Deadline looming to lock in loan rates
June 19, 2006 - Posted in College Grant, College Loans, Education News, Financial Aid, Student LoanStudents have until June 30 to consolidate loans
Clemson University sophomore John Masslon, like other college student across the nation, is hearing from lots of lenders about his student loan.
Lenders are hawking offers to consolidate student loans and lock in rates before rates go up July 1.
Consolidation can lower monthly loan payments and save thousands of dollars in interest, but many lenders offer varying incentives, such as on-time payment discounts, and that’s where it gets tricky.
“It’s definitely confusing for a student,” said Masslon, who called his parents in Pittsburgh, Pa., and talked to their financial consultant as well.
“It takes some time looking into it to see which way you want to go,” Masslon said. “I want to make sure I’m doing what’s best for me down the road.”
Federal Stafford student loans go up 1.84 percentage points July 1 from 4.7 percent to 6.54 percent for students currently in school. Rates for graduates repaying loans rise from 5.3 percent to 7.14 percent.
Federal Plus loans for parents rise, too, although the federal Perkins loan program stays at the current fixed 5 percent rate.
Barbara Heyward said she is concerned about the amount of money her daughter, a nursing major at South Carolina State University, has to borrow even with a state lottery-funded LIFE scholarship and several grants.
“She needs to borrow to stay in school. I just have an ordinary job and she works herself,” Heyward said.
For Heyward and her daughter, consolidation was a no-brainer to keep future loan payments and total debt down.
Clemson’s financial aid office is encouraging students who call with questions about the assortment of loan offers they’ve received to contact their current lenders first because they already have a relationship with them, said Elizabeth Milam Lomas, associate director of financial aid.
There’s no application fee and it’s a simple process, she said.
But it may not be a good idea for everyone, so students need to get the information and then decide for themselves, she said.
An “avalanche of people” with questions about consolidation have contacted the South Carolina Student Loan Corp., a private non-profit organization that is the state’s largest student lender, said Mike Fox, a vice president at the corporation.
But he still hears from some people who didn’t know rates were going up or that they could lock in the lower rates now, and said it’s important to get word out.
Fox, whose daughter will be a sophomore this fall, plans to consolidate her student loan even though it’s small.
“It isn’t going to save me a fortune over the next three years but it is going to save me some money,” he said.
By consolidating before July 1 rather than waiting, a student graduating this spring with a $20,000 loan balance would save $5,123 in interest over the life of the loan, according to an estimate from Sallie Mae, the nation’s leading student lender.
Against this backdrop of heightened student loan activity, Congress this past week repealed a Single Holder Rule governing federal student loans, which will let borrowers consolidate with new lenders if they wish.
Under the Single Holder Rule, borrowers who had all their loans with one company had to consolidate with that lender.
But some people in the lending business fear that will add to the confusion in the marketplace and warn students and families to read the fine print and ask questions.
“My biggest concern with the repeal of this is that students will be even more susceptible to tactics that are not in their best interest,” said Chuck Sanders, executive director of the South Carolina Student Loan Corp.
Keith D’Ambra, senior vice president of loan consolidation for Sallie Mae, advises, “Watch out for misleading marketing materials and get the facts before you sign on the dotted line.”
Source: Copyright 2005 The Greenville News.