Rate hike triggers consolidation dash

Elena Lewis is graduating from the Medical University of Ohio on June 3. To reduce her expected $150,000 loan load, she plans to apply for loan consolidation before rates go up.

Elena Lewis will leave the Medical University of Ohio next month with her long-awaited medical degree. But she'll also take some unwanted baggage with her: more than $150,000 in student loan debt.

So the medical student plans to move quickly to save herself well over $50,000 in loan payments by consolidating her debt and locking in a possible 2.875 percent fixed student loan rate - something many financial experts advise college graduates, and now even current students, to do before rates jump on July 1.

"In past years it has been wait and see what the rates are before you consolidate because we've been so low," said Martha Holler, a spokesman for the student-loan company SLM Corp., better known as Sallie Mae. "But now we're expecting an increase, so it's a race to the finish."

More than in past years, some financial aid officials at colleges and universities locally and across the country are encouraging their graduating students - and in many cases even students still enrolled in school - to take advantage of the lowest rates since the inception of the federal student loan program in 1965. The rates vary depending on the type of loan, stage in the student's college career, and whether the loan is taken out by a student or a parent.

When the federal government readjusts the rate, it is expected to grow by 2 percentage points, marking the first increase for student loan interest rates in the past five years. A flurry of requests for loan consolidations is expected from college graduates who have not already obtained one. But the consolidation situation is not as clear for students still in college, who in the past have been told that if they consolidate, their loan payments would need to begin immediately.

Stephanie Babyak, a spokesman for the U.S. Department of Education, said on Friday that the issue of whether students in school can consolidate their loans remains under discussion within her department, and no formal ruling has been issued on the matter.

At least two agencies contacted by The Blade said they plan to proceed with plans to offer consolidation loans to college students still in school. Ms. Holler said Sallie Mae just last week started preparing to deal with the anticipated flood of requests from students still in college.

Ms. Holler said the company will outline on its Web site the several-step process for current college students, which includes making a mandatory request in writing to begin repayment status.

The loans would then be deferred, allowing students still in school to retain the lower interest rate and later be consolidated.

Deferred loans allow students to delay making payments until after they graduate. However, students who consolidate while still in school would give up a six-month repayment grace period that's now available for them after graduation, Ms. Holler added.

Similarly, Great Lakes Educational Loan Services Inc., which makes college loans in Ohio and Michigan, said it will process consolidation applications for in-school Federal Family Education Loan Program borrowers subject to a lender's request to do so on a blanket basis - and not on a borrower-by-borrower basis.

Great Lakes also said lenders who wish to allow their in-school Stafford loan borrowers to consolidate their loans must have an agreement under Section 428C of the federal Higher Education Act of 1965 and a certificate of comprehensive insurance for consolidation loans on file with Great Lakes Higher Education Guaranty Corp.

Other lenders may approach the matter differently when it comes to loan consolidation for nongraduating students, however, so officials advise students to ask questions and research details of any consolidation loan agreements in advance.

Kathryn Coy, director of financial aid at MUO, sent an e-mail to students last week outlining their options. Like many other universities, the issue is being addressed at MUO during exit conferences with graduating students.

"I'm recommending all students do this," Ms. Coy said. "For them, it's almost critical to lock in at this interest rate."

At MUO, students who graduate this year will each carry, on average, $120,000 in debt and require 30 years to pay the borrowed money back.

According to the College Board, a national association of schools and colleges that offers services and programs to students, the average total outlay for tuition, fees, room, and board for this past academic year amounted to $11,354 for students at four-year public institutions. At private schools, those annual totals averaged $27,615.

Officials said the consolidation could make sense for many - but not all - students, depending on their circumstances.

In the case of medical students, the readjustment of payments can amount to big savings. If MUO students carrying the average of $120,000 in debt consolidate their loans now, Ms. Coy said they will pay about $497 a month for the next three decades, which includes $59,118 in total interest paid. If they fail to act and rates increase to an anticipated 4.87 percent, those payments would climb to $635 a month and nearly double the interest to $108,644.

"It shows what one day can do," Ms. Coy said.

According to Sallie Mae, students with a basic $20,000 consolidation Stafford Loan would pay $110 monthly over 240 months, compared with a possible $129 a month on or after July 1.

Miss Lewis, 26, plans to apply for her loan consolidation the Monday after MUO's June 3 graduation. She estimates that she owes at least $150,000 in student loan debt, both from medical school and some from Calvin College in Grand Rapids, Mich., where she received her undergraduate degree.

"I didn't think it would be that high. I only tried to take what was needed," she said of her college loan borrowing. "To imagine paying this off [in upcoming years] is just daunting."

Consolidation is also a topic of discussion at other area colleges, though not all financial aid officials are telling all students they should consolidate.

In some cases, particularly in instances where different loans have been obtained and repayments might not be as high, it doesn't always make sense to consolidate, some officials said.

"Consolidation is not a bad idea for a lot of students," said Beth Casper, the associate director of financial aid at Bowling Green State University. "They just need to look at all the options available."

Both Ms. Casper and Greg Guzman, who heads the financial aid office at the private Lourdes College in Sylvania, recommend that students start the process by contacting their involved guarantors and look up their personal loan information by accessing the Web site www.nslds.ed.gov, which is the U.S. Department of Education's central database for student aid. Students must first register and receive a personal identification number to access their information.

Mr. Guzman said there are benefits to consolidation, such as interest rate discounts for using electronic checking account payments or for making regular, on-time payments. But he said all such perks must be thoroughly checked and compared with current rates.

"I wish there was a way to tell students to compare what you're getting now with what you'll get then," he said. "Some borrowed benefits will be better now."

Contact Kim Bates at: kimbates@theblade.com or 419-724-6074.