Student Loan Debt Consolidation Options

Submitted by John Waters

As banks, insurance companies and other large corporate institutions receive federal aid and bailouts; the government is reminding student loan recipients of alternatives to avoid financial disaster. Options include debt consolidation and special jobs that promise to forgive some student loans.

FFEL Debt Consolidation

Since the passage of the Higher Education Act of 1965, lawmakers have been passing various pieces of legislation to fine tune their initial plan to make college affordable for more people. According to the Project On Student Debt (POSD), a bay area advocacy group, “As the consolidation loan interest rate formula has been modified by Congress, consolidation loans have evolved into a refinance benefit as well.”

The current Federal Family Education Loan (FFEL) program consolidation loan interest rate formula affords borrowers the opportunity to secure a fixed rate equal to the weighted average of the rates in effect on underlying (variable rate) loans being consolidated rounded up to the nearest one eighth of 1%. (See link below)

The POSD says that students considering a fixed debt consolidation loan should take advantage of “periods” of low interest rates. It does not make since to lock in a high fixed interest rate. Since the report was written in 2004, interest rates have dropped considerably.

College Cost Reduction and Access Act of 2007

Last September President Bush signed the College Cost Reduction and Access Act of 2007 allowing forgiveness of some student loan debt. One provision in that act allows students who are not in default to have their FFEL loans forgiven.

Both interest and principal of a Federal Direct Loan - including Direct Stafford, PLUS, or Consolidation Loan - can be erased after 10 years of employment with a public service job as defined in the CCRAA. These full time jobs include emergency management, government, military service, public safety, law enforcement, public health, public education, social work, public interest law services, child care, public library sciences, or any other job at an organization that is described in section 501(C)(3) of the Internal Revenue Code of 1986.

This is a good option for students.