Former students find consolidating private education loans difficult

Robyn Peterson tried to consolidate her private and government-backed student loans after she graduated from college in 2008.

The Hall-Dale High School graduate, who successfully consolidated her federal loans six months ago, says the new repayment plan is an improvement. But not all is well in the world of student loans.

A consolidation -- while combining multiple loans into one payment with one interest rate -- offers borrowers convenience. But increases the total amount of the loan over time. Some banks don't offer it. And it can be hard determining which loans qualify.

The federal government runs a program called Direct Loans, which consolidated Peterson's federal subsidized and unsubsidized loans without a credit check.

But finding a lender to consolidate her private loans has been impossible. Peterson said she quickly found out only a handful of banks still consolidate private student loans, including JP Morgan Chase and Wells Fargo.

"Private loans are much, much harder to consolidate, as I've found," Peterson said. "One main issue is the fact that they are not subsidized during enrollment. So loans that I took out in 2003 are now quite a bit over the amount that I originally applied to borrow.

"I'm finding that no bank wants to touch them with a 10-foot pole."

When students consolidate their loans, separate loans taken out while attending college are combined into one, larger loan that is paid over a longer period of time -- as much as 30 years, compared with 10 or 15 for standard repayment.

This lowers the monthly payment but, in the long run, borrowers pay more interest.

Private loans, also known as alternative loans, are a supplement to federal financial aid.

Peterson said she owes more on the private loans than she originally borrowed because of the interest the banks charged during her five years of college.

Her private loan service provider, Sallie Mae, doesn't offer loan consolidation anymore, she said. Sallie Mae was founded by the government in 1972 to help students pay for college, but became private in 1997.

Martha Johnston, director of education products at the Finance Authority of Maine, said four or five years ago consolidation was very attractive because interest rates were low for students. They could lock in to a low interest rate for the life of a consolidated loan, she said.

She said it became unfeasible economically for private lenders to consolidate student loans after Congress changed the rules a few years ago and cut subsidies to lenders.


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