| Funds for student consolidation
loans may be cut |
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"The fact is that the terms of the specific proposals
of the president's budget say he would like to save money on loans,"
says Sandy Baum, senior policy analyst for the College Board and
professor of economics at Skidmore College. "We don't know
specifically what those changes would be. There is a reasonable
chance, based on both the president's budget and conversations going
on in Congress and proposals on the table, that opportunities for
loan consolidation and locking in fixed interest rates will be more
limited in the future."
An educational reauthorization bill in some form is
"a priority," says Alexa Marrero, spokewoman for the
Committee on Education and the Workforce, which is working on the
congressional bill. If Congress passes a version this year as expected,
it would likely go into effect in July of 2006, she says.
Absent affordable loan solutions, students and parents
would have to turn to private lenders for more expensive loans,
Johnson says.
Consumers who have already consolidated their loans
will be grandfathered in.
Likewise, there is no talk of changing the 8.25 percent
interest rate cap on federally backed student loans, Marrero says.
And that's an important issue, says Morrow. "You
have to protect the cap," he says.
Worried about consolidation loans?
Call your representatives, says Johnson. "This
is not a fait accompli," he says. "This is not cast in
stone. It is our president's vision of what he wants to see."
The real problem
No matter what happens between the White House
and Capitol Hill, the interest rate on consolidation loans went
up July 1 (the interest rate adjusts annually every July 1st).
"Your approach shouldn't change with the law,"
says Mark Oleson, assistant professor and director of the Financial
Counseling Clinic at Iowa State University, which offers a useful
Web
site. "Your approach should be the same. Rates are going
up, and you want to consolidate regardless."
Just how much rates will change is trickier to predict.
The interest rate is based on the 91-day rate on U.S. Treasury bills,
and that rate has been climbing.
The increase in July went from last year's 3.37 percent
to 5.3 percent for student loans in repayment.
Regardless, most financial aid analysts are recommending
the same thing: Consolidate if you can.
"I would consolidate," says Baum. "Rates
are not going down."
Best advice: Shop around and find the best deal. Since
rates will be the same, look at who is offering the best discounts
for such things as electronic payments and several years of on-time
payments, says Oleson.
Find out the sources for all your financial aid money.
Then shop around and see who is willing to give you the best deal
on a consolidation loan. Don't forget your state loan guarantee
agency.
And beware of those unusual situations when consolidating
isn't the best move. For instance, if you have loans that will be
forgiven or paid by your soon-to-be employer (usually for such jobs
as teaching, law enforcement or health care work in needy areas),
you may lose that option if you consolidate.
Dana Dratch is a freelance writer based in Atlanta.
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