Students urged to review loans

By Beverly Creamer
Advertiser Education Writer

With college loan program interest rates dropping to a historically low 4 percent, loan experts are recommending that college students take a look at consolidation now, especially those who have several outstanding loans amounting to large amounts.

"It makes sense for students with tremendously outstanding balances," said Lorraine Teniya, manager of customer relations for the Hawai'i Educational Loan Program, a nonprofit Hawai'i loan guarantor.

"If they have an interest rate of 8 percent on a $100,000 balance and they're repaying over 120 months, they could be paying $1,200 a month," said Teniya.

"If they went to the lower rate, they could be down to a little over $1,000 a month."

The repayment interest rate on a consolidation loan is 4.86 percent.

For the past three years Hawai'i students and their parents have borrowed more than $71 million annually to further higher education at Hawai'i colleges and universities, according to Teniya. And that doesn't count the millions more spent on loans by those who leave the state for college.

At Chaminade University, for instance, the majority of students have taken out loans, said financial aide officer Eric Nemoto. "If you're depending on financial aid," said Nemoto, "you're going to have to take out loans. There just aren't enough grant monies to go around to cover all the costs a student would have."

But Teniya said that as families and individuals look at their loan debt, they also have to consider certain disadvantages of loan consolidation. In particular they have to be aware of the interest rates on each of their loans. Some may be as high as 7 percent or 9 percent, but others as low as 3 percent. Now is the time to pencil out the numbers and see if consolidation is advantageous, she said.

A Web site that can help is www.salliemae.com, she said.

A toll-free line at (800) 448-3533 will answer inquiries about consolidation and how to go about it.

While the loans have had variable rates annually, it's also now possible to lock in the low 4 percent rates for a longer period.

"If they decide they want to go with consolidation, this rate could be locked in for 30 years, or the length of the repayment period," said Teniya.

"Stafford (federal) student loans are variable, so they change from year to year every July 1st. Currently it's 3.99 percent to borrow. And if it's in repayment it will go to 4.06 percent."

There's another benefit to consolidation, she said. It could simplify payments, especially for those who may have a number of different loans requiring separate payments.

Some students are already considering getting aboard the bandwagon of consolidation. Dean McGinnis, 41, a graduate student in counseling psychology at Chaminade University, owes more than $50,000 in college loans and is considering whether to consolidate now or wait.

"If I was to get out today it's around $700 a month I'd owe, if I pay it back in 10 years," he says. "If you go the consolidation route, it cuts it in half, but you pay back in 20 years for around $400 a month."

But with two more years to go on his second master's degree with which he hopes to teach, McGinnis hasn't yet made a decision. He may wait, hoping the interest rates will stay low. The good part, he adds, is he doesn't have to start paying back the loans themselves until six months after he graduates.

Or he may do what Chaminade's Nemoto did when he was borrowing money for his undergrad and graduate degrees in College Student Services Administration at Oregon State in 1983.

"I did the American thing," says the Chaminade director of financial aid. "I rolled it over into a mortgage loan."

Reach Beverly Creamer at bcreamer@honoluluadvertiser.com or 525-8013.