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Time to consolidate student loans

Graduates may be inundated with offers. Here's some advice from the experts.

By Staff writer of The Christian Science Monitor / May 14, 2007

Elizabeth Hira has seen the pitch many times before.

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Since graduating last June from Stanford University, Ms. Hira has received piles of postcards and letters, littered with exclamation points, percentages, and the infamous tagline "consolidate now."

"I feel like a fugitive," she says about the flood of offers from lenders to consolidate her student loans. "I've been out of school for a year, and they're still trying to track me down."

As she considers attending graduate school, Hira has held off consolidating her loans. She'd like to say that's the only reason she's wavered.

"Really, I'm not sure what to do," she admits. "There's just a lot of confusing information out there, and I have yet to find a legitimate and impartial source."

With news of student-loan scandals and new laws giving borrowers more options, figuring out whether to "consolidate now" is trickier than ever. While there are more choices this year – some great, some deceptive – students and recent graduates shouldn't fret, says Kevin Walker, CEO of the loan comparison website SimpleTuition. They just need to be smart shoppers.

"Things are different this year," he says. "Consolidating can still be a great way to make loans more manageable. You're just going to have to read the fine print really carefully."

New York Attorney General Andrew Cuomo's investigation into shady deals between lenders and universities has led to multimillion-dollar settlements nationwide. Last week, his office subpoenaed 90 college alumni associations to determine if the schools accepted undisclosed gifts in exchange for steering graduates toward consolidating their loans with "preferred lenders."

But savvy borrowers who hunt for the best deals have little to worry about, says Mark Kantrowitz, founder of student loan advice site The scandal is about conflicts of interest, not unfair lending.

Careful consumers are in a great position to find deals, says Mr. Kantrowitz. That's because last year Congress axed the "single holder" rule. The decades-old law forced students who borrowed from only one lender to stick with that lender if they wanted to consolidate. Now borrowers are free to consolidate with whoever offers the best plan, Kantrowitz says.

Another new wrinkle: The Class of 2007 is the first to graduate with fixed-rate federal Stafford loans. Before July 1, 2006, when all Stafford loans had variable interest rates, consolidation was a good move for almost every borrower, says Mr. Walker. It was the best way to lock in low-interest rates before they could climb.

"Last year, it was a no-brainer that students should consolidate," he says. "This year, it is not quite as clear."

For variable-rate loans, consolidation is wise

For most people who still have older, variable-rate loans, consolidation is still a good bet, says Rob LaBreche, president of consumer marketing for College Loan Corporation, a top student lender.

"For students graduating this year, 3 out of 4 of their [Stafford] loans will still have variable rates, and those rates will change again this summer," he says. New rates are tied to the interest on three-month Treasury bills, and Mr. LaBreche expects that rate to rise this year, "though not by much."

Burdened by school debt? Others will pay it for you.

If you've weighed all the options and decided that consolidating a student loan is not for you, financial columnist Janet Bodnar offers another idea: "Just get someone else to pay for it," she says. "There are many ways to have your debt wiped clean."

Agreeing to volunteer for AmeriCorps or Teach for America, she says, can reduce or eliminate student loans. Both programs ask young graduates to work for a year or two in low-income areas.

The Peace Corps allows volunteers to defer payments on certain federal loans until they return, and the program will gradually cut Perkins loan debt for each year borrowers serve.

The Army National Guard offers up to $10,000 for repaying student loans. Recruits will also find that many veterans' associations offer scholarship and tuition assistance for soldiers, according to the website,

For law school grads, Equal Justice Works in Washington runs a clearinghouse for information on how to have debt forgiven in exchange for pro bono work, especially in the areas devastated by hurricane Katrina.

The American Federation of Teachers keeps a database of loan-forgiveness programs for full-time teachers. The group's website ( lists programs in 42 states and information on projects run by the federal government.