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How your Education Loans will be Consolidated

On this page you will find a summary of the script I used for Stafford loan consolidation and PLUS loan consolidation. It was different to the one that Federal Consolidation Loan company that I worked for used. Two of the things that were drummed into us was to convey a sense of urgency, and also that this was a FEDERAL GOVERNMENT program. We weren't told to make anyone think that we were the government, but if they did, it certainly couldn't hurt.

What consolidation does is combine all of someone's federal education loans together into a single consolidation loan with a fixed interest rate.

Consolidation Loan Interest Rates

We would first off exclaim "You are calling at the right time because the interest rates are the lowest in history!"

I guess that it would not be sensible to say that now, but you could say that interest rates are rising so lock in now as who could know what they are going to be next year. On July 1, 2006 the rate that you get on an education consolidation loan will rise substantially.

Consolidation Loan Eligibility

We would find out if they were still in school and determine their eligibility on the National Student Loan Data System (NSLDS). As an approved Federal Education Lender we were given logins to this system in order to determine eligibility for a person to consolidate education loans.

To find their record on the system, we would ask for their " student account number, which is almost always the same as your social security number." This was code for "give me your social security number!", which many people are understandably nervous about giving up to someone that they have just called.

We would verify date of birth and the last school the prospect took out loans for. This made sure that we had the right person.

If NSLDS was not up, then we could establish the following to establish if they were eligible.

1. balance? A balance below a certain amount, e.g. $7500, is not worth consolidating.

2. rate (to determine if Federal or private loan)? Many people don't know the difference! Federal education loans have certain rates within any particular period. Private loans could have any sick figure usually higher than a federal loan.

3. currently in repayment? (If not---are you in school, your grace period, forbearance or hardship deferment?) If someone wasn't in repayment then they probably couldn't consolidate their education loans.

4. current lender? Some lenders refused to work with other lenders who may want to consolidate their loans. These lenders were known as the "dirty thirty".

5. default or delinquency status?

6. ever consolidated before? (If unsure—do you know if you are at a fixed or variable rate?)  (If unsure -- Have you ever completed a federal loan application where you listed your outstanding federal education loans?) (If unsure -- Do you recall receiving a notice last summer stating your rates were changing?)

Dirty Thirty Education Lenders

The Dirty Thirty were a group of FFEL lenders who did not cooperate with other lenders who wanted to consolidate the loans held by them. They are supposed to, but the reality was they didn't. The Dirty Thirty were willing to play nice with the Federal Government, just not other lenders. If their lender was Dirty Thirty, we had to pass on it. They would have to give their current holder the opportunity  to fund the consolidation loan.  If that lender was unhelpful, their only option was to consolidate through the Direct Loan program through the Department of Education.

Education Loan Variable Interest Rates

We would explain that they currently have variable rate loans and that those rates go up or down on a yearly basis. This program lets you lock in the current rate for the life of the loan.

We would tell them that the rates on the Stafford loans could go up as high as 8.25% in the next few years. The interest rates on those loans must have risen a lot since I was there so maybe 8.25% isn't so scary any more. Plus Loans are capped at 9%.

How Consolidation Loan Rates are calculated

It was very important for us to make the following statement:

The Federal formula for your new rate is the weighted average of your current loans base rates rounded up to the nearest 1/8% and that rate is fixed for the life of the loan.

Given that, at the current rates it may not be worth consolidating . Because we are in an environment of high interest rates, and since they round up the weighted average, you may end up paying more. I gather now that they are probably urging people to consolidate before rates climb any higher.

We then offered a ¼% discount to take them down to X%.  The ¼% was if they had payment made by automatic payment direct debit from their bank account.

We'd then tell them how much that they would save in a year compared to that 8.25% cap.

Consolidation Benefits - Forebearance and Deferment.

We'd list for them the benefits of consolidation such as 3 years of forbearance and up to three years of deferment.

The Consolidation Loan has an extended loan term so they can lower their monthly payment by as much as 50%. But, since there are no prepayment penalties, they can pay off earlier and save on the interest over a longer term..

We'd emphasize the it was free federal program with no fees, and no credit checks.

Spousal Consolidation

This is possible where husband and wife could consolidate their loans into one.

Consolidation of Education Debt from a single other loan holder.

If a someone with Federal education loan debt had only one private loan holder (one FFEL holder) he or she needed to give the current holder the first right of refusal to refinance their debt into a consolidation loan. We'd then send them the information package and application hoping that for some reason the borrower would not get around to asking loan holder and would send in the application anyway. Our defense would be that as far as we knew the borrower had given the other loan consolidator a chance but they had declined (which would never happen!).

This would only work with non "Dirty Thirty" lenders of course. Those companies would refuse to co-operate with another FFEL lender to consolidate loans to one of their customers.

The Two-Step Process

If a education loan borrower did have a "Dirty Thirty" lender, there was a way that we could consolidate the loans held by them, if the borrower also had just one Direct Loan. A Direct Education loan is one where the Federal Department of Education was the lender itself.

We'd need to consolidate the Direct Loan first.  This always seemed odd to me, as how do you consolidate one loan? Basically, we would just take over the loan and fix the rate. We weren't consolidating student debt at all.

Once it was "consolidated" we'd consolidate the new loan with their other private lender loan.  We would offer borrowers who complete this two-step process a 1% rebate after six months of on-time payments.  So assuming if the outstanding balance is $50000 we'd send a check for $500 after six on-time payments.

Consolidation Loan Close

Again to convey a sense of urgency and officialdom, we'd tell them that this is a time-sensitive federal form and it must be completed accurately.

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