Johns Hopkins University: Consolidation – The Loan, The Myth, The Reality

1. Johns Hopkins University: Consolidation – The Loan, The Myth, The Reality Presented By: Thad Bartkowiak U.S. Department of Education Federal Student Aid Office of the Ombudsman

2. Consolidation: The Loan • What is a Consolidation loan and who can get one? • Fixed interest rate • Calculated as the weighted-average interest rate of your existing loans plus 1/8 % • Lower monthly payment • One monthly payment to one lender • Longer repayment period for high-balance borrowers

3. Consolidation: The Myth Sounds great? Not so fast…. Consolidation loans are the best option [are they?] because the interest rate is fixed and monthly payments can be lower.

4. The Myth – An Example $15,000 loan balance, 7.1% interest rate 10-year Repayment Period • Non-Consolidated Loan Monthly Payment - $175 Interest paid - $6,000 Total paid - $21,000 • Consolidation Loan • 15-year Repayment Period: • 15-year Repayment Period: • Graduated Repayment - $89 ($250) • Interest Paid - $11,900 • Total Paid - $26,900 • Extended Repayment - $135 • Interest Paid - $9,500 • Total Paid - $24,500

5. The Myth: Another Example Non-Consolidated 10-year repayment period $60,000 loan balance 7.1% interest rate Consolidated 30-year repayment period Monthly Payment - $400 Interest Paid - $85,500 Total Paid - $145,500 Monthly payment - $700 Interest Paid - $24,000 Total Paid - $84,000

6. The Myth (continued) Consolidating Perkins Loans Sounds great? Not so fast…. Interest Rate Interest Subsidy Cancellation Benefits

7. Consolidation: The Reality Consolidation can be a debt management tool; it may not be the solution for all your loan problems. • Research carefully before you commit yourself! • You decide which lender to consolidate with – you do not decide if that lender keeps the loan.

8. The Reality (continued) • Incentives offered by your lender are not permanent. • If you are unhappy with your lender, you cannot ask that the loan be transferred. • Once you consolidate, your options for re-consolidating are limited.

9. Consolidation Tips • DON’T say yes when you get that phone call. • YOU do the research to determine which lender you want to consolidate with. • KNOW what you want to accomplish. • READ website information VERY carefully.

10. More Consolidation Tips • YOU initiate the call to the lender. • CAREFULLY read the application and promissory note before you sign it. • ASK who the lender is. • ASK who the servicer will be. • ASK how long you have to cancel.

11. And still more… • WRITE to the lender to cancel the application if you change your mind. • ALWAYS be sure you are talking with the lender. • DON’T just click on a link.

12. **WARNING** The Dangers of Consolidation Marketing • Tricky Names • Third-Party Marketing • Online Solicitations and Applications

13. Things to Keep In Mind • Always keep copies of any correspondence or documentation related to your student loan. • Be proactive! Take control of your loan situation, ask questions and make sure you understand what to expect. • Make sure that EVERY lender is notified of any change in address or name.

14. Helpful Contacts • National Student Loan Data System - www.nslds.ed.gov • 1-800-4-FED-AID • Direct Loan Service Center - (800)848-0979 - www.dlssonline.com

15. Federal Student Aid Ombudsman United States Department of Education Office of the Ombudsman 830 First Street, NE Washington, DC 20202-5144 Phone: (877) 557-2575 Fax: (202) 275-0549 www.ombudsman.ed.gov