Sallie Mae Works to Dispel Student Loan Consolidation Myths as Deadline Nears for Borrowers to Protect Themselves from an Interest-Rate Hike

RESTON, Va., June 26 /PRNewswire/ -- With just over a week remaining for college students, graduates and parents to lock in today's low interest rates through student loan consolidation, Sallie Mae is helping student loan borrowers understand the truth about the consolidation process.

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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.

SLM Corporation , commonly known as Sallie Mae, is the nation's leading provider of education funding, managing nearly $127 billion in student loans and serving 10 million borrowers. Sallie Mae was originally created in 1972 as a government-sponsored entity (GSE) and terminated its ties to the federal government in 2004. The company remains the country's largest originator of federally insured student loans. Through its specialized subsidiaries and divisions, Sallie Mae also provides debt management services as well as business and technical products to a range of business clients, including colleges, universities and loan guarantors. More information is available at http://www.salliemae.com/. SLM Corporation and its subsidiaries are not sponsored by or agencies of the United States of America.