PLUS loan consolidation question

ny7007 · ‎06-16-2007

I have seven PLUS loans through four lenders (Sallie Mae, Direct, AES, Great Lakes) for two children. The original amounts of these loans was $92,000 but now it's down to about $82,000. The first loan is four years old, the youngest is 10 months old. The highest interest is on $42,000 at 8.5% interest. These two loans are the youngest at 10 months and 22 months. All of the loans are variable interest rate, except for one $22,000 loan at 8.5% fixed. AES and Sallie Mae have been pestering me to consolidate, but Direct has not. GL is still receiving high interest rate (8.5%) payments from me so they have not bothered asking me to consolidate with them. I'm having trouble comparing loan vendors. I understand that they all have to take the weighted average of the interest rates to arrive at the interest rate I would pay. I am already enjoying interest rate reductions on some of them (6.75%) for paying in excess of three years and having the loans directly debited from my account. However, some of the vendor representatives told me that the interest rate reductions that I am receiving are not used in the weighted average calculations. This would drive my interest rate up, but it would still be less than 8.5%, more towards 8.1%. Should I consolidate? What about protections that come with the original PLUS loans such as the death provisions (if I die, my husband doesn't have to pay my PLUS loans; and if my son/daughter dies, I don't have to pay his/her PLUS loans) and the deferment provision in the event I lose my job? Are these provisions standard on all PLUS consolidation loans? If so, how can I compare PLUS loans? I can't get straight answers from some of the lenders on what actual interest rate I would be looking at from them, whether or not they would use the original interest rate I was given or the interest rate I am now paying with the interest rate discounts. Also, one of the lenders wouldn't even talk about doing anything less than a 30 year loan. They said I could pre-pay, but I want to know how much I would have to pay in X amount of time to get it paid off by a certain month/year. The only reason I want to consolidate is because it's a pain in the neck tracking 7 loans. All of the vendor representatives asked me what interest rate I was paying on their competitors loans. Don't they have access to that information from the NSLDS? They made it sound like I could tell them 4% and they would go on that. Any advice? Thanks in advance.

Anonymous · ‎06-16-2007

My first question is when are your kids going to start contributing to the payments?

2nd is are all of the Federal loans?
The weighted average thing is only applicable to the Federal Loans.

ny7007 · ‎06-16-2007

Hi Timothy,

Yes they are all federal PLUS loans.

I was told by the financial officers and the loan companies when I was first learning about this, that according to the federal regulations, my children are responsible for their own Stafford loans only, not the Parent PLUS loans. They are under no obligation to take on the repayments at all, in any fashion. I specifically asked about that because I don't think it is fair to the parents to have to be obligated to pay back the loans if the child drops out or flunks out. In fact, only one parent signs the loan form so the other parent is not obligated to repay the loan, only the parent who took on the loan in the first place. That way, in a divorce proceeding, the spouse who did not sign the loan is not responsible for half of its payment. Additionally, the newer regulations for student loans caps the amount the student can take out in federally subsidized and unsubsidized Stafford loans at $3500 the first year; $4500 the second year and $5500 the third, fourth and fifth year of college. My son's college was $15,000/year including room and board and my daughter's college was a total of $92,000 for four years. If the child wants to attend college and doesn't have the funds, his or her parents are forced to take out federal PLUS loans or get private loans at a higher interest rate (but why would you ever do that?). The student could take out private loans at a much higher interest rate than the Parent PLUS loans, but the parent has to co-sign the child's loan. If the child defaults in the first year (maybe it's three years, I can't remember), the private signature loan becomes the responsibility of the parent. I figured that with my luck, if my child defaulted on the loan, I'd be paying 11%, not the 8.5% that the PLUS loan was offering. So, yes, the entire obligation is mine.

Anonymous · ‎06-16-2007

I could be wrong, but I think Timothy was asking when the kids would start helping out with the payments, though they may not be legally responsible...since they did benefit from the proceeds of said loans.

Anonymous · ‎06-16-2007

@Anonymous wrote:
I could be wrong, but I think Timothy was asking when the kids would start helping out with the payments, though they may not be legally responsible...since they did benefit from the proceeds of said loans.

That is EXACTLY what I was asking. If they received a world class education they need to contribute more.

ny7007 · ‎06-16-2007

I wouldn't call it world class. State school public university for one child and he lived at home, so he cost $7,500/year for four years. He was a bargain at $30,000 plus books and computers. The other one went out of state to private art schools (freshman and sophomore years = $15,000/year; Jr. and Sr. years = $31,000/year), so her education cost $92,000 plus books and art supplies . Prior to them entering college, I had put away $30,000 for each of the two kids, then the stock market plunged and I lost half of that in less than a month, right before the first one was off to college. They each took out $18,500 in Stafford loans, because that's all they are legally allowed to put under their names. I don't want to saddle them with more debt for their educations if they can't afford it. They graduated, so they held up their end of the bargain as far as I'm concerned. I'm not going to ask them to take over more debt that I took out on their behalf for their education, and I understand that's your concern in this matter. The art student is unemployed (go figure) and the other one is a computer programmer and he will have his entire Stafford loan paid off by November 2007 even though he just graduated in May 2006. I think that's pretty good. Still, just because he saved us money and got a good job, I don't expect him to "chip in" for his education any more than the starving artist who can't afford anything. If someday I am really suffering financially, I may ask him for help with his portion of the loans at that time, but not right now, not yet. It's not the kids fault that I didn't save enough for their education when they were younger.

Back to the original questions: is the interest rate on educational consolidation loans a weighted average of the current interest rate with the incentive discounts, or is it a weighted average of the interest rates without the incentives? If the resultant interest rate is a weighted average of the interest rates and is the same for each vendor, then how does a consumer compare lenders? What do I look for in a consolidation package? Do the deferment and forebearance provisions stay intact when I consolidate? What differentiates one lender from another? Thanks for any information.

Anonymous · ‎06-17-2007

I am pretty sure you can consolidate all of this into 2 separate consolidations.

Using the weighted avg of each child. This will give you the best deal overall.

I did my consolidation with my original company as there was no advantage to move it as the same rate would apply anywhere I went. It was completely pain free. I just wish I did it a year ago. Application to complete was less than 2 weeks.

Best of luck to you-

I have mine though Student Loan finance SLFC.com. Call them up, they seem to have this stuff down to a science and a great online interface.

Anonymous · ‎06-17-2007

I should also note that I went back to college as an adult and had to pay the whole gig on my own. I own less than 10K now. I did it with 3 kids, DW, a mortgage, and working full time. The VA helped but I still had a larger amount to spend than I was expecting.

I graduated in 2003 1st in my class.

I call this sweat equity.

Anonymous · ‎06-17-2007

You are my hero. How did you pay it down so fast? I'm going to have to start paying mine off after I graduate next year (to the tune of about $45K!) Fortunately, being in the ARNG, they will pay about $20K of that. I would love to pay it off ASAP without it killing me financially.

Anonymous · ‎06-17-2007

@Anonymous wrote:
You are my hero. How did you pay it down so fast? I'm going to have to start paying mine off after I graduate next year (to the tune of about $45K!) Fortunately, being in the ARNG, they will pay about $20K of that. I would love to pay it off ASAP without it killing me financially.

I paid about $1000 a month while I was going to school.
I took all the free $ I could get and just the Federal loans. Paying every month at a low interest rate. I think the VA was giving me about $700 a month. We reduced our savings quite a bit during those years, but very worth it.

Message Edited by Timothy on 06-17-2007 03:30 PM