meaning of the term ‘need’ gets somewhat fuzzy and slightly less than one-tenth of subsidized loans are granted to students with a combined family income of greater than $100,000.

In the case of students who do not qualify for a subsidized loan the majority will be eligible for an unsubsidized Stafford loan. Here the main difference is that the student have got to meet all loan interest payments, although once more payment will not usually begin until six months after the completion of the student’s program of study.

Unsubsidized Stafford loans can be quite costly because interest accumulates during the period of study and so the capital sum for eventual repayment will also increase. Let us take a very simplified example.

Let’s assume that a student borrows $5,000 at the start of his first year and that the interest rate is 6.8%. After one year the interest due will be $340 and this will be added to the loan capital. In the second year the student will accrue interest on the new capital sum of $5,340 at 6.8% and this will come to about $363 raising the total borrowed after two years to $5,703. Naturally this example is not completely accurate because interest is calculated and added monthly but it does nevertheless demonstrate the principles underlying this form of loan.

Depending on the sum of money that the student borrows every year and the time before repayment begins you can see that students can pay a relatively high price for delaying the repayment of this form of education loan.

In spite of the apparently high cost it ought to be remembered that a lot of the alternative methods for funding a college education can be considerably more costly and that a lot of students would not be able to afford to attend college without a Stafford loan.



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Jeff Mictabor asked:


The Democratic-led House of Representatives, in a 253 to 171 vote on September 17, easily passed landmark legislation that would bring an end to the long-standing Federal Family Education Loan Program (FFELP), the program initiated by the Higher Education Act of 1965 to offer college students federally guaranteed student loans via private lenders.

As the measure awaits a Senate vote scheduled for October 15, representatives for the FFELP student loan industry along with prominent Republicans have been stepping up their attack on the key mandates of the bill, which they say will not only cost students and schools the competitive pricing and choices in student loans offered by the private sector but will saddle taxpayers with billions of dollars in new costs.

Federal Student Loans: FFELP vs. Direct Loans

Under the existing FFEL program, the government pays private FFELP lenders a subsidy for the federal student loans these lenders originate — in essence, paying a third party to act as a middleman in issuing government student loans.

In 1992, the Clinton administration launched a second federal student loan program — the Federal Direct Student Loan Program — which issues federal college loans directly to borrowers through the U.S. Department of Education, with no third-party involvement from a bank or other FFELP lender.

Should the House-approved bill, known as the Student Aid and Fiscal Responsibility Act of 2009 (SAFRA), pass the Senate and become law, the FFEL program will be dismantled and all federal student loans will become Federal Direct loans, made directly through the federal government rather than through third-party FFELP lenders and banks.

Supporters of the legislation say that the elimination of FFELP subsidies will generate $87 billion in savings to taxpayers over the next decade. The bill allocates $80 billion of this estimated savings to expand the federal Pell Grant program for low-income college students and to fund several other education initiatives at what supporters say is no additional cost to taxpayers.

President Obama has been a vocal backer of the bill, maintaining that FFELP subsidies funnel government money to banks and away from students.

“Ending this unwarranted subsidy for big banks is a no-brainer for folks everywhere,” Obama said in a recent speech at Hudson Valley Community College in New York.

Critics: Talk of Student Loan “Savings” Ignores Obvious Costs

Critics of the SAFRA measure, however, are challenging this much-publicized “$87 billion in savings” figure. In a piece for The Hill, Representative John Kline from Minnesota, ranking Republican on the Education and Labor Committee, argued that the projected $87 billion in savings ignores long-term, standard risks, failing to allow for interest-rate fluctuations and default risks on college loans.

The purported savings, holds Kline, “are in large measure actually new earnings the federal government will take in from student loan borrowers paying the government a higher interest rate than the government’s cost of funds” (“Student Lending Faces Government Takeover,” TheHill.com, Sept. 14, 2009).

Since borrowers’ interest rates on federal parent and student loans are fixed, as market interest rates rise from their current recession lows, the government’s cost to fund direct student loans will rise while earned borrower interest remains the same — meaning that the projected savings (that is, in Kline’s view, “earnings”) will shrink.

The anticipated cash flows to the government on which the savings figure is based will also be much more constricted if defaults are higher than projected — and default rates in the Federal Direct Student Loan Program will surge, say critics.

FFELP lenders have traditionally serviced a higher percentage of community college and career college students than the Direct Loan Program. These students tend toward higher default rates on their college loans, regardless of whether they are FFELP or Federal Direct borrowers. As the Education Department takes on more borrowers from community and career colleges, the argument goes, the Direct Loan Program will also be absorbing these borrowers’ higher tendency to default on their student loans, which would eat into the projected $87 billion.

Additionally, Kline notes that the SAFRA bill only covers the cost of some of its proposed education spending for five years, after which taxpayers will be facing either program cuts or increased taxes in order to continue funding these new and expanded education initiatives. Moreover, Kline revealed in his piece for The Hill, the nonpartisan Congressional Budget Office has recently acknowledged that the proposed Pell Grant expansion will actually cost $11.4 billion more than originally projected — an amount that isn’t covered by the current $80 billion allocation within the student loan bill.



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A Procos asked:


Have a student loan? Attending college or university is very import if you are planning to get ahead in life, it is not mutually exclusive to high school graduates anymore, and anybody can attend no matter what your age is.

To assist you with funding your academic achievements there are many options available from student loans, government student loans to grants and scholarships. If you have any of these student funding commodities or all of these and you are finding it very difficult to fund them perhaps it time to consolidate the loans into one student loan.

It is just a question of shopping around to find the best deal that suits you personal circumstances. By consolidating the loans you stand a very good chance of reducing your overall monthly payout to fund these various loans.

Pretty good deal don’t you think? Reducing your monthly payment will mean that you can have some spare money to either put towards a savings account of maybe a little retail therapy! This will not only free up some spare money but will also assure that you do not default on your loans, thus leaving you with a squeaky clean credit history.

Depending who holds your student loans you might be able to negotiate a really good deal with them for example if your student loan is under the federal government direct student loans, you will more than likely be eligible for a federal government direct loan consolidation program.

In this program, in addition to the reduction in your monthly payments, you can fix your rate at a low interest rate.

This fixed lower interest rate is best for your student loan consolidation program because it will protect you against increasing inflation.

To apply for the student loan consolidation under the federal direct program it is fairly easy and there are no fees charged and no credit checks conducted. You can consolidate all your student loans i.e. private student loans, federal government student’s loans, find out more about consolidating by doing a search on the internet or contact the administrator of your student loans, they will be able to help you with any information you require to make an informed decision.



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lauren london asked:


I make about $55,000/year and I currently owe approx. $34,000 in credit debt alone. That’s not including my car and student loans plus I still have rent to pay etc. I do not want to file bankruptcy if I don’t have to. I also would like to stay away from consolidation. My credit is average considering I have a high debt to income ratio, but I pay my bills on time.
Today, I was told by a company that they have something called debt management. I’ve never heard of that, but they said unlike debt consolidation where they lower both your interest rate AND balance, all debt management does is get the creditor to lower the interest rate. I would pay a monthly payment to the company and a monthly fee and they would make my payment for me.
At this point, I can only make minimum payments and my balance is going nowhere…Should I give debt management a try?
What are your thoughts and please state why or why not. They said this will not negatively affect my credit score.

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b.cisneros84 asked:


Currently we are in debt about 100,000.00 and my husband in the only one who works. we have two trucks we are paying for about 30,000. each. credit cards, consolidation loans, student loans. no mortgage, no air to breath. out of all the paycheck we only get left with less than 400 for a family of 3. We are considering bankruptcy but don’t know much about it. Which is it 7, 11, or 13? How long does it ruin your credit for? Can we fix it later? Help . thanx

student loan consolidation

Julia Russell asked:


An educationist has said, “Education is a progressive discovery of our ignorance. Statistics show time and time again that gaining a university degree is the single most important factor in improving your career opportunities. Government Student Loans are one of the best value financial products available at really low rates of interest which are making it possible for so many more people to go to university.

Government student loans, available through authorities, mean that no-one has to have the cash up front for their tuition fees and there is means tested support, and loans available for the living costs involved in attending university. With the government student loans, every sector of students is taken into consideration. Whether it may concern to their tuition fees every year, accommodation expenses every week, living cost each year, books and course material each year, traveling cost, or internet accessing for study each year, the government student loans contain the required sum for optimal of its usages.

As far as the repayment of government student loans is concerned, the authority offers an extendable time period which students find quite helpful on repaying. Though the interest paid by the student under the government student loans sanctioned remains kept under dog, yet the authority is generous enough to grant grace to the student-borrowers.

No matter of students’ financial status, government student loans are offered without keeping any sort of distinction. If an individual having any kind of adverse credit history, he too can be beneficiary under government student loans.

There are many lenders available online and offline. Taking stock of the financial situation, the government has made government student loans online too. The online method of government student loans not only gives its processing a good speed, but also having appraised fast, the required sum of money is deposited into borrowers account without late. Borrowers invest the amount at their studies, and remain free from the expenses incur up studies during their session.



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Jaison Jacob asked:


Direct Loans are a better deal for students and cost less for taxpayers. Direct loans are handled directly by the school you are attending. These types of loans typically have lower interest rates than most others.

PLUS loans require only that the borrower not have any adverse credit like bankruptcies and foreclosures. On the other hand, private loan interest rates are largely determined by your credit score. Plus colleges are often a cost effective stepping stone to full degree program. PLUS loans are at 8.5%. Student loans next is the all in one guide for education loans. PLUS loans can be consolidated with other federal student loans and may be a good alternative to private education loan programs for some student borrowers.

Lenders promote their products by advertising “as low as” interest rates, but the “as low as rate” may not be the rate that you will ultimately receive. Often, very few students actually qualify for the “as low as” rate. Lenders are required to provide APR information to prospective borrowers. Also, private loan borrowers should be aware that the formula used to calculate APR often will change depending on whether the borrower is in school or in repayment. Lenders need to present clearer information to students about loan terms and about the fact that students are better off obtaining all the federally guaranteed loans they can before seeking private loans. You can find more info at student loans next.

Lenders don’t want clear information because student loans are a commodity, and if they let it behave like one, supply and demand will drive down prices. Lenders check with credit bureaus to learn whether a potential customer seeking a loan is likely to repay, based on the way other obligations have been handled in the past.

Borrowers of Short-term Emergency Student Loans must pay all delinquent debts before financial clearance can be given. See acceptable forms and type of payment . Borrowers pay an origination fee of up to 4 percent, which is deducted from the loan amount. Loan payments begin 60 days after the last disbursement. Borrowing to pay for your education is an important decision that only you and your family can make.Higher education is expensive but worth the investment of time, effort, and money.

Interest rates on private loans will vary so it’s worth shopping around. As with any student loan, be conservative and only borrow what you absolutely need. Interest rate reductions and other benefits terminate upon loan delinquency or default. We reserve the right to modify or discontinue benefit programs at any time without notice. Interest rates are currently fixed at 5 percent, and a standard 10-year repayment program begins following the student’s graduation or withdrawal from graduate school. Perkins Loans may also be consolidated with other government student loans.

Interest on the loan would accrue while the repayment is deferred, which can prove costly, but it provides an option for parents who can’t afford to repay the loans while their children are in college. Interest rates on federal student loans can either have a fixed

interest rate or a variable interest rate. New loans first disbursed on or after July 1, 2006, will have a fixed interest rate.



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Ken Golden asked:


A student who wants to loan money for her studies have two main sources to consider: the government or federal loan, or the private loan.

A federal subsidized student loan means the federal government makes the interest payments to the financial institution for the period that the student is in college or at university, as well as during the grace period granted to the student.

There are many federal direct student loan programs available from different institutions. It is wise to solicit advice from your parents and other sources before you decide what type of federal direct student loan would suit you best.

A federal loan is often not sufficient to cover all your expenses. Therefore you would probably also need a private student loan to supplement a federal loan. This money can be applied to any of your educational needs.

Federal loans can be challenging. If you acquire several federal loans with varying repayment periods and payment amounts, it will be a challenge to manage your cash flow to service these loans at the appropriate repayment dates.

With federal loans, you will need to start making your loan repayments six months after your graduation or after you’ve left school. It is important to plan and budget for this because it can make a hefty dent in your monthly budget.

When filling out an application for a federal student loan, there are some tips to make the process a little easier.

The first form you will need to fill out is the Free Application for Federal Student Aid (FAFSA) form.

You need to be organized and gather all the information that you are going to need to fill out the forms.

It is important to get started early when filling out your federal government student loan application. Do not wait until the last minute because you do not want your application to disappear in the usual last minute avalanche.

When filling out the forms, allocate sufficient time for the activity. It can easily take up to an hour to complete the application.

When you include the student loan money in your budget, remember that with federal student loans there are fees that are deducted from the loan amount, which means you will not receive the full loan amount.



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Black R asked:


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