From The Detroit Free Press

Students, lock in low loan rates
Wait for July 1, but study offers carefully

BY SUSAN TOMPOR • FREE PRESS COLUMNIST • June 11, 2008

College students who rush from one thing to the next should relax the next few weeks when it comes to consolidating student loans.
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You'll want to consolidate July 1 or after to lock in low fixed rates.

Given the credit crunch, you won't see an onslaught of lenders urging you to consolidate. So you have to hustle on your own.

If you're graduating with a bachelor's degree this spring, you might want to consolidate loans taken out as a freshman or sophomore as a way to lock in low fixed rates.
Rates among the best ever

What kind of a rate would you get by waiting?

"They're among the best rates ever," said Mark Kantrowitz, publisher of FinAid.org.

You would lock in a rate of 3.625% if you are in college or if you are a graduate who consolidates during the grace period, a 6-month window after graduation before loans must start being repaid.

That's down from 6.62%.

And if you're already in the repayment period and have not yet consolidated, you could lock in a rate of 4.25% on a Stafford loan.

Students who are already repaying variable-rate Stafford loans are paying 7.22%. Parents with PLUS loans that have a variable rate could lock in a rate of 5.125% on July 1 or after. That would be down from 8.02% now.

You can consolidate variable-rate Stafford and PLUS loans disbursed before July 1, 2006, but you can only consolidate loans that have not yet been consolidated.

Many students also have federal loans issued after July 1, 2006, and those loans already have a fixed rate. The fixed rate for unsubsidized Stafford loans, the most popular federal student loans, is 6.8%. You cannot consolidate those loans to get lower rates.
Lenders cool on consolidations

Al Hermsen, director of student financial aid at Wayne State University, said his office hasn't seen many students ask about loan consolidations this year, as they have in other years.

Loan consolidations aren't a hot product.

Sallie Mae, the nation's largest student-loan lender, announced in April that it would stop offering federal consolidation loans. All top 10 lenders that consolidated student loans no longer offer those loans, either.

Hermsen, who has two children who graduated from college this year, said he's still seeing consolidation offers pop up in the mail at his house. But he said some look like official notices from the government, and they aren't. So students should study any offers they get carefully.

One legitimate option is the Federal Direct Loan program (www.loanconsolidation.ed.gov). You can consolidate with the program, even if your school did not participate in it.
What happens if you forget

If you do nothing, of course, the interest rates on your variable-rate student loans would drop anyway July 1. But you'd get that rate for only one year. Given the concerns about inflation, it's possible that rates could go up in the future.

It could be savvy to take advantage of this huge drop in rates and lock in something low July 1 or after.

A letter was sent out by Education Secretary Margaret Spellings to lenders explaining that the government will purchase some of the student loans, freeing more money up for the issuerers to lend money.

Under the plan, lenders will have the option of selling the government securities backed by student loans on terms markedly more favorable than the rates now available in the financial markets.

In case the offer fails to keep enough private lenders in the system, the Education Department is increasing its ability to issue and service loans directly, Spellings wrote. She added that the department is also prepared to advance money to agencies that would act as lenders of last resort.

Although many lenders have stopped issuing government-backed loans, Bank of America, last month reaffirmed its commitment to issuing federally backed loans. It said it would no longer issue strictly private student loans.

May 15 (Bloomberg) -- Nelnet Inc. sold $1.35 billion of bonds backed by student loans, paying the lowest relative yields this year, in a sign that investor demand for the debt may be returning.
The Lincoln, Nebraska-based student-loan provider issued three-year bonds rated AAA that priced to yield 70 basis points more than the three-month London interbank offered rate, said a person familiar with today's sale, who declined to be identified because the terms aren't public. That's a narrower spread than the 105 basis points Nelnet was charged last month, and the 100 basis points the company offered on March 31.
The Nelnet sale adds to evidence that credit markets may be thawing after the collapse of subprime mortgages spawned $342.4 billion in writedowns and credit losses at financial firms worldwide. Government-guaranteed student-loan debt spreads narrowed about 5 basis points to 95 basis points last week, according to JPMorgan Chase & Co. High-yield bonds had the busiest week for new issues since November last week and borrowers sold $4.4 billion of auto-loan bonds in the past month.

``There appears to be more renewed investor interest,'' said Gary Santo, a managing director of consumer asset-backed securities at Fitch Ratings in New York. ``Investors seem to be differentiating risk across assets, which can only be a good thing for government-guaranteed collateral.''

Nelnet rose 44 cents, or 3.3 percent, to $13.66 in New York Stock Exchange composite trading. The shares have fallen 45 percent in the past year.

Entire Article Here

*Source- Buisness Week*

Because of the credit crunch, conventional lenders are making it tough for any but the most creditworthy borrowers to qualify for private college loans. Now, a new breed of student lender is trying to get students to return the snub—by writing off the Sallie Maes and Citibanks of the world in favor of relying on friends, family, and even perfect strangers to finance their college loans. "It's not a solution to the credit crisis in student loans by any means," says Mark Kantrowitz, publisher of financial aid Web site finaid.org. "But the idea of using peer networks to raise money is intriguing."

*Source-Chicago Tribune*

May 8, 2008

President Bush signed legislation designed to ensure that turmoil in the credit markets doesn't cause a shortage in student loans.

The measure is intended to inject liquidity into the student loan market by allowing the U.S. Department of Education to buy federally guaranteed student loans that lenders have not been able to sell to investors.

The legislation addresses a crisis in the market that has forced Citigroup Inc.'s Student Loan Corp., SLM Corp. and about 50 other lenders to stop writing some forms of student loans. They cite increased borrowing costs, cuts in government subsidies and a lack of investor interest in securities backed by loans.

Without government action, demand for federally backed student loans would outstrip supply, industry officials said. An estimated 7 million borrowers will need more than $68 billion worth this academic year.

Student Loan Corp., 80%-owned by Citigroup Inc., said it will suspend lending at certain schools and withdraw from the federal studentconsolidation loan market, becoming the latest company to pull in its horns regarding student lending.

More from the Wall Street Journal

Graduate students should exhaust their federal Stafford loan eligibility before applying for a Graduate PLUS loan.
Eligibility

* You may be eligible for a Graduate PLUS loan if you are enrolled in school at least half time.
* A credit check is required.
* You must be a U.S. citizen or national, a U.S. permanent resident, or an eligible non-citizen.
* You must submit a FAFSA.

More at Sallie Mae

Federal Parent PLUS Loans enable parents with good credit histories to borrow money with which to pay the education expenses of their children. Each child must be a dependent undergraduate student enrolled at least half time in an approved college or university.
About Parent PLUS Loans

* The primary benefit of the PLUS Loans is that parents can borrow federally guaranteed low interest loans to help pay for their child's education.
* A Federal PLUS Loan allows parents to borrow the total cost of undergraduate education including tuition, room and board, supplies, lab expenses, travel less any other aid.
* These parent loans are non-need based. Eligibility for the PLUS Loan depends on a modest credit check that determines whether the parent as an adverse credit. An adverse credit history is defined as being more than 90 days late on any debt or having any Title IV debt (including a debt due to grant overpayment) within the past five years subjected to default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off. Click here to learn more about credit.
* Your school may require the FAFSA Financial Aid Application to qualify for the PLUS Loan. Be sure to check with your school's financial aid office first.
* The interest rate on the PLUS Loan is fixed at 8.5% as of July 1, 2006.
* Unlike other type of loans, including home equity, Parent PLUS Loans require no collateral
* Interest may be tax deductible.

A Federal Perkins loan is a low interest (5%) loan for undergraduate and graduate students with “exceptional” financial need.
Perkins loan qualification requirements

* Enrollment in an eligible school at least half-time in a degree program
* U.S. citizenship, permanent residency, or eligible non-citizen status
* Satisfactory academic progress
* No unresolved defaults or overpayments owed on Title IV education loans and grants
* Satisfaction of all Selective Service requirements

The U.S. Department of Education provides a programmed amount of funding to the school. In turn, the school determines which students have the greatest need. The school combines federal funds with some of its own funds for loans to qualifying students.

To apply for the Federal Perkins loan program, you must submit the Free Application for Federal Student Aid (FAFSA).

Your school will pay you directly (usually by check) or apply your loan to your school charges. You'll receive the loan in at least two payments during the academic year.

Federal Perkins loans share many of the characteristics of subsidized Stafford loans. The most notable differences are no fees and a longer grace period.

Federal Stafford loans first disbursed July 1, 2006 are fixed-rate, low interest loans available to undergraduate students attending accredited schools at least half time. Stafford loans are the most common source of college loan funds.

Eligibility

* You must have submitted a FAFSA to be eligible for a Stafford loan.
* For subsidized Stafford loans, you must have financial need as determined by your school.
* You must be a U.S. citizen or national, a U.S. permanent resident, or eligible non-citizen.
* You must be enrolled or plan to enroll at least half time.
* You must be accepted for enrollment or attend a school that participates in the Federal Family Education Loan Program.
* You must not be in default on any education loan or owe a refund on an education grant.

More info at Sallie Mae