New Loan Repayment Option

The Education Department is giving student borrowers a new way to consolidate -- and to lock in lower interest rates.
May 17, 2005

The Education Department on Monday announced that it was permitting currently enrolled students to consolidate loans in the guaranteed loan program -- while they are still students -- which would enable them to lock in interest rates.

Consolidated loans have a fixed interest rate set by the weighted average interest rate of the loans being combined. In times of flat interest rates, it may be of little consequence to many students whether their loans are consolidated. But with interest rates expected to go up significantly in the months ahead, student aid officials have been concerned about the inability of students in the guaranteed loan program to consolidate.

Previous interpretations of the student loan regulations have held that current students -- who had not yet entered repayment -- did not have the consolidation option in the guaranteed program. But some student aid officers have thought that such an option could be created under existing law, and that is what the Education Department did on Monday.

Along with the announcement, the department issued a series of questions and answers with details on the policy for loan officials.


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