Students around the country are scrambling to consolidate student loans by Friday to lock in fixed interest rates.
By consolidating loans, students could save as much as the cost of a 42-inch plasma HDTV. Fixed loan rates could benefit about 39 percent of university students who graduate with loans, according to a study conducted by the Maryland Public Interest Research Group. Students at the university usually leave with about $13, 243 in debt, the study said.
Students still in school or on a deferred payment plan can take advantage of the 4.7 percent rate before it climbs to more than 6.5 percent after Friday, according to the U.S. Department of Education.
For students who have already started paying loans, their 5.3 percent interest rate will jump to more than 7.1 percent if the loans are left unconsolidated.
Consolidation was originally a debt management tool and allows students to extend the life of the loan up to 30 years, said Erin Korsvall, a spokeswoman for Sallie Mae, a nationwide lender. Without it, students have up to 10 years to repay the loan.
“When you extend your repayment term, you’re going to lower your monthly payments because you’re stretching your total payments out over a longer period of time so you can lower your monthly payments,” Korsvall said.
While consolidating loans is confusing, refusing to consolidate loans can lead to even more confusion in the future.
“If students don’t consolidate their loans and fix in that rate, then that means they’re going to have two different payment structures,” said Sarah Bauder, the student financial aid director. While unconsolidated loans will be subject to next year’s increased variable rates, any new loans generated after June 30 will have a 6.8 percent rate for the entire life of the loan, Bauder said. Some campus officials said between escalating interest rates and decreasing federal aid, higher education is becoming less affordable.
“This is going to create an incredible burden on students,” said Colleen Spivey, a campus organizer for MaryPIRG. “Right now lower income students might be able to afford it because they can lock in a lower interest rate and go to college with these loans, but this increase will make it harder for a lot of students to attend college at all.”
Student leaders agreed an affordable college education could be slipping from students’ grasp.
“Right now, there’s more people who want a college education but very few people can actually afford one,” said University Commuters Association President Jahantab Siddiqui.
“This whole interest rate increase isn’t going to help students any and it isn’t going to encourage families to send their kids to better institutions.”
An increase in federal aid could alleviate some of the increasing college costs, Student Government Association president Emma Simson said.
“Tuition has gone up a lot, which means that it’s a lot more difficult to afford college, and on top of it, interest rates for student loans are rising,” she said. “More money needs to come into the university from our state to make tuition more affordable and more reasonable.”
Even though consolidation seems like an ideal way to save money, it’s not the right choice for everyone. It doesn’t make sense for people who have been out of school for a long period time and in most cases it doesn’t make sense for freshmen, Korsvall said.
“Usually lenders have a minimum balance of $7,500.” Korsvall said. “Most freshmen would not be able to meet the minimum.”
Consolidation lets students make one payment to one lender instead of multiple lenders, Korsvall said.
Bauder advises students who are thinking about consolidating to look at the reputation of the bank.
“If you haven’t heard of the bank before, don’t go with them,” Bauder said. She recommends students use large banks to consolidate their loans because larger banks are less likely to sell your loan. When a student’s loan is sold the student must keep track of the lender and the lender has to keep track of the student, she said.
“It’s a paperwork nightmare,” she said.
