- The Washington Times - Monday, June 13, 2005

Catherine Lahovski, 22, graduated in May from George Washington University, but she had been thinking since school started in the fall about whether and how to refinance her student loans.

In the exit interview required of all departing students with loans, the university’s financial-aid office told her rates would increase almost 2 percent on July 1 and suggested refinancing. Now, she is planning to do it.

“The students I’m friends with have talked about it pretty frequently,” said Miss Lahovski, of Allentown, Pa., who has a dual major in political science and international affairs.

“I’ve talked to friends, compared notes, [about] what to do, different options,” she said. “Even among other friends looking at it, I’m probably better informed, so I try to help them out.”

She is considering earning a graduate degree in business several years from now.

The dramatic rate increase in the Stafford loan from 1.07 percent to 3 percent — the first since 2001 and the largest in 24 years — has many students and recent graduates debating if they should consolidate and refinance before July 1. In mid-May, the U.S. Department of Education ruled that current students are allowed to consolidate their loans; before the decision, they had to leave school first.

Lenders are pushing their student and parent loan-holders to act now to lock in the current rates. But for those students still in school or planning to take out additional loans for graduate or professional school, it may not make sense, many collegiate financial aid officers say.

Miss Lahovski, who will start her job in a few months, said she wants to consolidate her Stafford loans to lock in the current low rates. She hopes to pay off her existing Perkins loan before the grace period ends nine months after graduation.

She would like pay all her loans off quickly, but she said she decided an extended repayment schedule, even though it would cost more in interest, would reduce her monthly payments so that she could be sure of making them. Loans can be paid off early without penalty.

But not all students and parents are rushing to refinance.

“We’ve been getting a lot of phone calls. We tell students they have to weigh all the factors,” which vary depending on the individual, said Dan Small, chief financial aid officer at George Washington University (GW).

Mitch Biersner, 22, who also graduated from GW last month, decided not to refinance.

“Since I’ve been a freshman, I’ve been getting spam from lenders [on refinancing],” so it has been in the back of his mind, he said. But it took a call from his mother, who works in the financial-aid office of another college, to get him to look into it. After talking to his university’s financial-aid office, he decided not to refinance.

“Since I knew I’d be in school two more years [for a graduate degree], I decided to wait and do it all at once,” he said.

Students may consolidate loans only one time under federal law.

Many students, especially those who haven’t graduated or left school, have been caught off guard by the consolidation and rate-increase news, learning about it in mailings or e-mail from lenders or their financial-aid offices.

Sarah Moore, 21, will be a senior at the Catholic University of America next year. Her parents saw a letter from a lender offering refinancing and consolidation and urged her to check it out.

“I probably would have thrown it away if my parents hadn’t said something,” Miss Moore said.

Instead, she made an appointment to see Doris Torosian, director of financial aid.

“She didn’t even know what this piece of mail meant. It’s been confusing for students not graduating this year who aren’t prepared to think about the issue,” Mrs. Torosian said.

“Especially the short fuse, lenders saying ‘you gotta act, you gotta act.’ They feel as though they’re being rushed into making a decision without knowing what factors to take into account.”

Mrs. Torosian said she and Miss Moore would plug her figures and circumstances into the software her lender has online, calculating payment amount and total interest costs to see what would work best for her. The Department of Education also has a planner on its Web site, www.ed.gov.

After graduation, Miss Moore plans to work as a nurse. She can earn a fair amount money as a nurse and doesn’t expect to return to school immediately, so it probably would be best for her to pay off the loans quickly, Mrs. Torosian said.

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