Consolidating loans helps students breathe easier

Tuesday, October 6, 1998

Consolidating loans helps students breathe easier

LEGISLATION: Bill lets borrowers combine debts, gives more time
to repay

By Hannah Miller

Daily Bruin Senior Staff

For UCLA students who graduate with thousands of dollars in
student loans dragging along behind them, consolidation may lighten
their load.

Consolidating loans means combining several loans into one,
allowing students to extend and simplify their payments. And thanks
to the Higher Education Act, which should be signed into law by
President Clinton next week, the next two months may be the most
opportune time to do it.

"Consolidation allows students to make the payments something
they can live with," said Salwa Oyoub, manager of the Financial Aid
Collections Office. "It’s hard, especially when you’re just getting
started."

It’s a fairly simple process, with both pros and cons. Although
students pay more interest in the long run, consolidation allows
them longer periods of time to repay their loans.

Consolidation takes advantage of government regulations designed
to give new graduates breathing room. For all student loans under
$10,000, the repayment period is 10 years; but if several loans are
combined, borrowers are allowed more time to repay.

For example, two loans of $5,000 each, when consolidated into a
$10,000 loan, give a borrower five more years to repay their
debt.

For the 30 percent of student borrowers who have Perkins (or
"direct") loans, consolidation offers another advantage. If
students (or their parents) have federal loans, they can
consolidate them now at the low rate of 7.46 percent – possibly
lower than the rate at which they took out their loans.

But students can’t wait too long since that rate would only be
mandated to last until the end of the year.

"Student indebtedness is rising and rising and rising," said
Jamie Pueschel, of the United States Students Association. "This
would allow them to pay less interest. With a loan of about
$20,000, they can save $1,000."

Although student lobbyists fought to apply that low rate to
private lenders as well, banks argued successfully that such low
interest rates would make lending to students financially
impossible.

Now the consolidation rate for private industry loans stands at
8.25 percent.

Students can consolidate their loans any time after graduation,
and they can consolidate loans taken out from different
institutions as well as from schools.

Stafford loans must be consolidated through the private lender,
such as Citibank; if students have Perkins loans, they must
consolidate them through UCLA’s Student Loan office. Both types of
loans can be combined into a consolidated loan.

Even if borrowers have only taken out one loan, they are
eligible to apply for a consolidated loan, which would allow them
to extend their payments.

Although Sallie Mae, one of the biggest lenders, has temporarily
suspended consolidations, many other lenders are still offering
them.

To consolidate your direct loans contact the Department of
Education Loan Origination Center at 1 (800) 4FED-AID
(1-800-433-3243), or Direct Loan Consolidation at 1 (800) 557-7392.
Or you can check out their web site at www.ed.gov.

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© 1998 ASUCLA Communications Board