[2] you graduated or will graduate between July 1st 2005
	a. consolidated after July 1st 2005 Graduation b. not consolidated -- will graduate by June 30th 2006 c. consolidated all eligible loans with in-school consolidation d. completed in-school consolidation with additional outstanding eligible unconsolidated loans

Consolidated All Eligible Loans With In-School Consolidation

Performing an” in-school” consolidation of all fully disbursed eligible student loans before the July 1st 2005 rate increase was a brilliantly astute and financially savvy move.  By doing so you locked in the lowest simple interest fixed rates in history, most likely saving yourself tens of thousands of dollars depending on your loan balance. 

For the 2004-2005 school year, student loan rates plummeted to historical lows. On July  1st 2005, rates increased by nearly 2 percentage points, the first in five years and the largest one-year rise in the 40-year history of the Federal loan program.  Federal education loans such as the Federal Stafford and PLUS Loans increased as much as 70%. The July 1st 2005 rate hike increased Federal Stafford loan rates from 2.77% to 4.70% during school, grace and deferment and from 3.37% to 5.30% during repayment and forbearance periods.  Alan Greenspan, chairman of the Federal Reserve, has stated that the central bank would keep raising interest rates. As of January 2006, Mr. Greenspan has presided over thirteen interest rate increases since June 2004 and experts note that it is most likely that the central bank will continue to increase the cost of borrowing.  Legislation is also before Congress that would change the current consolidation program from a fixed simple interest rate program to a more expensive one that would give borrowers a one-time choice of consolidating their student loans using a variable rate or a fixed rate, both capped at 8.25%.  The fixed rate option would charge borrowers a one-percentage point higher interest rate than those who opt for the variable rate plus an "offset charge" equal to 0.50% of the loan principal.  The combination of the higher rate and the fee, is estimated to increase the cost of a $100,000 consolidation loan by nearly $25,000. 

Rep. Chet Edwards a member of the U.S. House of Representatives, Appropriations and Budget committees has stated that the proposed legislation “could add $5,000 to $28,000 to the cost of college student loans.”  The proposed legislation, passed through the House Budget Committee on November 3rd 2005 would mandate a new one percent origination fee on consolidated student loans and there would be a new one percent increase in the interest rate for borrowers who want to consolidate their student loans at a fixed rate. Additionally, borrowers who are still in school would no longer be able to lock into their present low loan rates with in-school consolidation. Finally, the bill raises fees on new student loans as well as raising the cap on the interest rates that students and parents pay.  

According to Dr. Charles Young, president emeritus of UCLA, the present 5.3% in-repayment rate for consolidating federally insured student loans would increase to 7.18%; a 35% increase in the loan rate.  For a $40,000 loan over 25 years, the student tax would add $13,932 to total loan repayments. Proposed legislation if enacted is anticipated to become effective 2006. Borrowers who have already consolidated their loans will be grand fathered in. By completing a Pre-July 1st 2005 in-school consolidation you immediately reduced the cost of your education, saved yourself as much as 70.0% in loan  interest and protect a historic low fixed simple interest rate for the life of your loan.

Additional To Know and To Do List: 

For more information and to discuss your options, contact an Meharry Loan Consolidation Program personal consolidation counselor at 1-800-741-4704. Be sure to reference Meharry when you call.  

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