Trouble Consolidating Sallie Mae Loans, Part 2: I talk to Sallie Mae
Posted on September 8, 2008 4 Comments
I feel for recent grads reeling from student loan sticker shock. After all, I’m still in repayment, more than seven years after graduation, for all the courses, parties, bad food, cramped dorm rooms and heavy books that gave me the sweetest – and shortest – four years of my life. So when my newly minted cousin called me in tears looking for advice about loan repayment and consolidation, I gladly offered to help — only to find that the student loan landscape had drastically changed over the past five to 10 years and that my knowledge was a little rusty.
My cousin needed advice about consolidating private loans from Sallie Mae (which is not a government lender). Unable to give her much direction, I contacted the company directly and was able to correspond with Martha Holler, vice president of corporate communications at Sallie Mae.
Martha told me that private loans, even those called “student loans” or “education loans,” were never available to be consolidated through the government. If you have a student loan through Sallie Mae, and it’s a private loan, you will have to go through another lender to consolidate your loans. However, consolidation may not always be the best option for you if a lower interest rate isn’t available, and it’s important for you to note that consolidated private loans don’t always carry fixed rates (like consolidated government loans do).
She also told me that government loans (Stafford or PLUS loans) are still available for consolidation under the Federal Direct Consolidation Loan Program. However, Federal loan consolidation is no longer the “no brainer” that it used to be, because new Stafford and PLUS loans carry a fixed interest rate (it used to be variable) so consolidation is no longer necessary to “lock” a rate.
The bottom line here is that it’s important for parents and students to really understand the terms and conditions of any loans when signing on the dotted line. It’s difficult for 17-year-olds to comprehend what they’re getting into, and harder still for parents to keep up when the loan environment seems like it changes daily. Planning ahead is key, so whether you’re saving for your child’s college fund, taking out loans now or just starting your payments, don’t try to just “go with the flow” in hopes that you’ll always come out on top. Be an information sponge, and stay on top of your finances and loans. Only then can you (or your daughter) become the fierce, fabulous and ferocious diva that college degree entitles you to be.
For those of you interested, here is Martha’s complete response to my e-mail. There’s a lot of good information here for those in repayment. (And for those of you still planning for college, it happens to be National College Savings Month… visit www.CollegeAnswer.com/savings or www.upromise.com to learn about long-term savings options.)
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FROM: Martha Holler
DATE: Wednesday, Sept. 3, 2008
SUBJECT: Sallie Mae Follow-Up
Nicole,
Significant legislative cuts that went into effect on Oct. 1, 2007 created an environment in which federal loan consolidation generated a negative return for lenders. Many lenders stopped consolidating loans – either leaving the business altogether or suspending their participation n the federal consolidation loan program because the program was no longer economically viable. Sallie Mae was among them, announcing in April our decision to suspend participation in the federal consolidation loan program so that we could direct more of our resources to students entering school.
Those who wish to consolidate their federally guaranteed student loans may still do so. While there are virtually no lenders who still participate in the federal consolidation loan program (see this link that amalgamates lenders’ program participation changes), the U.S. Department of Education can and will consolidate your student loans under its Federal Direct Consolidation Loan Program.
A few other points for consideration: Federal loan consolidation is not the “no brainer” that it used to be. New Stafford and PLUS loans carry a fixed interest rate and so consolidation is no longer necessary to “lock” a rate.
In addition, there are several other repayment options available (extended repayment among them, which allows you to extend your term to 25 years) to help you manage your monthly payment amount. Remember, anytime you extend your repayment term beyond the standard 10-year period (whether by consolidating your loans or by selecting an extended repayment option), you will pay more over the life of the loan. So, I encourage consumers to ask themselves what they are hoping to achieve? Lower monthly payment amount? Single bill? Would a temporary break from making payments suffice? If so, another option (such as a deferment or a forbearance, both authorized periods of time – usually 6 month increments – when you don’t need to make payments on your loan) may be a better bet. Then you can get on with successful repayment of your loans.
While it’s not quite as simple as saying “pick the amount you’d like to repay each month,” student loan repayment does have a number of flexible options – you can pay interest only, a percentage of your monthly income, you can extend your repayment term, you can stop making payments altogether for a short period of time. Consolidation was a popular option about 5 years ago when student loans carried variable interest rates that happened to approach 40-year lows – because it allowed you to lock a low rate. But much has changed since then to make it less attractive (new student loans already carry fixed interest rates), so I must highlight that it is not the only option available to help you manage the repayment of your loans.
Now, with regard to private loans – those are the consumer loans that students typically take out to cover any remaining financial need after federal student loans have been exhausted: these loans never were eligible for federal loan consolidation because Congress limited loan eligibility to federal student loans only (Perkins loans, Stafford loans and PLUS loans, primarily).
It was possible to consolidate private loans – essentially a refinancing into another consumer “education” loan that would allow you to extend your repayment term and (possibly) lower your interest rate. In most cases (I can’t speak for other lenders, but I can speak for Sallie Mae), private consolidation loans carried a variable interest rate (note the difference from the fixed interest rate on the federal consolidation loan program). Again, repayment options existed to allow you to extend repayment of your private loans – so I would ask someone who wants to consolidate their private loans what they are looking to achieve? Lower monthly payment amount? Lower interest rate? A single bill for all of their loans?
If the rationale is purely rate related, then they could refinance into another consumer loan, although we always counsel customers to read the fine print and fully understand what the interest rate would be, how it could change over the life of the loan, whether there is a prepayment penalty, etc.
If it is monthly payment amount related, well, you don’t need to consolidate to achieve that goal. And you can always ask your lender to send you a single bill for all of your loans with them so that you only have one check to write each month.
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Martha Holler began her career with Sallie Mae in 1996. In her current role as vice president of corporate communications and officer of the company, Holler serves as Sallie Mae’s media spokesperson on a range of corporate and consumer topics, including the company’s core business of saving, planning and paying for college. In addition, she directs communications to business-to-business and other external audiences. The corporate communications department produces executive speeches and corporate publications, including the Annual Report. Prior to this position, Holler helped analyze merger and acquisition opportunities as a member of Sallie Mae’s business development unit.
Category: Money
Tags: student loans
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4 Responses to “Trouble Consolidating Sallie Mae Loans, Part 2: I talk to Sallie Mae”
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September 8th, 2008 @ 2:25 am
Wow, thanks for doing all of this research!
September 8th, 2008 @ 1:06 pm
Very useful information!
September 8th, 2008 @ 4:32 pm
you’re awesome nicole. what a great resource!
January 18th, 2010 @ 12:52 pm
I feel your blog really useful and inspiring me. Thank you.