WASHINGTON--(COLLEGIATE PRESSWIRE)--Apr 23, 2003--In the next several weeks, hundreds of thousands of seniors will graduate from college across the nation-many with student loans to repay. One option for those with high student loan balances is consolidation. Today, Federal Consolidation Loans for students are available with fixed rates at historic lows: as low as 2.25%, depending on the lender. What could be easier? You graduate, you consolidate your student loans, and you trade in your variable rate loan for a low fixed-rate option. It`s just that simple.
Or maybe not, due to a little known law that lenders are using to prevent students from shopping for the best loan rate. The Single Lender Rule provision states that borrowers whose loans are all held by the same lender cannot move their loans to the consolidator of their choice. Instead, borrowers must stay with their original lender. This means that, if another lender has a better consolidation program with a lower monthly payment, borrowers cannot take advantage of it. In fact, even if borrowers have experienced poor service with their original lender, they still are required to stay with that lender to consolidate.
Louisiana Senator Mary L. Landrieu is out to change that. The senator has proposed the Consolidation Student Loan Flexibility Act, which would ensure that all students, regardless of the holder of their loans, would be able to consolidate loans with the lender of their choice. ``The Single Lender rule is an arbitrarily contrived barrier to students,`` explains Landrieu in her letter covering the Act. ``An estimated 14 million borrowers ... are effectively denied the opportunity to seek out the lowest cost consolidation loan.``
The Consolidation Student Loan Flexibility Act was re-introduced to Congress April 7, but faces stiff opposition from lenders and the Consumer Bankers Association. In the meantime, however, some students have found creative ways to avoid dealing with the Single Lender Rule.
``I switched lenders for the second year of my PhD program,`` says Ellen Frishberg, Director of Student Financial Services at Johns Hopkins University. Ms. Frishberg`s position at Johns Hopkins makes her well aware of the challenges students face. For her, the decision to have multiple lenders of her student loans was an easy one. ``I knew that I wanted to take advantage of student loan consolidation. I also knew about the Single Lender Rule and the problems it has caused for my own students. By ensuring I had at least two lenders of my student loans, I avoid the problem. Until legislation is passed to change the Single Lender Provision, it`s just the smart thing for students to do.``
Who is against the Act`s passage? Large, traditional lenders who use the rule to keep loans on their books. With the current low interest rate environment, consolidators across the country have been competitively pricing loans to appeal to new graduates. In many cases, they offer rates lower than traditional lenders are willing to go. To ensure they maintain their profits, lenders invoke the single lender rule, effectively forcing student loan holders to remain with them.
``Imagine a federal law which required homeowners who want to refinance their mortgage to do so only with their existing lender,`` says Landrieu. ``Make sense? Neither does the Single Lender Rule.``
Students can contact their senator on the web at www.senate.gov, to urge them to support the Consolidation Student Loan Flexibility Act.
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