Student Borrowers Beware

by Gina Varolli

The Bush administration now realizes that the US is facing serious budget shortfalls. As a result, it is seeking to take money from existing programs in order to make up for the projected $100 billion federal deficit. While it is good that the administration seeks to balance the budget, the first rumbling regarding where the money should come from is both disappointing and not at all surprising.

The bright idea is to save $1.8 billion by eliminating the Federal Direct Consolidation Loan program. At present, under this program students and alumni can consolidate their various student loans and lock in a fixed low interest rate. Moreover, the consolidation loans are granted upon request, without any fees, mandatory credit checks or up-front costs to the borrower, and an individual taking advantage of this program can have up to 30 years to pay back the debt. This program is and has been a blessing for many low and middle-income families, yet despite its merits, it has been targeted for elimination.

This program is important for it allows students who put themselves through college on Stafford and other federal loans to significantly decrease their monthly payments and to make said payment to only one entity. As a student in the US receiving federal loans, you do not exactly have the power to choose your lender such that every year your new loans are all derived from the same bank. Many students graduate from university to discover that they must make several monthly payments to different lending institutions at variable interest rates. For low-income graduates this can prove detrimental to the successful building of a secure future as payments can reach into the hundreds each month.

By taking advantage of the Direct Loan Consolidation program, students can avoid falling into default status on their loans, thus damaging their all-important credit rating. Moreover, students who may have already fallen into default for an inability to make timely payments are given the opportunity to restructure these loans and get themselves out of default.

Since 1986, this program has helped millions of low and middle-income students to act responsibly in paying back their debt to the federal government. It has helped millions to avoid or to get out of default, thus saving their credit record from extreme damage and aiding them in this way when it comes time to purchase a home or automobile. Of all the programs offered by the government in the aid of students seeking higher education, this is one of the best and most valuable.

Unfortunately the merits of this program are not enough to prevent Bush from targeting it for elimination. One poor argument for its elimination has been given: that the program has allowed high-income professionals such as doctors and lawyers to consolidate their loans at the expense of the federal government. This argument is being put forth largely by the banks/lenders.

It is important to note however that the majority of participants in this program are not coming from the higher economic strata of society. The vast majority of citizens who take advantage of this program are those who earn a modest living, not doctors and lawyers. Granted, some high-income professionals do take advantage of this program, but it must be remembered that at the time that they were students these professionals did not fall into the high (family) income category. At the time they were students, these borrowers were in the low to middle-income bracket... thus should they be penalized because they have taken their degrees and earned for themselves a good living? I think not.

The US is one of the few industrialized nations that does not provide free higher education to its citizens. If you had the good fortune to be born in Sweden or Norway, just to name two, your university education would be free for the taking. No loans, just a free shot at a college education. The idea is that the future of a society rests in the hands of the coming generation, and that that generation had better be well educated and unladen by often crushing education-related debts. The investment in higher education is an investment in the economy and in the citizens of a nation. The more citizens who are adequately educated, the less who will end up in poverty or on the dole, thus fewer who will become dependent upon their government for their livelihood.

However, it appears that since Bush has taken up residence in the White House, the priority for federal spending has been the Department of Defense. Bush^Òs supplemental spending bill is a whopping $27 billion, the majority of which is earmarked for counter- terrorism programs. In order to spend this huge amount while also attempting to avoid an astronomical federal deficit, programs such as this here mentioned are in jeopardy.

Now I do not claim that defense spending is not necessary or important. But one must spend realistically and responsibly, and one must not forget that the primary concern of any nation ought to be the well being of its citizens. Certainly, avoiding another catastrophe like that of September 11th is important to the well-being of the citizens of the US, but so is ensuring that every American has access to higher education and to programs which make that education more affordable to those who don^Òt have the money to spend on university. The bottom line is that if the Bush administration foresees a $100 billion deficit, perhaps it ought to re-think its proposal to spend so very much on defense rather than cutting important social programs which help to ensure the long-term heath of the US economy.

The only good news here is that the administration has stated that this program cut would not be retroactive. Hence, if you have already taken advantage of the program you need not worry about how this change will effect your consolidated loan. In light of this, and given that the administration has a way to go before this idea is put into action (it faces major opposition from the Democrats), I must take this opportunity to recommend to anyone considering this option to stop thinking about it and just do it. If you are already in default, this program will put you back in good standing, so don't let that scare you away from the option of consolidating your loans. I sincerely encourage all holders of unconsolidated student loans to visit the program^Òs web site and explore this option before it^Òs too late. ( )

Gina Varolli is a freelance writer living in the Washington DC area. She writes a weekly column for