NSL Direct Loan?

Question

I keep getting mails from NSL Direct Loan and they keep sending me letters about how the interest is going to go up and they are telling me to apply for some application that i don't even know.. I guess if I apply, the interest rate won't go up? i don't know... does anyone get these mailings too? are they trustworthy to apply them? also, these are the current loans i get:

Federal Direct Loans (Subsidized and/or Unsubsidized)
Federal Perkins Loan

Answer 1

The mailings you've been getting are about "loan consolidation." It basically goes like this:

The rates on your current Stafford Loans are inherently *variable* -- that is, they are "reset" (i.e. they are changed) once a year (on July 1st) by the US federal government. This past year, the rates were 4.7% for students in school (or in deferment, or in their grace period) and 5.3% for students in repayment. Starting TOMORROW July 1st, the rates are going to increase by 1.84%.

All borrowers will be automatically subject to these rate increases. The only way to NOT be affected by them is to apply for Federal Consolidation Loan. In effect, when you consolidate, your lender will take your variable rate loans and combine them into one big *fixed*-rate rate loan. It's still a federal program and the rates are still set by the federal government, but the primary difference is the fixed rate.

As with any financial decision, there are pros and cons to loan consolidation. In general, consolidation is a good thing: not only does it offer fixed rates, but it also allows borrowers to extend their repayment term beyond the standard 10-year repayment term that most students loans (Stafford and Perkins) carry.

Keep in mind that, once you have consolidated, you won't be able to UNconsolidate. So, yes, you would be out of luck if the rates decreased dramatically. While it is *possible* that rates will go down sometime during the 10+ years that you are in repayment, it is more likely that the next few years of your repayment period will be spent watching variable rates increase. While no one can predict the future, it is very unlikely that Stafford/PLUS loan interest rates will ever reach the historic lows that they dropped to a few years ago.

One "con" of consolidation: You will generally lose your grace period if you choose to consolidate. You do need to think long and hard about whether this is a loss that you are willing to endure. Financially speaking, you're looking at the difference between (a) being able to lock in a 4.75% interest rate on your Staffords or (b) watching the rates rise to 6.54%, then 7.14%, then whatever the government decides to set them at for 2007-08). If you can handle losing your grace period, it's worth it to lock in that 4.75% (you might even be able to get a bit of an interest rate "break" depending on who you consolidate with).

NOW, although I almost always recommend consolidating Stafford Loans, your Perkins Loans are a separate issue. Perkins loans are FIXED-rate loans (they've been at 5% for *years* and there is no indication that this will change).

Perkins carry additional "benefits" with them that might be lost in a consolidation situation. For example, Perkins Loans can be cancelled in full if you enter one of several career fields (law enforcement, teaching, etc.). The interest on [unconsolidated] Perkins Loans is subsidized during any in-school/grace/deferment periods, so if you went back to school or applied for a economic hardship deferment later on, your interest would temporarily stop accuring. If you consolidate the loan, these cancellation benefits and interest subsidies would no longer exist.

Moreover, if you consolidate your Stafford loans *together* with your Perkins loans, the lender will calculate your interest rate by taking a "weighted average" of your loans' current rates, so your rate could be anywhere between 4.7% and 5%.

It's up to you if you want to consolidate Perkins. Perkins loans by themselves carry a "minimum" payment that you must pay. Naturally, if you consolidate it, the minimum doesn't apply, so usually by consolidating Perkins, you will be able to lower your overall monthly payment on the Consolidation Loan. So, if you want to leave Perkins out of the mix, be sure to ask yourself if you think you can handle the larger monthly payment.

Generally, when students ask me whether they should consolidate Perkins, I ask them
(a) how much debt do you have? a ton? is there a chance that your monthly payment will be more than you can handle? consolidating everything might be the only way to get your monthly payment down to a reasonable amount
(b) do you qualify for loan cancellation? Check here: http://www.finaid.org/loans/forgiveness.phtml . If you do, don't consolidate your Perkins
(c) are you planning on returning to school anytime soon? If so, you might want to leave out your Perkins so that it will be subsidized while you are in school.

SO, should you trust these mailings that you've been getting? Well, most of the DATA is trustworthy, but some of the companies won't be. Speaking very generally, any company that has to send you unsolicited mail to get your business is probably less-than-reliable... desperate, even. Do yourself a huge favor and don't apply with companies like NSL Direct. Go for a well-established company like Sallie Mae or Citibank. Or, since you already have direct loans, you might want to consolidate your loans through the Direct Lending Program (which is a federal program as well). Their website can be found here: http://www.dl.ed.gov/consolidatenow/welcome.asp If you don't consider yourself

One more thing: you have to submit your application TODAY, June 30th, before the rates change. If you don't, there isn't much that anyone can do to help you lock in a rate that's no longer being offered.

Answer 2

The mailings are referring to a process called CONSOLIDATION. The consolidation of loans allows you to lock the current interest rate in, otherwise the rate will continue to fluctuate as the economy does. Rates are set to rise on July1 to 6.54% for Stafford Loans if you are currently in school/grace period and to 7.14% for those of you in repayment. Right now rates are at 4.7% for in-school/grace and 5.3% for repayment. Consolidation will round your interest to the nearest 1/8 percent so in-school/grace consolidated rate will be 4.75% and repayment rate will be 5.375% (this is for loans borrowed after 1996, rates are slightly higher on loans borrowed prior to fall of 1996).

Repayment will also allow you to extend your repayment out longer than 10 years, lowering your monthly payment. Because of the large jump in interest rates it is highly recommend that students consolidate their loans by the end of the day today.

The Perkins loan may also be consolidated, it has a fixed (or locked-in) interest rate of 5%. So many students will opt to leave that loan out of the consolidation if the are still in-school so their interest rate isn't made higher in the weighted average of loans and their interest rates during the consolidation process. You can run examples using loan consolidation calculators at www.finaid.org.

To consolidate with Direct Loans you can call their phone number 1-800-557-7392 or complete an application on their website www.loanconsolidation.ed.gov. To consolidate at the website you will need your Dept of Education PIN and the amounts borrowed for each loan (and whether they are subsidized or unsubsidized). The PIN can be emailed within 4 hours so if you request it now you can still get your application completed (www.pin.ed.gov).

Direct Loans are loans borrowed essentially from the US Department of Education, so yes they are trustworthy.

You do have the choice of choosing another lender to consolidate with and their are many to choose from.

Remember you only have until midnight on June 30, 2006 to complete the application if you select to consolidate your loans.

Good Luck