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Fitch Comments on FFELP Single Holder Rule Repeal & 7/1 Interest ...

NEW YORK--(BUSINESS WIRE)--June 21, 2006--Prepayments for Stafford and PLUS loans are likely to increase, according to Fitch Ratings.

On June 15, President Bush signed H.R. 4939, the 'Emergency Supplemental Appropriations Act for Defense, the Global War on Terror, and Hurricane Recovery, 2006.' This legislation includes a repeal of the single holder rule for borrower applications received for consolidation on or after June 15, 2006. This means that a borrower who has all of his/her student loans with one lender may now consolidate with any lender. Previously, a borrower in that case would have to consolidate with that same lender. The Higher Education Reconciliation Act passed earlier this year in April, eliminated in-school and spousal consolidations. This would require that borrowers enter repayment prior to consolidating.

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Students, parents rushing to consolidate loans before deadline

College students and parents are clogging phone lines and rushing to Internet sites in a scramble to refinance college loans before a sharp interest rate increase this weekend.An almost 2 percentage point interest rate increase for federal student loans kicks in Saturday, and advisers say that not refinancing could cost thousands of additional dollars in interest in the decades after a student enters the work force.Tim Bornemeier, managing director for Lincoln-based student loan company Nelnet, said Thursday he’s been seeing a "record-setting amount of calls."Bornemeier said Nelnet has seen a steady increase in call volume over the last six to seven weeks.He said operations have gone smoothly, as most people calling have been prepared and fairly well-educated about the process. Nelnet was prepared, too, as Bornemeier said the company added 100 people to its workforce over the past few months to deal with the increased consolidation business.Bornemeier said Nelnet, which is one of the largest student loan consolidators in the country, this year expects to exceed the more than $4 billion in loan consolidations it did last year.Other loan agencies also are experiencing high demand.For-profit Sallie Mae, the nation’s largest student loan holder and one of Nelnet’s main competitors, is on pace to meet or exceed last year’s late crush of student loan consolidations, said Pat Scherschel, the company’s vice president for loan consolidation.At the Missouri Higher Education Loan Authority, the nation’s 12th largest student loan holder, calls were coming in at a clip of up to 15 a second, contributing to a tenfold increase in applications for student loan consolidations, said Raymond Bayer Jr., the agency’s interim executive director.Nonprofit student loan agencies in states including Iowa, Indiana, Ohio and Texas also have seen sizable increases in their applications as the rate increase approaches, said Alexa Marrero, spokeswoman for the Education Finance Council, an association of nonprofit secondary student loan marketers.The federal government adjusts interest rates on its student loans each July 1 based on a formula tied to the yield on short-term Treasury bills.The variable rate on a common Stafford loan dipped to as low as 2.77 percent for students in the 2004-2005 school year and 3.37 percent for graduates already making repayments.

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