After the recent flood of continuing students into Financial Aid Offices seeking consolidation advice, many of us cheered (and gave a sigh of relief!), when we learned that in-school consolidation through the Direct Lending program and the FFEL Stafford early repayment option was officially eliminated as of July 1, 2006. But did you know that there are still some circumstances in which consolidation can occur while a borrower is enrolled in school? An often misunderstood point is that eligibility for loan consolidation is determined by the status of the loans being consolidated—not the enrollment status of the borrower. This means that students today may still consolidate while they are enrolled in school, provided they have an eligible loan. And an eligible loan is any loan that is in repayment status (this includes deferment and forbearance status). For example:

• A borrower with a Graduate PLUS Loan that has been fully disbursed is eligible for consolidation.
• A borrower with a Stafford Loan, who has used the entire grace period and whose loan is now in a school-deferred status, is eligible for consolidation.
• A borrower with a Perkins Loan, who has accelerated the loan into early repayment, is eligible for consolidation since the recent change did not apply to Perkins Loans. (Note that schools certainly have the option of denying such requests.)

Marketing is on the Rise
Given these few examples, it’s no wonder we are seeing an increase in direct-to-consumer marketing! And as messages from the many marketers grow louder and more frequent, the voice of the trusted advisor, the Financial Aid Office, can sometimes get lost. To ensure your voice is heard in this environment, I encourage you to work with your service providers, such as Sallie Mae, who are available to partner with you in delivering your message to your student borrowers.

Keeping in mind that most Graduate PLUS loans were fully disbursed in January or February, this may create a situation in which borrowers with or without existing Consolidation Loans are heavily marketed to regarding consolidation. Therefore, many may choose to consolidate or reconsolidate during this time period.

Choosing A Consolidator
Before making the decision to consolidate, borrowers should carefully consider the benefits being offered by a lender. In most cases, the most beneficial benefits are those that reduce the loan’s interest rate. It is important for borrowers to find out how they qualify for the advertised benefits, and just as important to understand how they may lose them. For example, some lenders require borrowers to notify them when they are eligible to receive the benefit; other lenders, including Sallie Mae, track a borrower’s eligibility and automatically apply the benefit.

In addition, student loan borrowers should ask the consolidation lender to run numbers for individual situations rather than simply relying on the scenario presented in the marketing brochure since it may use assumptions that overstate the savings.

And because of the longer repayment terms of Consolidation Loans, which can be up to 30 years, students are establishing a long-term relationship with the company they select as their consolidation lender. Therefore, it is important for students to determine if the company they choose is a broker, servicer, or lender, and if this company will hold their loan throughout. Having gained this information will enable the student to evaluate the depth and breadth of the services being offered, and the support they can expect the company to provide throughout the life of the consolidation loan.