The consolidation landscape

"While a few months paying an interest rate that's 4.7 percent rather than 2.77 percent may not seem like a big deal, for someone with more than $100,000 in loans — like Amstel and others who attended expensive professional schools and private colleges — "it's huge," said Julia Clayton, director of student financial services at Downstate. "It's thousands and thousands of dollars" over the life of the loan. The Department of Education says that "all paperwork must be completed before borrowers may lock in fixed consolidation rates" — meaning the old, lower rate can only be applied upon completion of the application. And lenders say it was simply impossible to complete all the last-minute applications in time. Student loan giant Sallie Mae, or SLM Corp., will also charge students the higher rate for a period of several weeks until the applications are complete. The company has about $6 billion of consolidation loans still working their way through the system. Sallie Mae processed 360,000 consolidation applications in the second quarter, said Martha Holler, senior director of corporate communications, more than in all of 2004." (Yahoo AP news article archived 8/6/2005).

According to Nellie Mae, consolidation loans (loans consolidating multiple student loans owed by an individual student loan borrower) have increased three times in the past four years to $43.7 billion in fiscal 2004. Consolidation loans now make up about a third of the total annual volume of student debt (Baum and O’Malley, 2003).

Protect yourself (a.k.a. caveat emptor)

When consolidating your student loans, you must be prepared to protect your own interests. Although the U.S. Department of Education (DOE) is vested with the responsibility to protect the interests of students, the evidence suggests that the DOE protects the interests of student loan lenders, guarantors, and servicing organizations OVER the interests of student borrowers. In fact, the DOE directly offers consolidation loans in competition with student loan consolidation lenders in the private sector. This apparent conflict of interest (among other factors) contributes to the DOE failing to act as an effective advocate on behalf of student borrowers. Students must therefore protect themselves in all matters related to student loans, including decisions related to the consolidation of student loans.

Protect yourself in the process of consolidating your student loans in the following ways:

Compare the terms of consolidation lenders carefully prior to executing a consolidation loan promissory note, as terms do vary significantly between lenders (including the DOE)

Communicate with lenders, guarantors, servicing companies, and the DOE in writing whenever possible

Never admit to the legitimacy of an alleged student loan obligation in all communications with student loan lenders, guarantors, servicers, and the DOE; always refer to supposed facts that have potential legal implications as "alleged" (e.g., alleged loans, alleged enrollment history, alleged default, etc.)

Summarize in writing the content of telephone conversations with lenders, guarantors, servicing companies, and the DOE

When communicating with lenders, guarantors, servicing companies and the DOE using the telephone, be cautious of making statements that could be interpreting as admissions of fact; telephone conversations are often recorded under the pretext that the recordings are used for training purposes, and such recordings could be introduced as evidence in a legal proceeding regarding issues unrelated to training of employees

Demand and receive copies of promissory notes for each alleged student loan prior to signing a student loan consolidation promissory note

Deny the legitimacy of alleged student loans when the loan servicing organization is unable to provide copies of promissory notes

Inspect copies of alleged promissory notes carefully, ensuring that the allege "notes" are not (1) copies of loan application forms, (2) duplicate copies of promissory notes, (3) copies of promissory notes regarding student loans serviced by other loan servicing organizations, (4) promissory notes executed by persons other than yourself, or (5) copies of other documents provided to mislead you into believing they are promissory notes.

If you have consolidated student loans without demanding copies of the promissory notes evidencing alleged student loan obligations, add your voice to the population of student borrowers who may have been harmed through the consolidation of individual loans that were not legally enforceable due to the lack of promissory notes on our Consolidation discussion board

If you are in the process of consolidating your student loans and your student loan servicer or lender cannot produce copies of promissory notes evidencing alleged student loan obligations, add your voice to the population of student borrowers who may have been harmed through the consolidation of individual loans that were not legally enforceable due to the lack of promissory notes on our Consolidation discussion board, and consider adding your voice to our Plaintiff class discussion board if you would be interested in participating in student loan class action litigation as a member of the plaintiff's class

If you believe you have been harmed as an actual or anticipated student loan consolidation borrower, consider adding your voice to our Plaintiff class forum and submit our Plaintiff class submission form if you may be interested in participating in student loan class action litigation as a member of the plaintiff's class

Loans from different student loan consolidation lenders vary significantly in their terms. We are in the process of developing a Consolidation Comparison Chart to assist student borrowers in the selection of the consolidation lender offering the most advantageous consolidation loan terms. The Consolidation Comparison Chart will allow student borrowers to directly compare the terms offered by various student loan consolidation lenders. If you have consolidated individual student loans, you can help us develop our Consolidation Comparison Chart by providing us with details regarding the terms that differ between lenders. Visit our consolidation comparison page for further information regarding how to contribute the details of your consolidation loan terms.