Student Loan Consolidation: getting around Single Lender Rule and other info.

This thread originated as a discussion on the 'single lender rule' and various loopholes and methods for getting around it. When this thread was created, there was also a broader thread dealing with student loan consolidation information and deals. That thread has since been archived. After consulting with Fotomaniak, the author of the aforementioned thread, we have decided to move the FAQ page from the original thread to this one, and broaden the topic. Immediately below this paragraph, you will find Fotomaniak's student loan consolidation FAQ. Towards the end of the message, you will find the original discussion on getting around the single lender rule.

links
www.finaid.org/savings/ - ways to save for college
www.student-loan-consolidation.us - loan consolidation info
www.finaid.org/calculators/loanpayments.phtml - student loan calculator
http://www.northstar.org/Consolidation/CalcConsolBonus.aspx?Typ=Consolidation - a calculator for comparing consolidation bonuses
FAQ
Q: What are the benefits of consolidation?
A:
1) lenders offer incentives for consolidating loans with them. The most common incentive is 1% interest rate reduction after 24 or 36 on time payments. This reduction is permanent.
2) you'll have a fixed rate loan
3) at the time of conoslidation it's possible to choose new(longer) repayment plan which will reduce monthly payments
Q: Is consolidating your student loan the same thing as refinancing? (question by sandmanwake)
A: no, it's different
- you can refinance any (one) mortgage, for student loan consolidation often more than one loan required.
- when you refinance you can get current lowest rate, when you consolidate student loans the rate stays the same and you may be offered a rate reduction or other incentive.
- when you refinance you may have to pay a closing cost, when you consolidate student loans you don't pay anything.
- you can refinance as many times as you like, but in many cases you can't consolidate loan second time.
- you can refinance with the same company several times, but you can't consolidate several times with the same loan provider.
- when you refinance you can do a cashout, when you consoidate sudent loan - you can't
Introduction
Disclaimer:
- Info in this post is obtained from companies over the phone or from their website, but accuracy is not guaranteed.
Use at your own risk
- Most lenders tell that after consolidation your benefits will stay the same, i.e. you are able to requrest deferment/forberance due to hardship and other qualified events, but please be sure to confirm it before proceeding with consolidation... otherwise you may loose one of the most useful features of the student loan.
Request for info: if you had some negative experience with any of the student lenders please post your story here so the others can avoid the problem.
companies which allow to reconsolidate your loans
(i.e. they'll allow to consolidate your loan if you have already consolidated it with another lender(s) and even if you have only one loan)
www.collegeloan.com
www.acs-education.com
Bonus: after 6 month you'll get 1% of your loan balance as a Cash Back which can apply towards the principal balance or cash out
www.cfsloans.com
Bonus: after making on time payments for 36 month you'll get 1% interest rate reduction
Additional info: your loan will be with c1t1bank or with some other company(don't remember the name)
companies which DO NOT allow to reconsolidate your loans
(i.e. they will only allow you to consolidate if you have not previously consolidated or have more than one loan)
1% after 36 month:
www.financialaid.com $20K min
www.nextstudent.com 10.5K min
idapp.com ??? min (thanks dxr)
Tip from dxr: Another money saving strategy for the disciplined:
When I consolidated, I asked for a graduated, extended payment plan. This gave me very low initial payments. I then made payments as if I was on a normal extended repayment plan. My loan company counts these "overpayments" as additional payments, so for each payment I make, I get credited for 3 months of "on time payments." So in a little over a year, I will have an interest rate on my loans of under 1%. Note: This plan is contingent on how your loan company handles "overpayments".

Other bonuses
1.25% reduction after 24 month and .5% Auto-Debit
educationalloancompany.com $20K min (thanks igorlord)
Bonus:1% interest rate reduction after 24 payments
Bonus for consolidation during grace period .6 interest rate reduction if you consolidate during a grace period
www.northstar.org(copied from this thread thanks searcherz)
Bonus: .75% interest rate reduction starting with your first payment. I.e. they substruct .75%/12 from your principal balance with each monthly payment you make.
use this calculator to determine wether they save you more money than other companies:
http://www.northstar.org/Consolidation/CalcConsolBonus.aspx?Typ=Consolidation
looks like they are the best deal for shorter repayment termns (10 years or less).
btw, their calculator can be useful in comparing other companies bonuses
THE BEST DEAL
www.uheaa.org (thanks superking)
Minimum amount for consolidation: $10K ?
Interest Rate: weighted average
EDA: 1.25 !!!
Bonus: 1% reduction after 48 month.
Related Links:
Uheaa Amortization Tool created by ancient forum member Obsidian.
Discussing the UHEAA Consolidation process
Nelnet Consolidation
(thanks slc39) $7.5K min
Bonus:
- 1% interest rate reduction after 36 on time payments
OR
- 3.33% principal reduction after 30 on time payments
Tips and Tricks
- If you have more than 2 loans you can consolidate several times and get several bonuses.
- When consolidating make sure to check new terms and conditions. (See if you'll still be able to request unlimited Deferment and Forbearance in cases of hardship)
- If you have a spouse who is in school and eligible for a student loan, have her take out very small student loan, and then consolidate it with your loan to get the bonus.
- thanks dxr Another money saving strategy for the disciplined:
When I consolidated, I asked for a graduated, extended payment plan. This gave me very low initial payments. I then made payments as if I was on a normal extended repayment plan. My loan company counts these "overpayments" as additional payments, so for each payment I make, I get credited for 3 months of "on time payments." So in a little over a year, I will have an interest rate on my loans of under 1%. Note: This plan is contingent on how your loan company handles "overpayments".
Vocabulary
Deferment - a temporary suspension of your monthly loan payment. There are many different types of deferments available.
During deferment of Direct Subsidized Loans, principal payments are postponed and interest is not charged.
During deferment of Direct Unsubsidized Loans, principal payments are postponed, but interest is charged. Unpaid interest will be added to the principal balance (capitalized) of your loan(s) at the end of the deferment period. This will increase the amount you owe.
Forbearance - can be obtained and used to temporarily suspend or reduce your monthly loan payments. You may qualify for a forbearance if you are willing but unable to make loan payments due to certain types of financial hardships.

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Getting around the single lender rule

The strategy described here was previously posted in the Student Loan Consolidation Deals And Info thread. I'm starting a new thread for a number of reasons. First, the strategy is not a 'deal' per se. Second, its buried in a thread where people are looking for current deals on consolidations, whereas its greatest utility is for those who have long since consolidated and would have no reason to look there. Third, the strategy is still evolving, and scattered posts over the course of several months make it difficult for an interested party to piece together what is happening.

The Enemy - Single Lender Rule

I want to state at this point that there are two different types of people that can benefit from the strategy that I will outline. Those who have not yet consolidated, but who have taken loans out with only one lender, and those who have already consolidated with their single lender because they did not know they had another option. Many of us fall into the latter category and can benefit from this strategy, even if we have been out of school for years.

The 'Single Lender Rule' is found in Section 428C(b)(1)(A) of the Higher Education Act, which is a Federal law. the text is as follows:

(b) CONTENTS OF AGREEMENTS, CERTIFICATES OF INSURANCE, AND LOAN NOTES.-

(1) AGREEMENTS WITH LENDERS.-Any lender described in subparagraph (A), (B), or (C) of subsection (a)(1) who wishes to make consolidation loans under this section shall enter into an agreement with the Secretary or a guaranty agency which provides - (A) that, in the case of all lenders described in sub-section (a)(1), the lender will make a consolidation loan to an eligible borrower (on request of that borrower) only if the borrower certifies that the borrower has no other application pending for a loan under this section and (i) the lender holds an outstanding loan of that borrower which is selected by the borrower for consolidation under this section, except that this clause shall not apply in the case of a borrower with multiple holders of loans under this part, or (ii) the borrower certifies that the borrower has sought and has been unable to obtain a consolidation loan with income-sensitive repayment terms from the holders of the outstanding loans of that borrower (which are so selected for consolidation);

A more straightforward way of putting it is that if all of your student loans are held by one lender, then you will be unable to consolidate those loans with a different lender. Thus, rather than having the opportunity to play the field and get nice benefits from lenders such as UHEAA, you are stuck with whatever your current lender will give you.

Note subparagraph (ii) above. It lays the groundwork for the loophole that we will try and flesh out in this thread. Essentially, it says that even if all of your loans are held by a single lender, you can consolidate with a different bank if your current one will not provide 'income sensitive repayment terms.' For the most part, this doesn't help you because just about all lenders will provide such terms.

William D. Ford Federal Direct Loan Program

This program was created by Congress by virtue of the Student Loan Reform Act of 1993. What it does is allow students to borrow directly from the Federal Government, as opposed to using a private lender. It has some benefits over traditional private lenders which can be viewed on the program's website. Link.

Congress, in creating this program, left most of the finer details of its implementation to the discretion of the Secretary of Education, who promulgated regulations under which the loan program is operated. The regulations can be found at 34 CFR Part 685. Of particular interest is the following section:

34 CFR 685.220

Paragraph (b) - contains a list of loans that are eligible for consolidation under the Direct Loan Program. Note subparagraph 15 includes "Federal Consolidation Loans." Thus, student loans that have already been consolidated are not necessarily ruled out when pursuing a Direct Loan Consolidation.

Paragraph (c)(3)- Federal loans that have been consolidated previously (subparagraph 15 above) shall be consolidated into a "Direct Unsubsidized Consolidation Loan." (This is a fixed rate consolidation loan. The rate is determined by taking the weighted average interest rate of the loans being consolidated, and rounding to the nearest highest 1/8 percent. Thus, in my recent Direct Loan Consolidation, my single consolidated loan which was at 3.05% with KHESLC/Access Group, is consolidated with a Direct Loan at 3.125%)

Paragraph (d):

(d) Eligibility for a Direct Consolidation Loan. (1) A borrower may obtain a Direct Consolidation Loan if, at the time the borrower applies for such a loan, the borrower meets the following requirements:

(i) The borrower either—

(A) Has an outstanding balance on a Direct Loan; or

(B) Has an outstanding balance on an FFEL loan and asserts either—

(1) That the borrower is unable to obtain an FFEL consolidation loan; or

(2) That the borrower is unable to obtain an FFEL consolidation loan with income-sensitive repayment terms acceptable to the borrower and is eligible for the income contingent repayment plan under the Direct Loan Program.

The important thing about the above paragraph is that it says you are entitled to a Direct Loan if you currently have an FFEL loan (includes most consolidation loans), and are unable to obtain a consolidation loan with income-sensitive repayment terms acceptable to the borrower

So what is happening here? The single lender rule has an exception where a borrower can consolidate with a different lender if their current lender will not provide them with income contingent repayment terms. The Direct Loan Program, via this regulation, takes the concept a step further. It says that you are entitled to a Direct Loan Consolidation if you cannot obtain income sensitive repayment terms that are acceptable to you in your subjective judgment. Who is anyone else to say what is acceptable or unacceptable to you in your own opinion?

Interestingly enough, the income sensitive terms provided by Direct Loans are much nicer than anything you will ever see from a private lender. After 25 years, if your principle is not paid off (payments are determined by your income level), then the entire loan is forgiven. No other lender can compete with that.

You are probably wondering what the point of this exercise has been. Why bother moving my current loan to a direct loan? The interest rate will be rounded up to the nearest 1/8%, the benefits aren't intersting at all. It doesn't seem worth the hassle.

The point is that once you have a Direct Consolidation, you can reconsolidate anywhere! UHEAA for instance. Thus, regardless of your current consolidated rate, or how long ago you consolidated, once you get to Direct Loan, you will have the same rate, but be able to move it to UHEAA and lower the rate by 1.25% immediately, and another 1% after 48 payments.

My Experience

I found out about this strategy after receiving a solication from a company stating that I could lower my rate even if I have already consolidated. I decided to give them a call even though I was incredulous. They brought this strategy to my attention, and offered me a 1% rebate of my loan amount if I would use it to consolidate with them. After looking into it, I decided to use the strategy to obtain a Direct Loan Consolidation, and to either stay with the Direct Loan (I actually really like their income-sensitive repayment terms), or move it to UHEAA. I did not see any reason to go with the company that originally solicited me.

I filled out the Direct Loan application and other assorted necessary documents, and a few weeks later I received a letter from my current lender quoting the single lender rule and denying the consolidation. At that point i contacted the Department of Education Loan Umbudsman's office, who put me in touch with a contact person at my current lender. I had several conversations with this person, and wrote a letter detailing why I believed I Was entitled to a reconsolidate with a Direct Loan. I even faxed her a copy of the regulation. After several conversations I started to lose interest in the process, and stopped calling. However, last week I received notice that my lender released my loan information and that I will be receiving a Direct Loan. Additionally, on May 10, a user by the name of XRKZM posted in the Student Loan Consolidation Deals thread that he had tried this strategy (I originally posted it in March), and that he had succesfully moved his loan from Sallie Mae. Thus, we have two confirmations that it has worked.

I am hoping that this strategy can be tested and critiqued by the FW community. The successes that me and XRKZM have had may be dumb luck for all I know. I have outlined the theory behind it, but have not spent too much time trying to find holes in it. Hopefully some people will benefit from this.

Also, any other ideas for getting around the single lender rule can be tossed around here. I'll bring up two:

1) get a new loan with a different lender and reconsolidate all your loans anywhere you want

2) if you are married, consolidate both your own and your spouses loans with a lender of your choice. There is a risk involved. If one of you passes away, the other will be liable for the deceased's loans.

Update 10/19/05: Here is an article discussing the historical relationship between the FFELP and Direct loan programs.

update 3/26/06: Apparently, Direct Loans will no longer release loan information to FFELP lenders for people that apply to Direct Loans after March 31, 2006. This effectively means that if you apply to Direct Loans after 3/31/06, you will not be able to subsequently move your consolidation to UHEAA or any other lender.

Rathipon

Thank You, very very helpful info, hope i can get out of stupd sallie mae

Thanks for reopening this topic.

I have about $130,000 in Stafford loan (one lender) and about $12,000 in Perkins loan.

Does anybody know if this would allow me to bypass the single lender rule or not?

If I can consolidate these, does it make sense considering the stafford is at 2.77% and the perkins is 5%.


Also about different benefit/incentives that banks offfer:

Does anybody know if they ever back out of promised rate reductions?
If so which ones?

Thanks a lot for input.

OP... Good thinking.

I am currently helping my brother with his loans and have filed for consolidation loan through Direct Consolidation... However, I believe he may fall under this stupid rule.

When it does? I plan to fight it out with them.

Thank you for the very, very much for this specific post and explanation. Having consolidated all my loan 2 4 years ago - i always thought there was "no way out" of my current loan. It was incredibily difficult wading through the other thread.

If I understand this correctly, this is what can happen:

============
1. Apply for conoslidation through Direct Loans
2. If app. is rejected due to previous consolidation start a letter campaign citing 34 CFR 685.220 paragraph (b)
3. When/If loan is consolidated reconsolidate with better lender (UHEAA) to take advantage of 1.25% rate reduction.
============

I have started the application process on their website and have one more question before I pull the trigger.

If I eventually am able to re-consolidate with UHEAA my interest rate will STILL be intially based on my CURRENT consolidated rate (4.375%) not the newer much lower rates of current student loans? Is this correct?

EDIT: nevermind - my question was answered right above this post!

So - best case scenario - i can get a rate of 4.375-1.25% w/ UHEAA?


-------------

And for clarification purposes you (OP) did NOT go with the lender who originally offered you a 1% rebate?

UCSFMed thanks for the reply

Text
Assuming you consolidate with UHEAA, your $142,000 will have a rate of 2.75% with direct debit, and then 1.75% after 4 yrs of on time payments.



With UHEAA, would it not be 1.75% with direct debit, and 0.75% after 4 yrs of on time payment?

Thanks

Nice job OP! Green for you.

I'm going the Sallie May -> Direct Consol route -> UHEAA as well.


Slightly off topic, the WSJ has an article today about a loophole that allows current students to consolidate. This is the case with my GF.

My strategy with her is to consolidate undergrad and existing grad schools loans (she graduates next year) with a direct consolidation. After that, on to UHEAA.

Hope there's still time left to do this!!!

rogerbeagle said: Nice job OP! Green for you.


Slightly off topic, the WSJ has an article today about a loophole that allows current students to consolidate. This is the case with my GF.

My strategy with her is to consolidate undergrad and existing grad schools loans (she graduates next year) with a direct consolidation. After that, on to UHEAA.



Current students can definately benefit from a direct loan consolidation right now. If they can get it done before July 1, they will lock in the nice rates. Anyone have a link to the WSJ article or is it subscription only?

Rath

It's subscription only. The key to the article was on a dept of education ruling on the loophole. Many lenders are honoring this request pending a final ruling. Some are even advertising to existing students.

If you are able to pull this off, and the ruling is negative, the consolidation essentially becomes invalid. Don't know exactly what this means just yet... but I'll find out!

I have two consolidated loan one sub, one unsub with PHEA (Pennsylvania Higher Education Association).

I applied for the Direct Loan Consolidation. Will see what happens and post the results.

Yes, it is true. Current students should look into it.

Link to article about in-school consolidation.

Rath

Rathipon:

First let me thank you for such a great thread. Now for my question:

I consolidated my loans in 1999 with Sallie Mae. I managed to figure out a way to re-consolidate with DirectLoans (I can't exactly why I did this) in early 2000. I've been paying back my loans with extra principal each month for the last 5 years. My principal is approx $102K.

My weighted average now with DirectLoans is 6.375% (this includes the timely payment interest discount).

So now if I understand correctly, if I re-consolidate with UHEAA, my interest rate would drop to 5.125% immediately and then to 4.125% after 48 timely payments??!?! If so then THIS IS GREAT NEWS!!!!

Is this plan flawed here somewhere?

Sgopal2:

Thats the way I understand it. I would contact UHEAA and speak with their loan origination department.

I've seen it said on serveral web pages that as of July 2003 you can consolidate with your spouse in the Federal Direct Consolidation program (not sure about others) and if your spouse dies you are only responsible for your portion, not your spouse's. If your spouse is permanently totally disabled you MAY be eligible for a partial discharge (don't know why there's a different set up as cp. to spousal dealth). However if you divorce, you're stuck with the joint liability (Yuk!)

Doing a quick google, I found it on the Wake Forest Univ. website
http://www.wfu.edu/admissions/finaid/loan-consolidation.html

and Sallie Mae Website
http://www.salliemae.com/school/faqs/consolidation_faq.html?Q=Q41
"Effective July 1, 2003, spousal consolidation loans will be eligible for partial discharge benefits if one of the borrowers dies and may be eligible for partial discharge if one of the borrowers becomes totally and permanently disabled. If one spouse dies, the portion of the consolidation loan attributable to that borrower is eligible for discharge. The surviving borrower, however, will remain responsible for repaying the remaining balance of the Consolidation Loan.

If one of the spouses becomes totally and permanently disabled, the portion of the Consolidation balance attributable to that borrower is eligible for discharge. Both spouses remain responsible for paying the remaining balance of the consolidation loan."

Here is something to consider regarding whether you want to stay with the Federal Direct Consolidation or not. With the DOE, the Income Contingent Repayment Plan (ICR) is based on your adjusted gross income (AGI) if you reguarly submit your fed tax returns in a timely fashion. For some self-employed persons, ministers who receive a housing allowance, etc, the AGI is significantly lower than the Gross. Thus your payment required will be really low. For me, sometimes they have been zero because of a housing allowance that isn't AGI. When you first start with the DOE they will ask for pay stubs, and you might see your ICR payment based on them rather than your AGI. You can write a letter explaining your situation and how your AGI is lower, and they might lower your ICR payment. In year 2, the system starts automatically going to the IRS for your tax returns to look at your AGI, and that's when the lower ICR payments will definately kick in (and stay low if your tax return is always there with the IRS when the DOE asks for it).

Can someone help me with this question. Based on the DOE website (http://www.ed.gov/offices/OSFAP/DirectLoan/RepayCalc/dlindex2.html) if I can't repay my consolidated loan in 25 yrs on the ICR plan, then the loan is forgiven. While I'm making payments, if I wasn't able to pay the full amount of interest, it is capitalized annually and added to the principle. However, only 10% of the original loan can be capitalized. So if I owed $50,000 the most the principle could be would be $55,000. I would also owe a separate amount of interest that I didn't pay (let's say its $40,000). Ok, so will I have to pay taxes on $55,000 loan principal or on $95,000 (principal plus interest)? I'm sort of thinking it would be only be on $55,000. Second, what in the world do I do with a tax bill on $95,000 if it's the latter? Considering that I wouldn't have the money becuase I'm poor as can be, what would happen? Would they confiscate my 401K retirement plan for taxes? What about my house? Having the loan forgiven after 25 years sounds good (my payments are zero right now under the ICR plan because of my low AGI), but the tax sort of scares me. I guess if the tax is only on $55,000 it won't be TOO bad since the "real dollars" 25 years from now won't be near as bad as it sounds now. And the fact that I'm only paying $50/mo on the ICR plan on a $50,000 loan will mean that I'll be paying $15,000 over 25 years---with the payments being less and less in real dollars as the years go by. Tax on the $95,000 still sounds bad. I hope it's only on $55,000. If it is, then this is a sweet deal.

Rathipon said: Interestingly enough, the income sensitive terms provided by Direct Loans are much nicer than anything you will ever see from a private lender. After 25 years, if your principle is not paid off (payments are determined by your income level), then the entire loan is forgiven. No other lender can compete with that.


I am wondering how this option works. After 25 years of payment do they just close your account? or do you have to jump through some hoops?

Once the loans are extended for 30 years and you ask to have your payments as low as possible, why worry about the interest rate if you won't be done paying them off before 25 years?

Sorry, I missed your post above, I am a retard. My AGI ($40k) is too high to take advantage of this.

I need some advice and figured this would be the thread to get it from...

Long story short, I just discovered that all of my stafford loans are held by Sallie Mae. Despite having two Perkins loans, the nice lady at AllStudentLoans sadly informed me that there wasn't enough time to complete the two-step process before the June 30th deadline. (I know, I know. My fault for starting so late. I was out of town until yesterday...) According to her, if I want to lock in the low interest rates, I need to go through Sallie Mae.

So here's the question: Can I lock-in those rates with Sallie Mae, keep the Perkins loans separate, and then, citing the info in this thread, try to reconsolidate afterwards? Also, if I'm understanding the OP's initial post, once I consolidate, I can move that entire consolidated Sallie Mae loan to Direct Loan, keeping the Perkins separate? All I know is my brain is absolute mush right now regarding all things financial. Any advice would be greatly appreciated.

thanks!

Ideally, that's what I'd do -- consolidate the Perkins, then bring in the Staffords. However, because I'm so close to the June 30th deadline, there's not enough time to process the consolidation on the Perkins (apply, send in app, get loans released, finalize) *and* consolidate the fed loans in time to lock in the rate. What I'm wondering is can I consolidate the Sallie Mae Staffs to lock in the rate, then cite the loophole in the single lender rule afterwards?

Thanks for such an awesome thread and for soing so much due dilligence.

Can anyone help clarify what the best way for me to move forward is.....

Situation: All of my loans are owned by AES, so I am a victim of the single lender rule. While consolidating with them is better than not consolodating at all, I would like to take advantage of the benefits from UHEAA.

To end up with UHEAA, do I have to:

a) Consilidate with AES for a fixed payment loan (at least I would be locked into the low rate), then apply for a consolidation loan with AES that has income sensitive payments. Reject the plan saying it is unacceptable terms, apply for a Direct Loan. Upon getting the direct loan, apply for UHEAA.

b) Consilidate with AES for a consolidation loan with income sensitive payments. Reject the plan saying it is unacceptable terms, apply for a Direct Loan. Upon getting the direct loan, apply for UHEAA.

Can someone shed some light on this? Are there better ways for doing this? I want the best rate, but if it doesn't work, I don't want to be stuck with the new rates as of 7/1.

Interesting to see the reference to the "super two step".


AFX International Focus

August 1, 2006

HEADLINE: Student loan consolidation apps pile up


NEW YORK (AFX) - Once again, the student loan industry is facing a backlog of applications from borrowers who want to consolidate their debt and lock in low rates.

Although far fewer students and recent graduates submitted applications ahead of the July 1 deadline than last year, the bulk of them have yet to be processed and may not be funded before the fourth quarter.

. . .

For the lenders themselves, the picture is also mixed. Consolidation loans yield less than unconsolidated Stafford and PLUS loans, but they also have higher balances and longer terms. That means lenders may collect more interest over the life of the consolidated loans.

But lenders also risk losing loans when borrowers choose to consolidate with a competitor. This forces them to write down the gains they booked when the loans were pooled.

Sallie Mae, which accounts for roughly half of the student loan market, said it lost $1 billion of FFELP loans in the first half when borrowers consolidated with other lenders.

Nelnet said over half of the consolidation volume it experienced in the first half represents loans lost to other lenders.

Both companies attributed the bulk of the losses to a process known as 'super two-step' whereby competitors used another program, the Federal Direct Student Loan Program, to get around a prohibition on refinancing previously consolidated loans. This process was no longer available after the end of the first quarter, and Sallie Mae and Nelnet expect to hold on to most of the consolidation loans that are still being processed.

Prepayment speeds are likely to slow by the end of the year and remain relatively stable thereafter due to change in the FFELP: Stafford and PLUS loan taken out after July 1 carry fixed rates of interest.

That means borrowers will no longer have the same incentive to consolidate their student debt, at least in a rising interest rate environment.

The primary reason for borrowers to consolidate student loans then will be to lengthen the terms of their debt, and in so doing lowering their monthly payments. Consolidation loans have terms as long as 25 years, compared with 10 years for Stafford and PLUS loans.