Advice on Student Loan Consolidation


J

jsr

My wife and I current have approximately 52k in federal student loan debt
consolidated in three separate SallieMae accounts at a composite interest
rate of 4.22% as of July 1. We have put off consolidating these loans (and
thus fixing the interest rate) for six years under the premise that interest
rates could fall. Given that we used to have nearly 115k at 7.8%....if only
that crystal ball had worked in other areas of our portfolio. (Pets.com just
seemed to be a road to early retirement for a few months there.)

On to the question. We have been paying down this debt as quickly as
possible over the past several years under the premise that we were
improving our bottom line during the bear market. We also just hate debt and
want SallieMae off our back. Now that short term rates have essentially hit
rock bottom we are finally interested in consolidating.

We have no interest in extending the repayment period, we will continue to
pay as much as possible towards these loans over the next four years. We
project only 18 mos. left of student loan payments with our pre-payment
strategy. I know SallieMae will extend the repayment period anyway as part
of the consolidation product they offer.

Does anyone see any down side to consolidation at this point? I haven't been
able to verify whether or not we will be allowed to pre-pay principle after
consolidation the way we have been for several years now. I assume there is
no problem in pre-paying after consolidation, but I am not certain on that.
Is there a hidden list on penalties out there for doing so?

Any advice would be a great help on this one. Thanks.

-JSR
 
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Z

zak

jsr said:
My wife and I current have approximately 52k in federal student loan debt
consolidated in three separate SallieMae accounts at a composite interest
rate of 4.22% as of July 1. We have put off consolidating these loans (and
thus fixing the interest rate) for six years under the premise that interest
rates could fall. Given that we used to have nearly 115k at 7.8%....if only
that crystal ball had worked in other areas of our portfolio. (Pets.com just
seemed to be a road to early retirement for a few months there.)
Does anyone see any down side to consolidation at this point?
1) With your loans unconsolidated, you can make the extra principle
payments to the loan with the highest interest rate. Once you
consolidate, your extra payments will be spread to all 3 loans.

2) If you consolidate your loans together with your wife's, you will
both be liable for the entire amount. In case of death of one of you,
the student loans would ordinarily be forgiven. In case of divorce,
this can cause a real nightmare.

3) Even 3 years ago, people were talking about locking in the
amazingly low rates. These are the people who are now complaining
bitterly about only being able to consolidate once. Certainly last
year, everybody said that rates couldn't drop any further, but they've
dropped again. The rates won't change again until July 2004, so it
doesn't cost you anything to wait and see what happens (and will save
you a smidge of interest). See where the 90 day rates are in April
2004 and make your decision then. I believe that Sallie Mae offers a
plan (near the July change date) where they will consolidate you at
whichever rate is better, old or new. Given your 18 month projected
payoff date, exploring that option in 2004 may be your best bet.
 

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