Young Person's Guide to Private Loans Consolidation - grown-ups, take a look, too.

I just can't stand an urge to share with you a *very* detailed, simple and explicit article on reconsolidation private loans matters.
I'd call it a Young Person's Guide to Private Loans Consolidation - so thoughtfully and friendly this little FAQ on private loans consolidation is written.

Discussed are private loans of all kinds - mostly student loans, information should be very heplful for students indeed.

Highlights:
* Real Life Example "Paying Ahead"
* Managing Student Loan Repayment
* Avoid Delinquency, Default & Bankruptcy
...and virtually everything else - it's a condensed wisdom, if you ask me...Kudos to Patti Corjay for putting it up.

In particular, part about paying more than the required payment will save money was an eyeopener for me - paying just extra $25/mo would save me 5 (five) grands in interest - how's that?!

************************************

Borrower rights and responsibilities

What are loan terms and conditions?
What is the cost of my loan?

Managing your loans in repayment

Private Loan Consolidation
Post-MBA Strategies

Overview
Borrower Rights

o Written information on loan obligations
o An explanation of default and its consequences
o A copy of your promissory note and return of the original note when the loan is paid in full
o Prior to repayment, balance information, interest rates and fees and a repayment schedule
o Notification if your loan is sold
o Prepay your loan early without penalty


Borrower Responsibilities

o Repay the loan according to the schedule you select, even if you do not complete your academic program, are dissatisfied with the education you received, or you are unable to find employment after you graduate
o Notify your loan servicer of anything that affects your ability to repay the loan
o Notify your loan servicer of any changes in your status, including when you graduate
o Notify your loan servicer and school of any changes to name, address, and phone numbers
o Notify your loan servicer if you fail to enroll for the period covered by your student loan


Terms are the specifications identified in the promissory note that define the loan amount, interest rate, length of time in which to repay the loan (repayment term), and any other enforceable agreements entered into by the borrower and the lender before the loan will be made.

The loan terms stated in the promissory note will also include information on how interest is calculated and all conditions of repayment.

o Interest is generally calculated using the daily simple interest method

What are terms and conditions?

Conditions are the circumstances and “rules” the borrower agrees to abide by in exchange for the lender advancing the loaned funds applied for. Lenders in general will not release any funding until all conditions have been met by the borrower and cosigner, if there is one involved.

Examples of loan conditions are

o Borrower must agree to sign the promissory note before funds will be released
o In exchange for the cash provided by the loan, the borrower promises to repay in accordance with the terms set out in the promissory note
o Borrower agrees to use the loan for the purposes stated
o If the loan is not repaid according to terms, borrower agrees to pay various fees and court costs if incurred for the lender to get repaid


What are terms and conditions?

A price which is charged and paid for the use of money over time.
An interest rate is most often expressed as an annual percentage of the loan principal.
May be fixed or variable over time

o Fixed interest is a constant rate charged over the term of a loan
o Variable interest changes according to various schedules over the term of a loan.


Most private loan lenders have variable interest rates

Interest rate

Variable interest rates are generally used by lenders to help them maintain net interest income margins over the expected life of a loan.
A private loan borrower should be aware of the type of interest used by a lender and how the interest rate is determined.
Most variable rates are tied or indexed to a major commercial rate such as Prime or Libor.

o The prime rate is the interest rate that most commercial banks use to lend to their most creditworthy borrowers .

Private loan interest rates are generally stated as

o PRIME (Or Other Rate) Plus/ Minus an interest rate factor
o Example 8.25% +/- 2.0%.


Interest rates - Variable

The addition of accrued and unpaid interest to the principal balance of your loan.
o The less frequent the better.
o Read your promissory note to determine when interest on your private loan will be capitalized.
o Preference should be only once at repayment.


Capitalization

Grace period:
o Time interval between leaving school and the date that repayment begins. Six months is the grace period on most private loans.
o The grace period on your loan was created to give you a reasonable amount of time to transition from the academic world into the job market.
o Assess your financial situation and prospects
o If you think you have a financial problem at the beginning of repayment, anytime during repayment or your circumstances change, contact your loan servicer. Many times they can help.



Repayment terms

Repayment terms and options:

Variations of the loan repayment terms that may be chosen under certain conditions to assist the borrower in making their monthly payments

Typically repayment options will involve alternatives for:

# Length of time to repay the private loan
# Application of the monthly payment to interest and principal

Typical repayment term options

o 10, 15, 20 or 25 year repayment term
o Interest only followed by a standard payment schedule
o Most common option offered by a private loan lender is a 10 or 15 year repayment term

It is very important that you read your promissory note to understand the repayment options available to you

Repayment terms

Monthly payment:
Minimum amount that a borrower is required to pay each month.

When the payment is received by the loan servicer, the payment will be applied first to the interest that has accrued since the last payment and the remainder of the payment will be applied to reduce the loan principal amount.

Payment due date:

o This is the date each month by which a private loan borrower is required to make the monthly payment.
o Failure to make payments on time can result in late fees, collection calls and if not made over a period of several months, legal action.

Repayment terms

Repaying your student loans responsibly is one of the most important behaviors you can develop as you enter and grow in your career.

Failure to live by the terms of your promissory note and make your payments on time will carry serious consequences that will be difficult and costly to overcome. Contact your loan servicer immediately to work on possible solutions if you are having problems making your loan payments.

Nobody wins if you default on your loans.

Managing your loans in repayment



Managing Student Loan Repayment


Help your loan servicer keep track of you.

Your loan promissory note - a promise to repay on time and in full.

Failing to repay will put you in financial default.

If you’re having problems repaying, call your servicer - right away.

Alternate repayment plans can significantly reduce the amount of your monthly payment.

For Sallie Mae borrowers, go to www.SallieMae.com

Borrower benefits are options that lenders may offer as an incentive to borrowers

o to obtain their private loans through that lender
o use select services offered by the lender

Borrower benefits save you money!

Benefits could include:

o Borrower friendly capitalization policy
o Combined billing for multiple loans when in a repayment status
o Opportunity to release the co-signer from further obligation after a period of on-time payments
o No pre-payment penalties

Borrower benefits


Trouble Making Payments?


Call your loan servicer or lender right away

Explore your options


o Lower your monthly payment
+ Graduated repayment
+ Income-sensitive repayment
o Temporarily postpone your payments



Forbearance is an authorized interruption to your repayment schedule which allows you to suspend payment of principal, interest or both for a period of time

o Forbearance must be requested by the borrower and approved by the lender
o Interest accrues during periods of forbearance and is capitalized at the end of the forbearance period
o Must reapply with lender at the end of the period of forbearance if you wish to continue to remain in a forbearance status.



Forbearance

What If You Become Delinquent?
* Call your lender or loan servicer immediately and ask for help!
* Your servicer will contact you.
* Your late payments will be reported to a credit bureau.
* Delinquency will become part of your financial history.

What If You Become Disabled Or Die?
Private loans seek settlement from the borrower’s estate or co-borrower


What If You Default?
You could incur collection costs and legal expenses
Your credit history will be tarnished for a long time


Avoid Delinquency, Default & Bankruptcy
o Stay in control of your credit from the start.
o When trouble arises, take action - immediately!
o Seek professional assistance from your local Consumer Credit Counseling Service (CCCS) - 1-800- 388-2227 - It’s a free service!
o A financial planner can help develop a money management strategy for a fee.

What is private loan consolidation?

Paying off one or more private loans with one new private loan.

Relatively new financial planning and debt management tool for borrowers with private education debt.

Some similarities with federal consolidation but many important differences.

Private loan consolidation


Why private loan consolidation?

For convenience

o One payment
o May be combined billing with payments on federal loans if all loans with the same servicer (check with servicer)

To lower monthly payments
o May be able to extend repayment length, depending on amount borrowed

In some cases, to get a lower interest rate

o Depends on credit score of borrower and cosigner, if applicable
o Reminder that private loan consolidation does not offer a fixed rate



Private loan consolidation

Who is eligible?

Creditworthy borrowers with at least one private loan

Requirements may vary by lender

Other requirements may include:

o U.S. citizen or eligible permanent resident with SS number
o Private loans in repayment status
o Minimum loan amount
o Completion of program or degree

Private loan consolidation

When to consolidate
Check with lender, but likely during repayment, after grace period has ended.
Borrowers will forfeit grace period on underlying loans if they consolidate too early.


Private loan consolidation

Should you reconsolidate?

Borrowers can reconsolidate private loans

May not be in borrower’s best interest, if fees are involved

o May have already paid fees

Private loan consolidation

Questions to Ask:

* Which loans are eligible?
* What is my new interest rate and are there any fees?
* What are my grace and forbearance options?
* What are my repayment options?
* What are my monthly payment and total repayment amounts?
* Is there a penalty for early repayment?
* Who will service my consolidation loan?
* How long will this take?
* What about spousal consolidation?

Private loan consolidation

Post-MBA
Money & Debt Management Strategies


Develop A Budget

List all sources of income

Adjust for taxes, FICA and other withholding

Divide by 12 for monthly income

Deduct housing costs

Deduct food and clothing (laundry, too)

Deduct utilities (gas, phone, electric, etc.)

Deduct credit card payments, if applicable


Develop A Budget

Deduct transportation expenses, including car expenses (also gas and insurance), if applicable

Deduct entertainment expenses

DEDUCT YOUR STUDENT LOAN PAYMENTS!!

Remember to pay yourself (IRA, savings)

The remainder should be greater than zero (some left over for emergencies)


Paying more than the required payment will save money.

For a $50,000 student loan*, with a 15 year repayment term:

o The monthly payment will be $545
o Total interest will be $48,096

However...

o an extra $25/month will save $5,387 in interest
o an extra $50/month will save $9,595 in interest
o an extra $100/month will save $15,805 in interest
o a double payment/month will save $34,366 in interest

* * Based on an interest rate of 10.25%

Real Life Example– Paying Ahead

Which Option Is Best For You?

Do your education loan payments exceed 8-10 percent of your gross monthly income (and you’re having trouble making payments)?

o 8-10 percent rule should allow borrowers to have enough income to cover rent/mortgage payment, pay for basic living expenses, and meet other debt service needs

Annual Monthly Maximum Student Loan Payment at

Income Income 8% 10% 15%

$ 50,000 $4,167 $333 $417 $ 625

$ 75,000 $6,250 $500 $625 $ 938

$100,000 $8,333 $667 $833 $1,250


What About Deducting The Interest?

Tax rules are a bit complex, so contact a tax preparer to determine if you can deduct interest for private education loans

Patti Corjay
Director, South Sales
Graduate and Professional Programs
April 2007

(Video) Student Loans - The Joy of Consolidation

I spotted quite funny - yet helpful - video on youtube on a matter of student debt consolidation/reconsolidation. In short, 3 friends band together to find the best student loan lender that can alleviate their pain from student loan debt. This is actually Episode II - it concludes their journey to freedom.

Summary of Student Borrower Bill of Rights Act of 2008

Here is a summary of recently presented Student Borrower Bill of Rights Act of 2008.

Goal: To provide student borrowers with basic rights, including the right to timely information about their loans and the right to make fair and reasonable loan payments, and for other purposes.

SEC. 2. FINDINGS.

I skip this part.

SEC. 4. A RIGHT TO SHOP IN A FREE MARKETPLACE.

There are interesting snippets here:

...
(iii) by adding at the end the following:
`(D) any on time payments made for such loan; and
`(E) such loan as a student loan.'.

© A Right To Reconsolidate Loans-
`(B)(i) Except as provided in clause (ii), an individual who has received a consolidation loan under this section, or the consolidation lender, shall pay a fee of 1 percent of the balance owed on the sum of such loans to be consolidated to the Department to obtain a subsequent consolidation loan under this section.

`(ii) An individual who has received a consolidation loan under this section may obtain a subsequent consolidation loan under this section for no fee if such individual was eligible to obtain a subsequent consolidation loan pursuant to this subparagraph on the day before the date of enactment of the Student Borrower Bill of Rights Act of 2007.'.

`(1) FEDERAL STUDENT LOAN- The term `Federal student loan' means a loan made, insured, or guaranteed under this title (except loans made to parents under section 428B or under the Federal Direct PLUS Loan program).

`SEC. 499A. A RIGHT TO TIMELY INFORMATION ABOUT LOANS.
...
`(7) a description of each fee the borrower has been charged for the current payment period;
`(8) the applicable monthly payment amount set by the Secretary under section 499B for such borrower and the amount such borrower would owe each month according to the borrower's repayment plan absent the provisions of section 499B, or, in the case of a loan payable less frequently than monthly, the amount that corresponds to the payment installment time period taking into consideration the applicable monthly payment amount set by the Secretary under section 499B for such borrower and the amount such borrower would owe that corresponds to the payment installment time period according to the borrower's repayment plan absent the provisions of section 499B;
`(9) the date by which the borrower needs to make the payment described in paragraph (8) to avoid additional fees;
`(10) the amount of such payment that will be put towards interest, the balance, and any fees;

`(b) Information Provided Five Months After Ceasing To Be at Least a Half-Time Student- A lender of a Federal student loan shall provide to the borrower of such loan, on the date that is 5 months after the borrower has ceased to be at least a half-time student at the institution of higher education for which the loan was made, who requests it, and make readily available on the Internet, a clear and conspicuous notice of not less than the following information:

`(1) The conditions under which a borrower could be charged any fee, and the amount of such fee.
`(2) The conditions under which a loan would default and the consequences of default.
`(3) The borrower's rights and options, including repayment options, deferments, forbearances, and discharge rights to which the borrower may be entitled.
`(4) Legitimate resources, including nonprofit organizations, advocates, and counselors (including the Office of the Ombudsman at the Department), where borrowers can receive advice and assistance, if such resources exist.

`(5) Information about how a borrower can appeal to the Department a decision made by a lender about their loan.

`© Information Provided During Delinquency-

`(2) ADDITIONAL INFORMATION- In addition to any other information required under law, a lender of a Federal student loan shall provide a borrower in delinquency with a clear and conspicuous notice of the date on which the loan will default if no payment is made, the minimum payment that must be made to avoid default, discharge rights to which the borrower may be entitled, legitimate resources, including nonprofit organizations, advocates, and counselors (including the Office of the Ombudsman at the Department), where borrowers can receive advice and assistance, if such resources exist, and information about how a borrower can appeal to the Department a decision made by a lender about their loan.

© Information Provided During Consolidation- Section 428C(b)(1) of the Higher Education Act of 1965 (20 U.S.C. 1078-3(b)(1)) is amended--

(d) Information Provided During Consolidation or Reconsolidation of a Federal Student Loan With a Private Loan- A lender shall, upon application for a consolidation or reconsolidation loan of one or more loans made, insured, or guaranteed under part B, part D, or part E of title IV of the Higher Education Act of 1965 (20 U.S.C. 1071, 1087a, 1087aa) with one or more private loans, provide the borrower with a clear and conspicuous notice of not less than the following information:

(1) That the consolidation or reconsolidation loan would be a private loan, not a Federal loan.

(2) A description of the benefits and protections for the loan made, insured, or guaranteed under part B, part D, or part E that the borrower would lose by consolidating such loan with a private loan.

(3) That the lender may be eligible to consolidate two or more loans made, insured, or guaranteed under part B, part D, or part E within the Federal loan program.

SEC. 6. A RIGHT TO MAKE AFFORDABLE LOAN PAYMENTS.

(a) Affordable Loan Payments- Part I of title IV of the Higher Education Act of 1965, as added by section 5, is amended by adding at the end the following:

`SEC. 499B. A RIGHT TO MAKE AFFORDABLE LOAN PAYMENTS.

`(a) Limit on Monthly Payment Amounts to an Affordable Level-

`(1) IN GENERAL-

`(A) LIMITATION-

`(i) IN GENERAL- With respect to Federal student loans that are made, insured, or guaranteed after the date of enactment of this section, the Secretary shall limit the total monthly payment amount for all of such loans of a student borrower to not more than the amount determined pursuant to subparagraph (B), except as provided in subsection (b)(3).

`(ii) COMMENCEMENT- The limit on the monthly payment amount described in clause (i) shall begin the day after 1 year after the date the student ceases to carry at least one-half the normal full-time academic workload (as determined by the institution).

`(B) FORMULA AMOUNT-

`(i) IN GENERAL- The amount referred to in subparagraph (A) shall be the same amount for each month of a year. Such amount shall be an amount that is the quotient of the sum of 10 percent of the borrower's annual adjusted gross income between 100 percent and 200 percent of the poverty line for the previous year and 20 percent of the borrower's annual adjusted gross income above 200 percent of the poverty line for the previous year divided by 12.

`(ii) POVERTY LINE- In this subparagraph, the term `poverty line' means the poverty line described in section 673 of the Community Services Block Grant Act (42 U.S.C. 9902), applicable to a family of the size involved.

`(2) PROVISION OF INFORMATION TO THE SECRETARY-

`(A) IN GENERAL- The limit on the monthly payment amount set by the Secretary under paragraph (1) shall apply only if a borrower provides the Secretary, in such form and at such time--

`(i) such information as the Secretary shall require to determine the monthly payment amount that is applicable for such borrower; and

`(ii) certification that the borrower is employed full time or is actively seeking full-time employment.

`(B) UPDATE TO INFORMATION- The Secretary shall require a borrower to--

`(i) provide the information required under subparagraph (A)(i) annually for the term of the loan of such borrower; or

`(ii) during each year for the term of the loan of such borrower, authorize the Secretary to obtain the information required under subparagraph (A)(i) from the Internal Revenue Service for such year.

`(3) CONTINUOUS UPDATE- Upon receiving information under paragraph (2)(B), the Secretary shall revise the limit on the monthly payment amount for such borrower under paragraph (1), as necessary.

`(4) APPLICABILITY TO ALL REPAYMENT PLANS- Regardless of which repayment plan a borrower of a loan selects under this title, the limit on the monthly payment amount set by the Secretary under paragraph (1) shall apply to the monthly repayment amount applicable for such repayment plan.

`(5) NO FEES OR CHARGES- Notwithstanding any other term or condition of Federal student loans of a borrower that are made, insured, or guaranteed after the date of enactment of this section, if the borrower pays the maximum monthly payment amount that is applicable for the borrower for such loans, as determined under this section, on time according to the terms and conditions of such loans, such borrower may not be charged any late fee, underpayment fee, or finance charge for such loans for such month.

`(6) SUBSIDIZED LOANS- In the case of a Federal student loan made, insured, or guaranteed after the date of enactment of this section for which an interest subsidy is paid under section 428(a), if the amount owed each month in interest payments for such loan exceeds the applicable amount for such borrower as determined under this section, and, at the discretion of the Secretary, if the borrower pays such applicable amount, the Federal Government shall pay the difference between such amount owed in interest payments and such amount that has been determined is applicable.

`(b) Study-

`(A) consider the payments required of student borrowers in other countries, including the United Kingdom, Australia, and New Zealand, and compare such payments to the payments required of student borrowers in the United States; and

`(B) be completed and submitted to the appropriate committees of Congress not later than 12 months after the date of enactment of this section.

`(3) ADDITIONAL LIMITS ON MONTHLY REPAYMENTS- If the Secretary determines in the study under paragraph (1) that additional protections are necessary to ensure that monthly payment amounts of student borrowers of Federal student loans made, insured, or guaranteed after the date of enactment of this section are affordable, the Secretary may establish rules based on such study that limits the monthly payment amount for a student borrower to a level that is affordable for such borrower.


(1) DISCHARGE AND CANCELLATION RIGHTS IN CASES OF DISABILITY-

(B) SENSE OF THE CONGRESS- It is the Sense of the Congress that the Department of Education should continue to administer the discharge and cancellation right provisions of the Higher Education Act of 1965 amended in subparagraph (A) in such a way as to prevent fraud and abuse.

(A) SENSE OF THE CONGRESS- It is the Sense of the Congress that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Public Law 109-8) affords sufficient protections to prevent fraud and abuse in the carefully regulated discharge of student loans in bankruptcy.

SEC. 7. A RIGHT FOR INTEREST RATES AND FEES TO BE REASONABLE.

(a) In General- Part I of title IV of the Higher Education Act of 1965, as added by section 5 and amended by section 6, is further amended by adding at the end the following:

`SEC. 499C. A RIGHT FOR INTEREST RATES AND FEES TO BE REASONABLE.

`(a) In General- The Secretary shall conduct a study of the interest rates and fees that are charged of borrowers of private student loans, including--

`(1) the conditions under which the interest rate charged of such a borrower is raised or lowered, including the conditions under which the interest rate is raised on delinquent payments, and the amount and frequency of such interest rate changes;

`(2) the conditions under which fees are charged of such a borrower and frequency of such fees, including fees that are charged as a condition of taking a deferment or forbearance, and the amount and frequency of such fees;

`(3) identifying such practices as described in paragraphs (1) and (2) that are exploitative or unreasonable; and

`(4) determining what remedies exist for such practices identified in paragraph (3).


`© Cap on Total Charges-

`(1) IN GENERAL- The Department shall set a cap on the maximum total amount that can be charged of a borrower on a Federal student loan, including all interest and fees, as a percentage of the original loan balance, over a period of 10 years, 15 years, and 20 years.

`(2) LEVEL OF CAP- The cap set under paragraph (1) shall be set--

`(A) at the minimum level beyond which additional amount charged on a loan is unreasonable or exploitative; and

`(B) for each time period, at a level that is higher than the amount the borrower, who makes regularly scheduled payments in accordance with a standard repayment plan, currently pays over such time period.'.

(b) Conforming Amendments-

(1) LOANS PAID OFF THROUGH CONSOLIDATION- Section 428©(6)(B) of the Higher Education Act of 1965 (20 U.S.C. 1078©(6)(B)) is amended--

(A) by striking clause (i) and inserting the following:

`(i) on or after October 1, 2007, not charge the borrower collection costs in excess of the amount provided in section 499C(b)(1)(A); and'; and

(B) in clause (ii), by striking `clause (i)(I)' and inserting `clause (i)'.

(2) REHABILITATED LOANS- Section 428F(a)(1)© of the Higher Education Act of 1965 (20 U.S.C. 1078-6(a)(1)©) is amended by striking `not to exceed' and all that follows through the period and inserting `not to exceed the amount provided in section 499C(b)(1)(B).'.

`SEC. 499D. A RIGHT TO NOT BE EXPLOITED.

`(b) Sense of the Congress- It is the sense of the Congress that the Secretary should enforce the rights of borrowers of private student loans and Federal student loans to raise claims and defenses related to the actions of for-profit institutions of higher education against lenders from which the borrowers borrowed money to attend such institutions, including the Federal Trade Commission Rule.