Change in federal law provides borrowers with more choices

Issue July/August 2006

For years, federal law has prohibited certain federal student loan borrowers from choosing their consolidation lender. The single holder rule mandated that borrowers who had obtained all of their loans through a single lender to consolidate with that same lender. This left many borrowers with no options to look for better borrower benefits or a company with superior customer service.

On June 15, 2006, the single holder rule was repealed. Any student whose loans are with one company is now free to choose their consolidation lender. This change comes just in time for borrowers to take advantage of their increased ability to choose their lender as well as lock in the current low interest rates.

When choosing a consolidation lender, it is important to evaluate borrower benefits carefully. Some offers have a high minimum balance, take a long time to earn the benefit or may prohibit borrowers from taking advantage of deferment and forbearance options in order to retain the benefits. Borrowers should also carefully weigh "cash back" options versus interest rate reductions. While it is tempting to take the "cash back" offers, interest rate reductions may have a higher value over the life of the loan and may cut years off of the repayment term.

For example, on a $25,000 loan, borrowers would be able to get one percent cash back, which works out to only $250. A one percent reduction in interest rate after 24 months allows borrowers to reduce the total amount of interest paid by more than $3,000 over the life of the loan. An ACH reduction of .5 percent could save almost another $3,000, with a total value to the borrower of $6,000, or almost three years’ worth of payments.* Taking advantage of ACH payments also ensures payments are never late so you will qualify for on-time benefits.

MBA members and their families are eligible for special member borrower benefits with SunTrust Bank. Call (888) 403-5027 and mention Massachusetts Bar Association for more information or to apply.

* "Cash back" savings example based on a $25,000 loan balance with a one-time cash back bonus of 1 percent of original loan balance. Interest rate savings example based on a $25,000 loan balance, 5.3 percent APR, a 20-year term and the following borrower benefits: 1) .50 percent interest rate reduction when your payments are automatically deducted from a personal checking account and 2) a 1 percent interest rate reduction after the first 24 consecutive on-time payments. Borrower must remain current for the remaining term of the loan to keep the interest rate reduction in effect. Your actual savings may vary. Savings programs are subject to change without notice.

SunTrust Bank Member FDIC. ©2006 SunTrust Banks, Inc. SunTrust is a federally registered service mark of SunTrust Banks, Inc. (06/06)