Your Questions About Direct Loan Servicing

Nagesh answers:

Yes, the government is consolidating student loans using the Department of Education company called Direct Loans. You can go to the website http://www.loanconsolidation.ed.gov/ and click on Borrower Services to get started.

As far as incentives for consolidation, that is a thing of the past. The only thing they might offer is an 0.25% interest rate reduction for participating in their electronic payment program.

Nagesh answers:

Currently, the only company that I am aware of that is consolidating student loans is Direct Loans, through the Department of Education. You can start the process by going to http://www.loanconsolidation.ed.gov/ and clicking on Borrower Services.

Other companies may do loan consolidation but that may mean that you lose the benefits of having a federal student loan (such as forbearance, deferment, low payment options, income based repayment, and total disability and death forgiveness).

The benefit of consolidation is that all your loans will be all in one place and you will only need to make one payment per month. Also, consolidating your loans will lock in your interest rates while they are still low (if you have any variable interest rates). And it will lengthen your loan term, depending on the balance you are consolidating, which will allow your payment to go down.

Nagesh answers:

Your school is required to split the loan in half (assuming you are attending a school that has 2 semesters). So if you requested a $15,000 PLUS loan, you would get $7,500 for the fall semester and $7,500 for the spring semester. If you wish to change that, you should contact your school’s financial aid department. They may have a separate loan servicing division that they put you in contact with. Just explain to them what you want to do.

Nagesh answers:

I’m going to show you how much help I am, first of all I used to work for the federal student aid information center 18004fedaid. Lol. There they only really look at the fafsa itself, and also assist you with your PIN. In terms of your loan, you are typically stuck with who is currently holding it. What you can do though is either call your servicer and ask about how you can have it moved, or you can consolidate the loan itself.

Now the issue you are having is that your loan was probably private loans through private businesses. They sell the student loans like stocks and bonds, most FFELs are trying to get out of the business. Next time I highly reccomend going with Federal Direct, who is the government.

Nagesh answers:

Jimmy:

I’m afraid the news isn’t good.

Borrowers in default are not eligible for the usual in-school deferment. If your loans were in repayment, but not default, returning to school would automatically put your loans back into deferment – and you wouldn’t have to make your payments. Unfortunately, borrowers in default can’t take advantage of that opportunity.

There are no grants or loans to help you pay off previous loans. Financial aid is awarded on a “going forward” basis, based on your cost of attendance for the current year, and not on what you might owe someone else from past borrowing.

There are programs that forgive or cancel portions of previous loans, but those programs require certain types of employment (teaching, public service, health care), military service, or significant volunteer work within your community, or around the world. You can read about all of those opportunities here: http://www.ed.gov/offices/OSFAP/DirectLoan/cancellation.html and here: http://www.finaid.org/loans/forgiveness.phtml

As far as your government loans – there is one thing that you can do to stop the default process, and that’s consolidate them. The US Department of Education has its own consolidation program – they will only allow you to consolidate your government loans – your Staffords, Perkins, etc. You can learn about that program here: https://loanconsolidation.ed.gov/AppEntry/apply-online/appindex.jsp and you can read about the benefits and the negatives, too.

In the simplest possible sense – consolidation will cost you a lot of money. You’ll get your loans out of default – you’ll regain your in-school deferment – and you’ll eventually lower your monthly payment obligation, once you leave school and that payment obligation kicks back in. The downside is that you’ll make many more payments, and you’ll pay quite a bit more interest – because you’re taking so much longer to pay off your loans.

By your own admission, you already made a careless mistake in your borrowing – don’t even think about consolidating without doing your homework to find out how much the option is going to cost you. That information is available to you – you’re just going to have to go out and get it, instead of just playing it by ear.

Visit the sites that I suggested, review the information, and consider consolidating your government loans with the William Ford Direct Consolidation program offered by the Department of Education. You’re going to have a much more difficult time consolidating those private loans – I don’t know of any banks that are consolidating those right now. But at least you’ll be able to get a handle on the big amount – and that’s what’s killing you.

I hope that helped – good luck!

Edit: By the way, Shirline’s info is not correct. You will not qualify for any forms of federal aid as long as you have pre-existing loans in default. There’s no hope of ‘getting enough’ to pay for your school and your loans – you won’t be eligible to even complete the FAFSA.