| A closer look at student loans |
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Anyone taking out FFELP Stafford loans needs to ask
who is paying default aversion fees and origination fees. The new
rules make a 1-percent fee default aversion fee mandatory and --
in some cases -- the loan agreements will require students to pick
up the tab. As for origination fees (which are being gradually phased
out by 2010), some lenders are paying them while others aren't.
What it means: Rates are universal,
but terms aren't, so it's important for students to shop around.
"The most important thing
is for students to know they are not all the same," says Baum.
Lenders and loan terms are not all equal, she says, so they should
be sure to understand the details.
What should students do?
Students in school and those who have just graduated can do a couple
of things to insulate themselves from the effects of the rate hike
scheduled for July 1. Some tips:
Investigate consolidating. Students who consolidate
before July 1 can lock in their existing debt at the old (lower)
rates, and it's currently an option for in-school students, as well
as graduates. After that date, the new rules will prevent in-school
students from consolidating.
Enrolled students who consolidate can also get a deferment
on making payments until after they have graduated. But in some
cases, consolidating can knock some borrowers out of the running
for certain loan benefits or the loan forgiveness extended to those
seeking certain types of employment.
For that reason, students need to research exactly
how the move will affect their own loans and weigh that along with
the financial benefits of consolidation, says Ronald W. Johnson,
director of financial aid at the University of California, Los Angeles.
"It's a really tricky situation," he says.
Shop around. Because of the scheduled rate hike, students likely
will be getting a barrage of consolidation offers, says Johnson.
"Check thoroughly and do some comparison," he says.
Consider holding off, but stay
informed. This is one time it might pay to wait and see when
it come to consolidation, says Barry Morrow, CEO of Collegiate Funding
Services Inc., a college loan provider. While the Deficit
Reduction Act was signed into law earlier this month, there
is an ongoing war of words over whether all i's were dotted and
t's were crossed. If its validity is challenged and the new rules
don't go into effect July 1, locking in a rate could be "the
wrong thing," to do, he says.
Instead, Morrow advises students to prepare and gather
the paperwork they'd need for a consolidation, but watch to see
what happens in the next few months. "It's a little bit of
a waiting game, but it's only February so you have time," he
says.
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