Student Borrowers Must Consolidate Now

Then, last January, the Department of Education ruled that graduates could sidestep existing laws against reconsolidation by moving their loans into the Department of Education's Direct Consolidation program. That done, they could reconsolidate again with a private lender offering better terms. Under current law, that's the only way to get a second chance at a low-rate consolidation. And thousands of savvy borrowers are doing just that.

Now, if legislation proposed by the House of Representatives passes, that opportunity will disappear. If the House bill passes, the vast majority of borrowers, who have already "refinanced" or "consolidated" student loans one time will never be able to do so again.

Not only is that a rotten deal, but the House is in the process of making it worse. New legislation proposed by the House would prohibit students who are in school from locking in their current rate of 4.75%. Instead, the rate would jump to 6.3% for this year's graduates, then to 7.9% for those graduating after this coming June.

A bill now pending in the Senate has similar, but less onerous, changes proposed. While the Senate bill would raise rates for new Stafford loans to 6.8% beginning next July, it doesn't prohibit in-school consolidation or charge the much higher consolidation rates that the House bill proposes. Instead, it continues to allow borrowers to consolidate at the weighted average of their current loans.

It was only last May that the Department of Education ruled that borrowers need not wait for graduation to consolidate. And thousands of current students immediately stepped forward to lock in last year's rates, which were the lowest in history. Unfortunately, not everyone found out about this break, and millions didn't take advantage of it. Now, if pending legislation passes, they'll miss a great opportunity.