As the six month grace period on most student loans comes to an end, recent and future college graduates may find themselves in a financial bind. A sizable percentage of college graduates will require assistance in order to pay down their debt. Yet, many of the top corporations responsible for financing supplementary education have decided that loan consolidation is a risky business. Loan consolidation has always been fairly unremunerative for creditors, and economic decline further isolates lenders from this practice.

Sallie Mae Discontinues Consolidation

Despite its status as the country’s leading student loan lender and a reputation for offering low-cost credit financing, the Sallie Mae corporation’s announcement in early 2008 that they would no longer offer student loan consolidation or waive the origination fees on Federal Stafford Loans was not unexpected. In general, the nation’s economic situation has made credit less available due to creditors’ reluctance to invest in the growing numbers of potentially high-risk borrowers.

However, the recent actions of Sallie Mae and the majority of Federal Family Education Loan Program (FFELP) lenders were directly in response to legislative rulings affecting the cost of buying and selling consolidation loans. The 2007 College Cost Reduction and Access Act established a lower, fixed rate on all federal student loans for undergraduates and instituted a timetable by which the rates would continue to decrease annually. The law now also requires that lenders payer higher loan fees, while reducing the funds owed to creditors from defaulted loans, special allowance payments, and other bonuses.

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