Rush is on to consolidate before student loan rate hike
The notices sent out recently by banks, governments and education institutions take on the tone of the dubious refinancing schemes by phone solicitors and email spammers. But in this case, borrowers with student loans should not dismiss the claims.
Jeffrey Hanson, director for borrower education at the Access Group, a non-profit student loan lender, said getting in under this week's deadline can mean real money.
"If someone was consolidating $20,000 it could represent a savings of $20 to $30 a month and a savings of $3,000 to $5,000 depending on the amount over the life of repayment and depending on how long the borrower took to repay," Hanson said.
Hanson said the main thing for students still in school is to first contact the lenders for each loan. A last-minute rush is jamming many lenders' phone lines so borrowers who don't have time to wait on hold should see if the lender offers an online consolidation notification form.
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It could represent a savings of $20-$30 a month and a (total) savings of $3,000 to $5,000.
"At this point trying to do it verbally is probably the best bet or faxing in a request if they know the fax number of their lender because the lender has to receive that request by June 30th," Hanson said.
Like many other lenders, Access Group is working round the clock to process consolidation requests.
The reason for the rush is a combination of rising interest rates and changes in the federal student loan process. First, the recent federal budget deficit reduction legislation restricts students' ability to consolidate loans. Second, interest rates on the most popular college loans are set to increase by nearly two percentage points to over 7 percent.
"In the summertime I waitress my butt off and try and make as much money as possible for the school year," said Kelsey Hjemeland, who like many college students, wants to minimize the debt waiting after graduation.
Even with her summer job and working as a nanny during the school year the senior at the College of Saint Catherine expects to graduate with about $30,000 in student loans to repay. Hjemeland spoke at a press conference recently to remind students about the looming deadline.
Still, she hasn't yet filed the paperwork herself. "I knew all spring," she said. "I was like, I need to worry about this, I need to get on this consolidating loan thing, but I'm a student too so I didn't make it a priority."
The process Hjelmaland and others face involves converting their traditional college loans which have variable interest rates, to a single, fixed rate loan. In nearly all cases, consolidating benefits the borrower. Experts caution students, however, not to consolidate a particular federal loan, called a Perkins loan. That's because students who go into civil service jobs can get part or all of those loans forgiven.
One drawback of consolidating is it requires the borrower to start paying back the loan right away instead of waiting until after graduation. Borrowers can extend loan repayment over a much longer period, which would lower monthly payments, but could actually increase the overall amount paid in interest.
The changes come as students are relying more and more on loans to get a degree. St. Cloud State University Financial Aid Director Frank Loncorich sent consolidation loan reminders out to nearly 4,000 students who have $7,000 or more in debt. Interest rates have been low so loans are attractive, but he also notes the costs for an education are much higher.
"The appropriations for federal grant monies for students of high need have not kept pace with the rising costs of instruction. So, in order for students to go to school they would have to borrow more to attend college and therefore students are incurring much more debt," Loncorich said. The looming increase in student loan interest rates is the second highest in eight years. Borrowers have until midnight Friday to get their consolidation paperwork to the lender of their choice.