College Loans Consolidation Blog

For the last few years, college tuition has been on the rise across the United States. In 2004/05 Arizona students paid $10,863 in tuition and fees to attend four year public colleges and $19,448 to attend four year private colleges. With approximately 35,366 Arizona residents between 18 and 24 with a Bachelor’s degree, recent grads are feeling the financial burden and are in search of student loan management solutions.

NextStudent, the Phoenix-based premiere education funding company, recommends the Federal Student Loan Consolidation Program as a smart strategy to free up extra cash, improve credit scores and help manage the monthly budget.

The program was created by Congress to help simplify student loan repayment and make monthly payments more affordable for the newly graduated student. The term on a consolidation loan is 30 years, 18 years longer then the term on student loans, which can lower monthly payments by up to 60%.

By consolidating federal student loans, borrowers bundle multiple loans into one single loan. Therefore, credit reports reflect payment in full on the multiple outstanding loans which can help recent graduates qualify for lower interest rates on car loans and/or mortgages.

Consolidation with NextStudent is free of charge and there are no fees or prepayment penalties. NextStudent offers an easy online application with Electronic Signature, and NextStudent’s personal Education Finance Advisors help walk students and parents through the consolidation process.

When to Consolidate

It is easy to qualify for a NextStudent consolidation loan. All a student or parent needs is at least two federal student loans from two different lenders that total $10,500. In as little as 5 minutes applicants can qualify for consolidation over the phone, and get their questions answered by an individually assigned Education Finance Advisor. The program does not require credit checks or co-signers.

Student borrowers are eligible to consolidate during the grace or repayment period of their student loans. NextStudent offers students a “New Grad” incentive, a .6 percent discount off of the fixed interest rate, if they consolidate during the six month grace period after graduation.

Parents can consolidate federal PLUS loans after the final distribution of the loan. They do not need to wait until the student graduates from college. Because consolidation is based on a borrower’s social security number, parents can consolidate multiple PLUS loans taken out for multiple children.

Additional Incentives

When borrowers consolidate their loans, they lock the new loan in at a fixed interest rate. Because these are federal loans, that interest rate is set by the government. Therefore, when choosing a company to consolidate with, borrowers should look at the incentive packages offered by lenders because these are the only true differences between lending companies.

NextStudent offers borrowers the option of three packages. The “Standard Locked,” which offers a 1 percent LOCKED RATE reduction after 36 consecutive on-time payments and a .25 percent discount when the borrower opts to pay via Auto-Debit; the “2 %,” which offers a 2 percent rate reduction after 36 consecutive on-time payments and a .25 percent discount when the borrower opts to pay via Auto-Debit; and the “Google,” which offers a .375 percent discount after six months of on-time payments, a 1 percent discount after 36 consecutive on-time payments and a .25 percent discount when borrower opts to pay via Auto-Debit.

It has been the hot topic in the news for the past couple months and on my blog, so we all should know by now that the 110th Congress is controlled by the Democrats. Why is that big news? Because 2007 is the first year the Democrats have controlled the Congress since 1995.

Surprisingly, the hot-button issue in this new Congress has been that of postsecondary education. In an attempt not to be outshone when it comes to middle-class issues, the Republicans also have rallied behind higher education initiatives. The end result has become something of a power struggle.

According to a Feb. 13, 2007 article written by Arthur M. Hauptman titled “Missed Opportunities on Financial Aid” that appeared in Inside Higher Ed:

“With support for postsecondary education now a hot political topic, federal politicians from both parties are engaged in a tug of war to see who can outbid the other in providing more financial aid to students and their families. House Democrats, as part of their ‘first 100 hours’ agenda, pushed through a bill to cut interest rates in half for some new borrowers. Democrats in both the House and Senate followed up by proposing the first increase in the Pell Grant maximum award in several years. The White House, not to be outdone, has now proposed more than a 10 percent increase in Pell Grants as part of its fiscal 2008 budget package and more increases down the line, all to be paid for by reduced lender profits and cuts in other federal student aid programs.”

Who Wins, Who Loses?

Hauptman, a public policy consultant who specializes in higher education finance issues, reported:

“More importantly, the Democrats’ plan helps the wrong borrowers. The interest rate cuts are limited to new borrowers in the subsidized student loan program, who, by definition, already qualify for federal interest payments while they are in school. As a result, they are precisely the students who least need the assistance in the near term, because the federal government is already paying the interest on their loans (which also means there is no net cost to the government while these borrowers remain in college, since it is already responsible during that time for making all interest payments to lenders). In this scenario, the students’ benefit from lower interest rates and the new cost to the government will occur only when repayment begins at least several years from now.

“By contrast, the House-passed legislation provides no help for the millions of borrowers who are currently having trouble repaying their loans because of high debt levels and/or low incomes. It would have been much better if the House had sought to help these borrowers, for example, by allowing them to consolidate all their federal student loans into a single loan repayment schedule when they leave school and begin repayment. This expansion of existing consolidation provisions would greatly simplify the student loan system by allowing borrowers to refinance their student loans once they leave school.

“Or the House could have sought to expand the largely underutilized income contingent provisions that give borrowers the option to repay their loans on the basis of their income once they complete their educational program. Rather than provide postponed help for new borrowers, these two changes would provide immediate relief for millions of borrowers who need the help now. And these two changes could actually save the government money rather than add to costs if they were financed directly by the federal government rather than having the loans continue to be held by the private sector which demands federal payments over the life of the loan.

“Senator Edward M. Kennedy of Massachusetts, the newly restored chairman of the Senate Health, Education, Labor and Pensions Committee, seems to understand this problem. He has emphasized the need to expand income contingency for borrowers who need help with their repayments and in moving toward greater reliance on direct loans as a way to cut government costs. Hopefully, he can persuade his colleagues in the Senate to provide some real repayment relief to borrowers rather than the cosmetics offered by the House. Otherwise borrowers with repayment problems will be out of luck for another several years until the politicians turn their attention back to this issue.”

This past week I have reported on what is happening with the FY08 budget, a big part of which is the increase in the Pell Grant from $4,600 this year up to $5,400 by 2012. The question on everyone’s mind is: Where is all that extra money going to come from? Many have speculated that the $2 billion-plus required to cover the increase would come from cutting other federal programs or grants that favor low-income students and their families.

According to a Feb. 6, 2007 article by Karin Fischer titled, “Perkins Career and Technical Education Program Survives but Would Be Cut in Half” that appeared in The Chronicle of Higher Education, there may be a partial answer. Apparently, President Bush is slashing funding for the Carl D. Perkins Career and Technical Education program that serves low-income families. My guess is that this action is the beginning of several cuts yet to come that likely will cover the $2 billion Pell Grant shortfall.

Funds Slashed, But Program Retained

Fischer wrote, “Under the president’s budget plan for 2008, which was released on Monday, the vocational-education program would receive $617.4-million, down 52.6 percent from the 2006 fiscal year, the most recent year in which a federal budget was signed into law.”

Earlier, Bush commented that the program was “ineffective,” the article said, intending to eliminate it altogether. In fact, according to the article, “In his 2007 budget proposal, President Bush had called for the elimination of all federal technical-educational spending, saying that the Perkins program had ‘produced little or no evidence of improved outcomes for students despite decades of federal investment.’ ”

The article continued, “But administration officials were persuaded not to press again to scrap Perkins after changes were made during the program’s reauthorization last summer (The Chronicle, August 4, 2006).”

Either way you look at it, the money has to come from somewhere, and that means cuts to valuable programs of debatable value, depending upon with whom you talk. This implies growing pains for those who see their funding disappear, pains that likely will be isolated to the low-income college student camp.

Low-Income Students, Community Colleges Most Affected

The intended cut has received much criticism. The article quoted David S. Baime, vice president for government relations at the American Association of Community Colleges, who said, “Our colleges cannot comprehend that an administration that is so laudatory of their work would slash a program that is so essential to their quality. It is just totally bewildering to us.”

This community college segment of the student population is the one that may be hardest hit. “About 40 percent of Perkins funds go annually to community colleges to prepare students from low-income families for the workplace,” the article stated.

Here is the rundown from the article on the specifics of the cuts: “The budget plan would cut the amount of money awarded in state grants through the Perkins program by nearly 50 percent from the 2006 fiscal year allocation, to $600-million. And it would eliminate federal support for the Tech-Prep program, which gives students a technical education spread across two years of high school and two years of community college. About $104.8-million in Tech-Prep grants were awarded in 2006.”

According to a Feb. 6, 2007 article by Doug Lederman titled “The Bush Budget, 2008” that appeared in Inside Higher Ed, “Even in the best years, presidential budget requests are of uncertain value, because they mark only the starting point for a long and often tortured process of deliberation, negotiation and, sometimes, outright war. The value of the White House’s 2008 budget is diminished further because Congress has yet to finish its work on the final budget for the 2007 fiscal year. That reality renders the numbers in the Bush budget for 2008, if not meaningless, at least hazier and fuzzier than usual.”

Changing the Budget Could Mean Complications for Legislators

By earmarking funds that would go to other low-income grants to help solve the Pell Grant initiative, Bush seems to complicate the college funding crisis even further. Lederman reported, “The budget picture is complicated even further by the fact that the administration would seek to pay for some of its new initiatives with changes in mandatory spending programs that would require the kinds of major alterations in federal student aid law that legislators are loathe to make in the budget-setting process.

“The more than $2 billion that the department would try to squeeze from lender profits to pay for the 2008 Pell Grant increase, for instance, would be possible only if Congress were to include such changes in legislation to renew the Higher Education Act, or pass a complicated budget reconciliation measure, in conjunction with the annual appropriations bills. Those prospects are dicey, casting further doubt on the likelihood that the Bush budget numbers will come to pass.”

What the Lenders Say

The new budget also proposes to “cut the interest rate subsidiary” that private lenders receive for funding federal student loans “by 0.5 percentage points” in a bid to raise the additional 12.4 billion needed to increase the Pell Grant to $5,400 by 2012, the article said.

In the article, Lederman quoted Joe Belew, president of the Consumer Bankers Association, as saying “Student lenders cannot sustain cuts of this magnitude, which would cut margins by about 20 percent. Driving away banks from this program will leave students with either a government monopoly or an oligopoly of loan providers and few if any of the benefits currently provided by competition. These include lender-paid origination fees, financial literacy and default prevention counseling, rate reductions for timely repayments, and quality customer service. Without banks in the student loan program, graduates can look forward to IRS-style quality of service.”