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June 26, 2007

Loans

Consolidation advice a must, office says

Interest rates are rising, and graduates need to find the best option to save money.

Story by: J. Blankenship

The Shorthorn staff

Student loan consolidation could mean immediate lower payments but might not be a true money saver.

Graduates hoping to save money frequently rush to consolidate their loans. As the deadline rapidly approaches, expensive mistakes can be avoided, but rising interest rates make the timing critical.

“We’re providing general advice about loan consolidation, [but] we’re not offering information about specific lenders,” Karen Krause, Financial Aid Office director, said Friday.

The office and lender Web sites provide information students need before making financial decisions. Market fluctuations, original loan dates, overall repayment amounts and other key points need to be considered.

After graduating with an education degree, Noel Cammack talked with financial advisers before making her decision.

“I chose not to consolidate based on advice and information from my lender,” she said. “I’m very comfortable with that.”

Some students may follow her lead. Increasing interest rates or specific options complicate the consolidation process. Older loans were secured with lower variable rates, some as low as 4.7 percent. New consolidation loans are fixed, based upon a weighted average of the interest rate on the loans being combined. According to local bankers, variable rates are now at 6.54 percent or more. Fixed rates are 6.8 percent or more.

“The best advice I can give is to talk with your lender,” Cammack said. “They’ll tell you your options, then you decide.”

While the Financial Aid Office provides guidelines, the consolidation process must be conducted through a personal bank or credit union. Some banks offer online consolidation to help ease the process.

Private education loans for federal subsidized and unsubsidized Stafford Federal Student Loans are available online by Chase Bank. Students receive the best package when they consolidate in the first six months after graduation, depending when their loans originated. The Chase Web site displays new interest rates ranging from 6.8 to 9 percent.

Maria Guzana, Chase Consolidation Program specialist, said rates can be as low as 6.54 percent, depending when the loans originated. Students combining loans initiated before July 2006 receive the lower consolidation rate as long they combine their loans by July 1 this year.

“After that, the rate jumps to 7.22 [percent] in most cases,” she said. “It is important to understand how the deadline and other factors affect it.”

For more information about student loan consolidation, contact the following nonprofit Web sites at http://www.ed.gov/, http://www.fafsa.ed.gov/, http://www.graduateleverage.com/ or http://www.salliemae.com/consolidation.