Loan consolidation not always advisable
By Ines Santos
June 9, 2007 9:00 p.m.
With an average debt of thousands of dollars after graduation, UCLA students have several options to go about repaying the debt but need to carefully research their choices.
Officials from the UCLA Financial Aid Office report that the average graduate has $13,000 worth of student loans.
George Ridjaneck, the assistant director of the UCLA Student Loan Services Office, said it is of the utmost importance that students take interest in their individual financial situations.
“They have to do their homework … they really have to find out what is going to be their best option,” he said.
Students can take out a variety of loans, ranging from those subsidized by the federal government based on need to private loans awarded by banks and other financial institutions.
For students graduating with more than one loan, there are several options for how to manage them.
Students can combine all their loans into one federal loan through consolidation or combine all payments into one bill without consolidating, which is called serialization.
Debts can also be delayed until a student finishes graduate school, which is called deferment.
Nicholas Novello, the loan services supervisor at the Loan Services Office, said he recommends students start by contacting their lenders to get some information on their options.
Consolidation is not intended for students who are continuing their studies in the immediate future or who are still enrolled, he said.
“(Federal consolidation is) for students whose intent is to enter repayment,” Novello said, explaining that after consolidation graduates lose their grace period, or the period immediately after graduation before repayment is expected.
“You better be ready to begin repayment if you are going to consolidate,” Ridjaneck said.
Despite the many different options, UCLA alumna Nichole Delansky said she still experienced problems repaying her student loans.
Delansky, who graduated in 1999, said that, while she never had to struggle to come up with the money to make payments, she was not organized enough to make them on time.
“One time I let it go (past) 120 days … I was paying all of these late fees,” she said.
She eventually decided to organize her finances by consolidating her loans.
“It was a clean-up move (and) I wanted to secure the interest rate,” she explained, adding that the interest rate was at a low 3.6 percent at the time she consolidated in 2005.
Two of her reasons for consolidating ““ convenience and the securing of a favorable fixed interest rate ““ are some of the most important benefits of consolidation.
While the decision to consolidate was facilitated in the recent past by historically low interest rates, this is no longer the case. Since rates have gone up, financial aid officials said today’s college graduates should weigh their options more carefully.
“Someone has to really spell it out for me (so that I can) be financially responsible,” Delansky said.
Another possible advantage of a consolidated loan is that its interest rate becomes fixed upon consolidation.
Though Novello said it does not lower the interest rate of the loan, it prevents it from fluctuating upward in the future.
“It locks in your interest rate based upon a weighed average of all your interest rates,” he said
He added that interest rates fluctuate and tend to be hard to predict, so borrowers have to use their best judgment about when the rate is at a favorable point.
Ridjaneck said when looking at the cost of the loan, borrowers should also consider the total amount of repayment, not just the monthly payments, because the accrual of interest over time can add a substantial amount to the student’s debt.
For example, if the graduate chooses a 30-year loan over a 10-year loan, his or her repayment total will be greatly increased by the 20 extra years of interest, despite the lower monthly payments.
“Don’t let the low payment charm you into consolidation,” Ridjaneck said. “The borrower really wants to know how much (he is) going to pay over the life of the loan.”
Despite the wide array of loan choices and the sometimes daunting task of managing finances, Novello said students can help themselves by doing the necessary research and taking responsibility for their decisions.
“The bad news is, it’s not a simple decision,” said Novello. “(But) if a student really takes ownership of their debt, they are going to make the best decision.”
