Student Borrowers Must Consolidate Now

Interest rates are on the rise, and the rates set in July are likely to be higher. Ordinarily, I'd wait until springtime to bring up the subject of student loan consolidation. But, given the pending legislation, I am recommending that all students -- even those still in school -- move to immediately consolidate their existing loans at today's low rate of 4.75%. Of course, current students will have to pay next year's rates on subsequent loans -- and may ultimately want to consolidate those loans. But consolidating at current rates on whatever loans you already have could save you a small fortune in interest.

Just at the time when our country needs college graduates to keep up with technology changes in this competitive world, we're punishing students who borrow to finance their education. Why? In two simple words: money and politics. With over $300 billion in student loans outstanding, there's big money to be made by the relatively few lenders who dominate the market for student loans.

In fact, for years a quasi-governmental organization called Sallie Mae (Student Loan Marketing Association) dominated the entire market. Awhile back, the organization dropped its federal charter and morphed into a non-governmental, profit-making company that still uses the Sallie Mae nickname but is now officially SLM Corp(SLM Quote). It controls so much of the student loan market -- nearly 25% of loans outstanding -- that in 2004 SLM was among the most profitable companies in the country.

Profit isn't a dirty word in this column. But these lenders get a guarantee against default on 98% of the student loan balance, as well as a guaranteed yield of 2.34% over the commercial paper rate on consolidation loans. That and other yield guarantees on in-school loans, have resulted in a net profit of over 1% of loan volume. You do the math. On a portfolio of nearly $100 billion, that's over $1 billion in profit!

Now SLM -- the old "Sallie Mae" -- is strongly behind the current proposals to make it more difficult and expensive for students and graduates to refinance the loans that Sallie Mae and big banks currently hold. If you're a student, graduate, or parent, it's time to make your voice heard as the proposals are currently before Congress. Making a college education more expensive is no way to solve our nation's global competitive problems. And that's The Savage Truth.