[Oasfaa] Common Student Loan Consolidation Myths

[ANTHONY SPANO]

To ensure that borrowers protect themselves from an interest rate hike,
Sallie Mae, the nation's largest consolidator of student loans, is
working to dispel some of the most common student loan consolidation
myths:

MYTH: You need to have at least two student loans to consolidate.

FACT: Consolidation is an option for borrowers with any number of
Stafford and/or PLUS Loans, including just one. However, the law allows
lenders to set a minimum balance for student loan consolidation. While
many lenders require a balance of $7,500, Sallie Mae's minimum balance
is $5,000.

MYTH: Consolidation is an option only for student borrowers.

FACT: Many parents who borrow PLUS Loans to finance their children's
education may not be aware, but they are eligible to lock in a fixed
interest rate by consolidating those loans. Additionally, parents may be
eligible for deeper discounts on a Consolidation Loan than they would
qualify for on a PLUS Loan. Parents do not have to wait until their
child leaves school to consolidate, and most are likely eligible to lock
down a rate of 6.125 percent, which is significantly lower than the
current Prime Rate of 8 percent.

MYTH: All borrowers will receive the same interest rate, monthly
payment amount and repayment term if they consolidate.

FACT: While all consolidation interest rates are based on the same
formula, individual interest rates will vary based on a borrower's mix
of loan types. Total loan balance will impact a borrower's monthly
payment amount and repayment term. Therefore, it is important for
borrowers to get an estimate for their own situation. Borrowers are
welcome to do that with calculators on
http://www.salliemae.com/consolidation or by calling 800/448-3533.

MYTH: You cannot consolidate while you are in school.

FACT: Through June 30, 2006, students still enrolled in school are able
to consolidate their loans. Borrowers must make sure to submit a request
to accelerate loans into early repayment status to the lender that holds
their loans.

MYTH: Direct Loan borrowers must consolidate through the Direct Loan
program.

FACT: Direct Loan borrowers are able to choose among any consolidation
lender, including the Direct Loan program or any private-sector lender.
They will find richer borrower benefits by shopping among private-sector
lenders.

MYTH: There are fees, prepayment penalties or credit checks associated
with student loan consolidation.

FACT: By law, lenders may not charge a fee for student loan
consolidation. In addition, there are no prepayment penalties or credit
checks when customers consolidate with a private-sector lender. Parents
should note that there is no credit check for borrowers consolidating
PLUS Loans with a private-sector lender, such as Sallie Mae.

MYTH: You can consolidate your federal and private education loans
together.

FACT: Private education loans or other types of consumer loans may not
be included in a Federal Consolidation Loan. However, Sallie Mae offers
a Private Consolidation Loan and the ability to have those loans billed
together.

MYTH: Consolidation is ending on July 1.

FACT: While the chance to lock in interest rates at the fourth-lowest
levels in the history of the student loan program will be going away
when rates are reset on July 1, consolidation will continue to serve as
a valuable and practical debt-management tool for eligible borrowers
seeking to lower their monthly payments and extend their repayment term.
In addition, no changes have been made to key terms of Federal
Consolidation Loans, including extended repayment up to 30 years
depending on their total level of education indebtedness, deferment,
forbearance and loan cancellation benefits, and as always, no fees,
credit checks or prepayment penalties.

MYTH: All lenders offer the same interest rates and benefits.

FACT: By law, lenders are required to use the same interest rate
formula for Consolidation Loans. However, many lenders offer
interest-rate reductions for paying on time or via direct debit. It is
important to read the fine print and understand how you become qualified
for or disqualified for a lender's borrower benefits programs. Beyond
savings, borrowers should consider customer service, flexible repayment
options, online account access and applications, reputation and industry
experience when selecting a lender.

MYTH: Borrowers who consolidate lose any interest subsidy that existed
on their underlying loans.

FACT: If a borrower includes both subsidized and unsubsidized Stafford
Loans in a Consolidation Loan, the portion of the Consolidation Loan
that was originally subsidized will remain that way. However, borrowers
adding Perkins Loans into their Consolidation Loan should seek advice,
as they will lose the interest subsidy on the Perkins portion of their
Consolidation Loan and they could lose potential forgiveness benefits.
However, forgiveness benefits do not apply to all Perkins borrowers,
only those who qualify by virtue of their military service, work in law
enforcement or teaching, for example. Borrowers who will not qualify for
forgiveness benefits should keep in mind that Perkins Loans by
themselves do not offer benefits for on-time payments.

MYTH: When borrowers consolidate, they lose their grace period.

FACT: Shortly after a loan is consolidated, repayment is scheduled to
begin. However, graduates can request that their consolidation
application be held until the end of their grace period to maximize
their grace period while still locking in a lower, in-grace interest
rate. In-school borrowers who enter repayment early on their student
loans will lose their grace period after they leave school, but are
eligible for an in-school deferment so they would not be required to
make payments while they are currently enrolled at least half time.

MYTH: Consolidation forces borrowers to pay more by extending their
repayment term.

FACT: Because Consolidation Loans were designed to help students who
need payment relief, they automatically extend the length of the loan in
order to cut monthly payments. However, there are no penalties for
prepayment or restrictions on accelerating repayment and borrowers
should be aware that extending the life of the loan will add to their
overall costs due to extra interest payments. In fact, borrowers can
reduce interest expense by shortening the repayment schedule. However,
borrowers are generally advised to repay other, higher-rate debt, such
as credit card balances, before prepaying a low, fixed-rate
Consolidation Loan.

Through its toll-free consolidation hotline, 800/448-3533, and its Web
site, http://www.salliemae.com/consolidation, Sallie Mae has counseled
tens of thousands of student and parent borrowers this spring.


Anthony Spano - Sallie Mae
Account Executive
(405)603-2098
(405)603-2129