Definition and Eligibility Student loan debt consolidation means that all your student loans and combine them into one monthly payment. This will reduce your monthly repayment by extending time. To be eligible for federal student loans, loans must be at least $ 20,000, and not enabled by default.
Private loans should be between $ 10,000 and $ 150,000, which is not enabled by default.
Federal Student Loan Consolidation Consolidating federal loans must be independent of the consolidation of private student loans. Federal loans generally have a lower and fixed interest rates may be deferred during the economic difficulties, the student loans can not. To qualify for federal student debt consolidation loan, you can use your credit application or to search for suppliers by third consolidator of student loans online. Enter your credit and a loan application. The loan is used to contact the advisor in your lender for a loan from the loan verification certificate (LVC) To ensure that the information is correct.
A review is to contact your loan lender. Well, you pay the loan of the Federal bill against all lenders.
Private Student Loans Consolidation Many people also have private student loans. Loan guarantees must be consolidated if they are to a certain extent, regardless of Whether they opt for a degree, the connection is not required. The process is similar to the consolidation of student loans from the federal government, in which you fill out a consolidation loan application with third party suppliers or consolidators. You will receive your application and credit information.
Advantages of student’s debt consolidation loans can be very useful to make your transition from school into the professional world easier. By consolidating your loans and having smaller monthly payments, your credit score is actually higher because many are not prepared in your name alone. Building channels for graduates an advantage because it gives them an opportunity for their career and financial stability without difficulty with student loan multiple invoices per month.
Source
Tuesday, December 15, 2009
Saturday, November 28, 2009
The Simple Economics of Student Loan Crises
Yesterday, my students heard my second lecture on supply and demand. You know, the one in which we examined how government policies like rent control and the minimum wage can affect market outcomes. Those are important examples, and I dutifully discussed both of them. But I must admit they also feel a smidgen stale – how many millions of students have seen a lecture on rent control and the minimum wage?
To spice things up, I threw in a third example of government intervention: the market for guaranteed student loans. As I mentioned a few weeks ago, the government has a major program in which it provides guarantees for private student loans. Under the program, lenders are protected against the risk of future defaults by the student borrowers. In return for providing these loans, the lenders receive interest payments that are limited by a formula that is specified in law. (These payments are determined completely separately from the amounts that are charged to students which, for simplicity, I will ignore in what follows.)
This program is currently the focus of a major political battle: the Obama administration has proposed eliminating the program and replacing it with direct loans from the government (which currently account for a much smaller portion of the market). But I didn’t get into that larger debate in class. Instead, the reason I focused on this program is that it has experienced two crises in recent years:
In 2006 and 2007, the crisis was kickbacks. In their enthusiasm to win more business, private lenders were offering “inducements” to schools and student loan officers in order to get preferred access to students who wanted loans.
In 2008, the crisis was a lack of lending. In large part because of the financial crisis, private lenders had no enthusiasm whatsoever for making loans. As a result, there was a real risk that students might not be able to get loans.
As I told my students, I think both of these crises had the same root cause: the fact that the government, rather than market forces, determined how much lenders were paid for making guaranteed student loans. In both cases, the government got the payment levels wrong, and the crises followed soon thereafter.
Back in 2006 and early 2007, the government had set payment rates too high. Lenders thus competed aggressively among themselves to win as much of the market as they could. Some of that competition had arguably beneficial effects (e.g., some lenders passed benefits on to students), albeit at a notable cost to the taxpayer. But the competition also took on unsavory characteristics, as in the kickbacks to the university officials in charge of deciding which lenders would get preferred access to students.
To their credit, the folks in Washington correctly diagnosed this problem. Late in 2007, the Congress passed and the President signed a bill that reduced the amount that lenders were paid.
Unfortunately, those reductions happened at the start of a financial crisis that dramatically increased the cost of private lending. In micro-speak, the private lending market experienced a negative supply shock. And all of a sudden, lender payments were too low. Lenders thus threatened to flee the student loan market, which could have left millions of students without funding for their education.
Again to their credit, the folks in Washington stepped up and eventually found a solution to this problem (which involved more financial engineering than I want to discuss right now). But it was a painful process.
To me, one attraction of this (admittedly simplified) description of recent student loan crises is that it focuses on a different type of government price-setting than the usual examples. Rent control and the minimum wage are situations in which policymakers believe that market prices are “wrong” (either too low or too high), and the point of the policies is to try to correct that (which turns out to be easier said than done).
The point of the student loan example, however, is that similar problems arise even when the government is trying to get prices “right”(i.e., to choose prices that are just high enough to get private lenders to provide all the guaranteed loans that students want). In practice, the government is hard-pressed to know what the “right” price is, and thus even sincere efforts will often result in prices that are too high (spawning kickbacks) or too low (spawning shortages).
I did not have time to get into this in class, but this line of reasoning ends up quite agnostic about the future role of government in the student loan market. Someone with a free market perspective could easily conclude: aha, government price-setting doesn’t work, so we should allow the marketplace to determine the interest rate that is paid to lenders. At the same time, however, someone more amenable to government intervention could easily conclude: aha, this system of setting payments for private lenders is fundamentally flawed, we might as well have the government make the loans itself (as the Obama administration has proposed).
The direct loan approach would certainly eliminate the Goldilocks question of whether private lenders are being paid too much, too little, or just enough. But a full comparison of the two programs should consider many other factors, e.g., budget costs and the relative capability of private lenders and the government in making loans and managing loan portfolios. I will leave such a comparison for another day. For now, my point is simply to suggest this might be an interesting example for other micro classes.
Source
To spice things up, I threw in a third example of government intervention: the market for guaranteed student loans. As I mentioned a few weeks ago, the government has a major program in which it provides guarantees for private student loans. Under the program, lenders are protected against the risk of future defaults by the student borrowers. In return for providing these loans, the lenders receive interest payments that are limited by a formula that is specified in law. (These payments are determined completely separately from the amounts that are charged to students which, for simplicity, I will ignore in what follows.)
This program is currently the focus of a major political battle: the Obama administration has proposed eliminating the program and replacing it with direct loans from the government (which currently account for a much smaller portion of the market). But I didn’t get into that larger debate in class. Instead, the reason I focused on this program is that it has experienced two crises in recent years:
In 2006 and 2007, the crisis was kickbacks. In their enthusiasm to win more business, private lenders were offering “inducements” to schools and student loan officers in order to get preferred access to students who wanted loans.
In 2008, the crisis was a lack of lending. In large part because of the financial crisis, private lenders had no enthusiasm whatsoever for making loans. As a result, there was a real risk that students might not be able to get loans.
As I told my students, I think both of these crises had the same root cause: the fact that the government, rather than market forces, determined how much lenders were paid for making guaranteed student loans. In both cases, the government got the payment levels wrong, and the crises followed soon thereafter.
Back in 2006 and early 2007, the government had set payment rates too high. Lenders thus competed aggressively among themselves to win as much of the market as they could. Some of that competition had arguably beneficial effects (e.g., some lenders passed benefits on to students), albeit at a notable cost to the taxpayer. But the competition also took on unsavory characteristics, as in the kickbacks to the university officials in charge of deciding which lenders would get preferred access to students.
To their credit, the folks in Washington correctly diagnosed this problem. Late in 2007, the Congress passed and the President signed a bill that reduced the amount that lenders were paid.
Unfortunately, those reductions happened at the start of a financial crisis that dramatically increased the cost of private lending. In micro-speak, the private lending market experienced a negative supply shock. And all of a sudden, lender payments were too low. Lenders thus threatened to flee the student loan market, which could have left millions of students without funding for their education.
Again to their credit, the folks in Washington stepped up and eventually found a solution to this problem (which involved more financial engineering than I want to discuss right now). But it was a painful process.
To me, one attraction of this (admittedly simplified) description of recent student loan crises is that it focuses on a different type of government price-setting than the usual examples. Rent control and the minimum wage are situations in which policymakers believe that market prices are “wrong” (either too low or too high), and the point of the policies is to try to correct that (which turns out to be easier said than done).
The point of the student loan example, however, is that similar problems arise even when the government is trying to get prices “right”(i.e., to choose prices that are just high enough to get private lenders to provide all the guaranteed loans that students want). In practice, the government is hard-pressed to know what the “right” price is, and thus even sincere efforts will often result in prices that are too high (spawning kickbacks) or too low (spawning shortages).
I did not have time to get into this in class, but this line of reasoning ends up quite agnostic about the future role of government in the student loan market. Someone with a free market perspective could easily conclude: aha, government price-setting doesn’t work, so we should allow the marketplace to determine the interest rate that is paid to lenders. At the same time, however, someone more amenable to government intervention could easily conclude: aha, this system of setting payments for private lenders is fundamentally flawed, we might as well have the government make the loans itself (as the Obama administration has proposed).
The direct loan approach would certainly eliminate the Goldilocks question of whether private lenders are being paid too much, too little, or just enough. But a full comparison of the two programs should consider many other factors, e.g., budget costs and the relative capability of private lenders and the government in making loans and managing loan portfolios. I will leave such a comparison for another day. For now, my point is simply to suggest this might be an interesting example for other micro classes.
Source
Sunday, November 15, 2009
U.S. House passage seen for student loans overhaul
The U.S. House of Representatives is expected to approve a bill on Thursday that would cut banks and private lenders out of a large slice of the $92 billion student loan market.
If subsequently approved by the Senate, the bill would likely be signed by President Barack Obama, marking the biggest shift in higher education finance in 35 years and a setback for Sallie Mae (SLM.N) and other lenders.
U.S. Secretary of Education Arne Duncan told Reuters in an interview that he was optimistic about passage. The bill has been endorsed by the administration. A House leadership aide said debate on it will start on Wednesday.
Duncan said private firms would still have a role as servicers of government student loans under the bill.
He criticized an alternative proposal being promoted by lenders, including Sallie Mae, which would preserve a role for them in originating government-guaranteed loans, while also providing them with a steady stream of fee income.
"To invest in banks right now, rather than students, that just doesn't make sense to me," Duncan said at a Capitol Hill news conference where he urged approval of the legislation.
Some Republican lawmakers have attacked the bill as an unjustified government takeover of an industry that has served students well, but at least one Republican favors it.
Appearing at the news conference with Duncan, Republican Representative Thomas Petri pressed for passage of the measure, which he called "long overdue and certainly welcome."
Jaret Seiberg, policy analyst at investment research firm Concept Capital in Washington, D.C., said: "We believe the odds favor enactment of this legislation in 2009."
KILLING FFELP
The House education committee approved the bill in July. It would shut down the Federal Family Education Loan Program (FFELP) and shift most student lending into the Direct Loan program run by the Education Department.
Besides Sallie Mae, other lenders with a stake in the outcome include Student Loan Corp (STU.N) (C.N), SunTrust Banks (STI.N) and Nelnet Inc (NNI.N).
Since the 1970s, FFELP has formed the core of a lucrative business model used by private lenders of government-guaranteed student loans. The profitability of the FFELP model fell sharply when the Bush administration cut subsidies to lenders.
FFELP lenders were embarrassed by a 2007 scandal in which some were found to have given money and gifts to college financial aid officers to drum up business.
They also took a devastating hit in the financial crisis of the past year, when the secondary market for student loans froze up, forcing Congress to step in with an emergency bailout so that college students would be able to go to school.
Source
If subsequently approved by the Senate, the bill would likely be signed by President Barack Obama, marking the biggest shift in higher education finance in 35 years and a setback for Sallie Mae (SLM.N) and other lenders.
U.S. Secretary of Education Arne Duncan told Reuters in an interview that he was optimistic about passage. The bill has been endorsed by the administration. A House leadership aide said debate on it will start on Wednesday.
Duncan said private firms would still have a role as servicers of government student loans under the bill.
He criticized an alternative proposal being promoted by lenders, including Sallie Mae, which would preserve a role for them in originating government-guaranteed loans, while also providing them with a steady stream of fee income.
"To invest in banks right now, rather than students, that just doesn't make sense to me," Duncan said at a Capitol Hill news conference where he urged approval of the legislation.
Some Republican lawmakers have attacked the bill as an unjustified government takeover of an industry that has served students well, but at least one Republican favors it.
Appearing at the news conference with Duncan, Republican Representative Thomas Petri pressed for passage of the measure, which he called "long overdue and certainly welcome."
Jaret Seiberg, policy analyst at investment research firm Concept Capital in Washington, D.C., said: "We believe the odds favor enactment of this legislation in 2009."
KILLING FFELP
The House education committee approved the bill in July. It would shut down the Federal Family Education Loan Program (FFELP) and shift most student lending into the Direct Loan program run by the Education Department.
Besides Sallie Mae, other lenders with a stake in the outcome include Student Loan Corp (STU.N) (C.N), SunTrust Banks (STI.N) and Nelnet Inc (NNI.N).
Since the 1970s, FFELP has formed the core of a lucrative business model used by private lenders of government-guaranteed student loans. The profitability of the FFELP model fell sharply when the Bush administration cut subsidies to lenders.
FFELP lenders were embarrassed by a 2007 scandal in which some were found to have given money and gifts to college financial aid officers to drum up business.
They also took a devastating hit in the financial crisis of the past year, when the secondary market for student loans froze up, forcing Congress to step in with an emergency bailout so that college students would be able to go to school.
Source
Wednesday, October 28, 2009
House set to vote on student loan reform
WASHINGTON - Millions of college students could get a boost in financial aid from a House bill that would dramatically alter the student loan landscape.The Democrat-controlled House is expected to pass a bill Thursday that would terminate the Federal Family Education Loan Program, in which private lenders provide loans backed by the government.
In its place, the direct lending program, in which students get their loans straight from the government, would become the sole source of government funding for students needing help with college tuition.
President Barack Obama proposed eliminating the program in his 2010 budget blueprint. The Congressional Budget Office estimates doing so would save taxpayers $87 billion over 10 years.
The House bill calls for using $40 billion of that savings to increase Pell Grant awards and invest in early childhood education, community colleges, historically black colleges and universities and other education programs. Private lenders would be hired to administer the loans.
About 6 million students received Pell Grant scholarships in the 2007-2008 school year. The maximum award would increase from the current $5,350 to $5,550 in 2010 and to $6,900 by 2019.
"This represents the single largest investment in federal college aid in history," Rep. George Miller, D-Calif., who chairs the House Education and Labor Committee, said this week.
Education Secretary Arne Duncan said the legislation represents a decision to "stop subsidizing banks and start subsidizing our students."
"This is a big deal," he said, standing amid about two dozen college students.
Critics say the legislation would eliminate choice and competition in favor of a government takeover of the college loan industry. They also say the bill would cost 35,000 jobs in the private lending sector.
"Simply put, we are watching in student loans exactly what ObamaCare's harshest critics have forecast for health care: 'public option' that ultimately destroys all competition," The Wall Street Journal said in an Aug. 20 editorial.
Assuming the House passes the bill, it still must pass in the Senate.
"Even after this week's House vote, the legislative process has a long way to go," said Kevin Bruns, director of America's Student Loan Providers, which represents 80 percent of nonprofit state-based lending organizations.
"There is a lot of concern in the Senate about eliminating good jobs in a recession," Bruns said, "especially when alternative plans are on the table that protect jobs, save taxpayer money and preserve competition in student loans."
Approval of the House bill would mark a milestone for Rep. Tom Petri, a Wisconsin Republican who has pushed direct lending since the early 1980s.
Petri worked with President Bill Clinton in 1993 to pass legislation that made direct lending an alternative to loans under the federal program.
"After years of explaining my approach, and years of defending direct loans from misleading attacks by the private student loan industry, we are an important step closer to settling the debate," Petri said.
Momentum for eliminating the subsidy program began building in recent years amid scandals, including one involving kickbacks among college officials and private lenders. More recently, the recession created stress in the private lending industry as access to capital became limited.
Supporters of the House bill say it would shield student loans from market instability, provide more loan opportunities and make it easier for students to get aid.
"Now we'll be able to do this at absolutely no cost to taxpayers," Miller said, "by undertaking long-overdue student loan reforms."
Source
In its place, the direct lending program, in which students get their loans straight from the government, would become the sole source of government funding for students needing help with college tuition.
President Barack Obama proposed eliminating the program in his 2010 budget blueprint. The Congressional Budget Office estimates doing so would save taxpayers $87 billion over 10 years.
The House bill calls for using $40 billion of that savings to increase Pell Grant awards and invest in early childhood education, community colleges, historically black colleges and universities and other education programs. Private lenders would be hired to administer the loans.
About 6 million students received Pell Grant scholarships in the 2007-2008 school year. The maximum award would increase from the current $5,350 to $5,550 in 2010 and to $6,900 by 2019.
"This represents the single largest investment in federal college aid in history," Rep. George Miller, D-Calif., who chairs the House Education and Labor Committee, said this week.
Education Secretary Arne Duncan said the legislation represents a decision to "stop subsidizing banks and start subsidizing our students."
"This is a big deal," he said, standing amid about two dozen college students.
Critics say the legislation would eliminate choice and competition in favor of a government takeover of the college loan industry. They also say the bill would cost 35,000 jobs in the private lending sector.
"Simply put, we are watching in student loans exactly what ObamaCare's harshest critics have forecast for health care: 'public option' that ultimately destroys all competition," The Wall Street Journal said in an Aug. 20 editorial.
Assuming the House passes the bill, it still must pass in the Senate.
"Even after this week's House vote, the legislative process has a long way to go," said Kevin Bruns, director of America's Student Loan Providers, which represents 80 percent of nonprofit state-based lending organizations.
"There is a lot of concern in the Senate about eliminating good jobs in a recession," Bruns said, "especially when alternative plans are on the table that protect jobs, save taxpayer money and preserve competition in student loans."
Approval of the House bill would mark a milestone for Rep. Tom Petri, a Wisconsin Republican who has pushed direct lending since the early 1980s.
Petri worked with President Bill Clinton in 1993 to pass legislation that made direct lending an alternative to loans under the federal program.
"After years of explaining my approach, and years of defending direct loans from misleading attacks by the private student loan industry, we are an important step closer to settling the debate," Petri said.
Momentum for eliminating the subsidy program began building in recent years amid scandals, including one involving kickbacks among college officials and private lenders. More recently, the recession created stress in the private lending industry as access to capital became limited.
Supporters of the House bill say it would shield student loans from market instability, provide more loan opportunities and make it easier for students to get aid.
"Now we'll be able to do this at absolutely no cost to taxpayers," Miller said, "by undertaking long-overdue student loan reforms."
Source
Thursday, October 15, 2009
Federal Student Loan Defaults Ratchet Up
Just as the government's grip on the lending business for higher education tightens, the Department of Education is reporting that defaults on taxpayer-backed student loans surged in 2007 at the very beginning of the credit crisis, suggesting that more losses are baked in.
The national student loan default rate increased to 6.7% in 2007, up from the 2006 rate of 5.2%, the agency reported Monday. "The economic downturn likely had a significant impact on the borrowers captured in these rates," U.S. Secretary of Education Arne Duncan said. "The Department is reaching out to make sure current and prospective student borrowers are aware of the many flexible repayment options designed to assist them with their financial obligations, such as the new Income-Based Repayment Plan."This dated loan performance information doesn't bode well for taxpayers. Despite pullbacks in lending and borrowing by consumers, the amount of government-backed student loans originated as of early August surpassed the full-year total for 2007-2008 school year by 21% at a record $95 billion. (See "Uncle Sam Saves College.")
The default percentage is based on the 225,300 borrowers who defaulted between Oct. 1, 2006, and Sept. 30, 2007, on their first payment out of the 3.3 million who entered repayment during that window. The data has a major delay because the department collects draft rates from schools the spring following the year in question and releases the rate the following September, amounting to a 24-month lag between when the defaults first occur and when they are reported.
The Federal Family Education Loan Program was 7.2%, a 36% increase over the 2006 rate of 5.3%. The 2007 rate for schools participating in the Direct Loan Program was 4.8%, a 2% increase over the 2006 rate of 4.7%.
This isn't the first time that the government loan program was seen defaults ratchet up. In 1990, nearly one in four borrowers defaulted on their federal loans. In 2003, the rate fell to record low of 4.5%.
Source
The national student loan default rate increased to 6.7% in 2007, up from the 2006 rate of 5.2%, the agency reported Monday. "The economic downturn likely had a significant impact on the borrowers captured in these rates," U.S. Secretary of Education Arne Duncan said. "The Department is reaching out to make sure current and prospective student borrowers are aware of the many flexible repayment options designed to assist them with their financial obligations, such as the new Income-Based Repayment Plan."This dated loan performance information doesn't bode well for taxpayers. Despite pullbacks in lending and borrowing by consumers, the amount of government-backed student loans originated as of early August surpassed the full-year total for 2007-2008 school year by 21% at a record $95 billion. (See "Uncle Sam Saves College.")
The default percentage is based on the 225,300 borrowers who defaulted between Oct. 1, 2006, and Sept. 30, 2007, on their first payment out of the 3.3 million who entered repayment during that window. The data has a major delay because the department collects draft rates from schools the spring following the year in question and releases the rate the following September, amounting to a 24-month lag between when the defaults first occur and when they are reported.
The Federal Family Education Loan Program was 7.2%, a 36% increase over the 2006 rate of 5.3%. The 2007 rate for schools participating in the Direct Loan Program was 4.8%, a 2% increase over the 2006 rate of 4.7%.
This isn't the first time that the government loan program was seen defaults ratchet up. In 1990, nearly one in four borrowers defaulted on their federal loans. In 2003, the rate fell to record low of 4.5%.
Source
Monday, September 28, 2009
Missouri student loan default rate rises
A new report shows that the recession has more Missouri students defaulting on their students loans.
The Missouri Departmentof Higher Education said the default rate has jumped to about six percent, up from just over four percent last year.
However, Missouri is still below the national average.
Across the country, the default rate rose from about five percent to nearly seven percent.
"Its definitely what we would typically see, especially in a recession like this that's characterized by high unemployment," Missouri Department of Higher Education Deputy Commissioner Paul Wagner said. "That obviously has a direct link to people's ability to repay their student loans."
The default rate is still better than it was nearly 20 years ago, when over 20 percent of borrowers were not repaying their student loans.
Wagner points out that the vast majority, nearly 76,000, of Missouri's borrowers today are repaying their student loans on time.
Wagner said higher education officials expect the default to stay the same or increase more next year as economists predict the unemployment rate will remain high through 2010.
Source
The Missouri Departmentof Higher Education said the default rate has jumped to about six percent, up from just over four percent last year.
However, Missouri is still below the national average.
Across the country, the default rate rose from about five percent to nearly seven percent.
"Its definitely what we would typically see, especially in a recession like this that's characterized by high unemployment," Missouri Department of Higher Education Deputy Commissioner Paul Wagner said. "That obviously has a direct link to people's ability to repay their student loans."
The default rate is still better than it was nearly 20 years ago, when over 20 percent of borrowers were not repaying their student loans.
Wagner points out that the vast majority, nearly 76,000, of Missouri's borrowers today are repaying their student loans on time.
Wagner said higher education officials expect the default to stay the same or increase more next year as economists predict the unemployment rate will remain high through 2010.
Source
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