The month of July is fast approaching and with it, the looming deadline that will raise interest rates of federal student loans.
Beginning July 1, interest rates on student loans will rise from 5.3 percent to 6.8 percent, making June 30 the last chance for students to consolidate their federal loans.
Consolidating loans allows students to work with lenders to convert multiple loans into a single loan with a lower average interest rate. Although this has the potential to save students money, this benefit is often offset by an increased repayment period.
“Any time you consolidate, you pay more over the life of the loan,” said Julie Mallette, director of the Office of Scholarships and Financial Aid.
According to Mallette, another drawback to consolidating, and one that is perhaps of most interest to students, is that the repayment period begins immediately after consolidation.
Because of this factor, Steve Brooks, executive director of the State Education Assistance Authority, said there are some general guidelines for students looking to make the decision of whether to consolidate.
“As a general matter, if I was still in school and still planned to borrow, I would not consolidate,” Brooks said. “If I had already left school, I would.”
He pointed out however, that the decision to consolidate depends on the individual. That’s why the College Foundation operates a call center staffed with financial advisers for parents and students who need help. According to Brooks, the College Foundation accounts for two-thirds of the loans for students who attend North Carolina schools. But despite their role as a lender, the foundation’s advisers aren’t pushing consolidation.
“You don’t see many lenders saying ‘think about it,'” Brooks said. “Nobody can say for anybody that [consolidation] is the absolute right thing to do.”
Brooks said some things to consider are how much students have borrowed, how long they have borrowed and from which lenders they have borrowed.
According to Mallette and Brooks, many lenders often push consolidation for borrowers, even those who borrow from rival lenders. If borrowers choose to consolidate with new lenders, especially larger firms like Nelnet and Sallie Mae, it allows these firms to expand their loan portfolios, Mallette said. But what’s good for business can often be good for the students, Mallette said, explaining this competition may actually increase incentives for borrowers.
“It’s worth the lender’s while to keep you with them,” she said. “Lenders are usually willing to work with you.”
Although the decision of whether to consolidate can be a complicated one, Brooks said one thing is clear.
“Don’t wait until June 30 to do it,” he said.
Lynn Barnette, the College Foundation call center manager, said the center is already beginning to receive about 1,200 calls per day in the lead up to June 30. That’s up from the typical 600 calls per day, she said. Although the call center typically employs an average of 15 to 20 people at any given point during the 12 hours they’re open, they’ll have to take on extra workers to account for the surge of callers close to the deadline. Last year’s employees logged 33,000 calls the day before the interest rate hike, she said.
“Last year we stayed open until midnight,” Ben Kittner of College Foundation said. “There were people who basically slept here.”
According to the Office of Scholarships and Financial Aid, average loan debt for graduating seniors is $14,352. Brooks however, said the average indebtedness of students in North Carolina is around 16 percent lower than the national average.
Debt has increased nationally, but so have other factors. For example, in 1992 only needy students were eligible for loans, Brooks said. Congress has since opened this up.
“Over half of the students borrowing now weren’t eligible in 1992,” he said.
Both Brooks and Mallette advised that students seriously evaluate their financial need and borrow accordingly.
“Students need to think about whether they really need to borrow this dollar,” Brooks said. “You want people to have enough cash to have a live a good life in college, but you don’t want them to be burdened by debt.”