Bills would ease student-loan consolidations

For Kelly Admirand, shelling out $1,000 a month to pay her student loans wasn't an option.

Fresh from earning a master's degree in applied anthropology at the University of Maryland in 2000, Admirand had to consolidate her undergraduate and graduate school loans, which allowed her to stretch the debt over 30 years, instead of a decade, and cut her monthly payments in half.


But now, with interest rates at the lowest they've been since the federal student loan program began in 1965, the New York resident would like to consolidate again, so she can lock in the current 3.5 percent interest rate instead of the 8.25 percent rate she's currently stuck with. Admirand and her husband, Peter, are hoping to lower their debt so they can buy a house. But much to their dismay, the Admirands discovered student loans can only be consolidated once.

"When I consolidated, it was at a point of desperation. I couldn't handle the payments. I couldn't pay my rent or buy food," said Admirand, 28, a park ranger at the Statue of Liberty. "I knew the rate was high, but I didn't know I was locked in. I just knew it would lower my monthly payments and let me balance my checkbook without bouncing anything."


Many graduates who consolidated their loans within the past few years are finding themselves in the same situation. Like Admirand, they are frustrated with their high interest rates.

Unfortunately for them, there's not much they can do. Even the few options that allow people to reconsolidate, such as merging their consolidated debt with an unconsolidated loan, won't lower their rates substantially because consolidation takes the weighted average of interest rates on all one's loans.

The only ray of hope is that several politicians on Capitol Hill have submitted bills that would allow graduates to consolidate again. Democratic Reps. Rosa DeLauro of Connecticut, Danny K. Davis of Illinois and David Wu of Oregon are pushing to lift the ban on re-consolidation.

The bills differ slightly. For instance, Davis' plan would allow people to reconsolidate only once, and they would then be subject to a variable rate, capped at 8.25 percent. Wu's bill calls for a 6.8 percent cap, but charges a fee of one-half of 1 percent each time a borrower re-consolidates. DeLauro's bill, on the other hand, would eliminate any loan and origination fees - currently up to 4 percent - and allow graduates to reconsolidate several times.

These measures, however, remain in a subcommittee of the House Education and the Workforce Committee and have a long way to go in the Republican-controlled Congress before they could become law. Still, officials on both sides of the aisle recognize this is an issue.

"This is getting a lot of attention and a lot of members are hearing from constituents, but it's very important to proceed with caution because there could be unintended consequences," said Alexa Marrero, the committee's press secretary.

"Chairman [John A.] Boehner [Republican of Ohio] is looking at these proposals to find ways to help with the financial burdens associated with college debt, while at the same time focusing on the best way to use federal resources to expand access to higher education," Marrero said.

Those voicing concerns about allowing graduates to reconsolidate say that such a move could take much-needed financing away from current students since there would be less money coming in from those who are repaying.


They argue that the consolidation option was introduced in the 1980s to lower the then-high rates of default by allowing people to reduce their monthly payments by stretching out their terms. Legislators didn't foresee this problem because rates had never dipped so low, said Claudia Schutz, senior vice president at Academic Management Services, a lender in Swansea, Mass.

"It was never intended as a refinancing bonanza," said Tom Joyce, spokesman for Sallie Mae, the student loan provider based in Reston, Va., which is opposed to allowing borrowers to reconsolidate. "It's a notion of where we should spend taxpayer money. ... Should it be to pay thousands of needy students to get through college or are we going to pay it to borrowers who've already reaped the benefits of the program?"

Still, for someone like Darren Restivo, 28, reducing the interest rate on his $14,000 undergraduate student loan would help him save enough money to move out of his mother's home on Long Island and buy his own. He's already bringing his lunch and eating out less, but there's nothing he can do about the $188 monthly payment.

"I don't think it's fair," said Restivo, an importer for Biagio Cru, a wine distributor. "Clearly it's a disadvantage to graduates."

There are, however, a few things people can do, said Patricia Scherschel, consolidation product executive at Sallie Mae. They can ask their lenders if they offer any interest rate reduction programs.

Sallie Mae, for instance, offers a quarter of a percentage point discount for those who have their monthly payments directly debited from their bank accounts and another point off for those with consolidated loans who've paid on time for 48 months.


Even if they can't lower their rates, they can reduce their overall interest payments if they have a little money to spare now. For instance, they can switch from a graduated payment plan, in which the initial payments go toward interest only, to a more costly level payment plan, which reduces the principal and the overall interest payments.

Also, they can send in more money each month and pay their loan off quicker.

"The sooner they start to prepay, the more money they save," Scherschel said.

Newsday is a Tribune Publishing newspaper.