Here's a good article regarding the national crisis with School Loan Consolidation.
School loan consolidation program suspended
HELENA - In another major cost-cutting step this month that will affect students borrowing money to attend college, the Montana Higher Education Student Assistance Corp.'s board of directors voted Wednesday to suspend its federal student loan consolidation program.School loan consolidation program suspended
Problems in national financial markets get much of blame
Since it began offering these federal student loan consolidations in 1995, MHESAC said it had provided more than $790 million in consolidation loans to 49,000 Montanans. These allowed these Montanans to effectively manage their student loan repayments by locking in their student loan interest rates at their then-current interest rate for up to 30 years. Some interest rates were as low as 2.85 percent.
Those student loan consolidation requests already submitted will be completed, but no new ones will be accepted, said Jim Stipcich, president and chief executive officer of the Student Assistance Corp., a nonprofit group that serves as MHESAC's business manager.
MHESAC anticipated that it would have done $45 million worth of consolidation loans this year. Suspending these $45 million worth of loans will save MHESAC $6 million over the life of these loans, Stipcich said in a telephone interview.
"As part of our ongoing commitment to Montana students and borrowers, our loan education counselors will be available to work with them to find another provider of federal consolidation loans," Stipcich said in a press release.
However, he said later that across the country, most lenders are not offering consolidation loans. These loans are still available under the federal direct loan program in which students apply directly through the federal government.
About 15 percent of Montana students use the federal direct program, while the remaining 85 percent use MHESAC.
Stipcich said extended repayment plans on student loans may help some borrowers instead of student loan consolidation. These plans will reduce monthly payments and spread them out over a 20-year term.
MHESAC Chairman Fred Flanders of Helena said a variety of factors led the board to suspend the loan consolidation program. The most significant, he said, were changes in lender yields authorized by Congress in October 2007 and the disruption in national financial markets.
"In the current climate within the student loan industry, providing FFELP (Federal Family Education Loan Program) consolidation loan products is just not economically viable," Flanders said. "While student loan consolidation still provides benefits for borrowers who already have student loans, MHESAC believes it's crucial at this time to concentrate on ensuring that Montana students have access to funding for their postsecondary education."
Flanders said MHESAC wants to assure Montanans that it remains focused on helping students "attain their dreams of higher education."
"In addition, we will continue to work closely with our partners in the industry and Congress to identify an effective solution to the challengers facing the federal student loan industry at this difficult time," he said.
Last week, MHESAC announced that it faced its first operating loss in history. The credit and liquidity crisis on Wall Street has increased MHESAC borrowing costs on its outstanding financings by more than $14 million over the past nine months, Stipcich said.
Flanders said MHESAC has secured funding for Montanans for federal student loans for the 2008-09 academic year. The amount available is $175 million.
Asked about the availability of student loans for Montanans in future years beyond 2008-09, Stipcich said in an interview on April 15, "At this point, we don't know if could access the markets to raise funds for future years."
On April 14, MHESAC announced that it was reducing benefits to future student loan borrowers by $3 million and telling SAF to eliminate any unnecessary expenses. It reduced "borrower benefits," which Stipcich said means that students no longer can count on MHESAC to pay the borrower origination fee and default fee on their student loans on their behalf as it has in the past. It amounts to 2 percent.
In the past, students getting MHESAC loans received 2 percent more in loan proceeds than they will in the future. For example, if a student borrowed $15,000, the person would get the full $15,000 in loan proceeds because MHESAC paid the 2 percent origination and default fees, which amount to $300 in this example.
Starting this fall, however, a student borrowing $15,000 will receive $14,700 in loan proceeds because the student, not MHESAC, must pay the 2 percent origination and default fees, which come off the top of the loan proceed amount.
In addition, the Student Assistance Foundation has shrunk its staff by 35 employees through attrition, Stipcich said. It now has 233 employees.
"Everything is on the table," Stipcich said.
Published on Thursday, April 24, 2008.
Last modified on 4/24/2008 at 12:30 am
Copyright © The Billings Gazette, a division of Lee Enterprises.
