Student-Loan Consolidation Choices Shrink
PITTSBURGH (AP) - Kari Schoeneweis will face more than $60,000 in student loan debt when she graduates from Carlow University in spring.
She plans to do what her older siblings did and consolidate her loans to reduce the monthly payments.
"I'm terrified of the loans I'm going to have to pay off,'' she said. "I don't know how I'm going to do it; I guess I'll get through it somehow.''
Schoeneweis, 22, is among many students who were unaware that consolidation options are more limited now than they were for students who graduated a few years ago. Many lenders suspended consolidations because of consumers' credit problems, leaving mainly the U.S. Department of Education a the nation's loan consolidator.
"It is surprising, but then again it's not, considering all the stuff that's happening with the economy,'' Schoeneweis said.
The Pennsylvania Higher Education Assistance Agency, or PHEAA, suspended its consolidation program in February. Sallie Mae, Nelnet and Next Student - among the top 10 consolidators in 2007 - followed suit. Of the top 100 consolidators, 68 have suspended consolidations, said Mark Kantrowitz of Cranberry, publisher of FinAid, an online resource about financial aid.
"(Consolidation suspensions) accelerated after Oct. 1, 2007, when the federal government cut lender subsidies on all federal loans,'' Kantrowitz said. "At current interest rates they are underwater from the start.''
As a result, the Department of Education's consolidation applications are up 50 percent from last year, a spokeswoman said.
Consolidation was a popular option for many years because federal loans previously carried variable rates, which hit 40-year lows in 2002. Some students used consolidation to lock in interest rates as low as 2.8 percent.
In July 2006 federal loans began to carry a fixed 6.8 percent interest rate and there are fewer benefits to consolidating. It's more expensive for lenders, said Martha Holler, a spokeswoman for Sallie Mae.
"It's just not economical to make these loans,'' she said. "The current credit crisis; the turbulence in the capital markets would have to settle down.''
Eric Donato, 21, a senior at the University of Pittsburgh, will face $80,000 in debt when he graduates. He has considered consolidating his loans, like his older sister did when she graduated college, but was unaware that other options exist.
He was surprised to learn he'll probably have to consolidate through the Department of Education.
"I don't know too much about it, but it seems like it would make it easier,'' he said.
He's preparing to live a lean lifestyle after graduation.