Jul 7, 2008 5:00 pm US/Pacific
Loan Consolidation Not Always A Good Deal
New Law Offers Help For College Grads Weighed Down In Loan Debt
SAN FRANCISCO (CBS 5) ―
Flor Gressel is a former police officer who took $40,000 in student loans to fulfill a dream of becoming a teacher.
With the cost of living so high and gas prices eating away at her paycheck, her teacher's salary is not enough to pay the bills. She devised a plan, to consolidate her student loans into one lower payment. Gressel was getting several flyers and emails from loan consolidation companies, but one stood out.
She called PCFS or Post Collegiate Financial Services. Gressel said the loan agent promised to lower her monthly interest rate and postpone her first payment for three years.
"He said, 'You don't have to pay your student loan for three years.' I said what? It's not a deferment? It's not a forbearance? What do you mean? He said I would not have to pay for three years. I asked him the question over and over again in different ways and he assured me what he was telling me was true."
That 3-year reprieve was not in the paperwork, but she signed the agreement. PCFS was able to secure an interest rate which was on average .02% lower than previous rates held on two separate loans.
But, Gressel called Consumerwatch because PCFS passed her loan to a new lender and she is now receiving bills for $400 a month. The payments are due now.
"I get a letter from some company called AES. It's another educational services loan consolidation company. And they say we have your loan. And I said well who are you?"
She called PCFS and asked for her loan agent. Gressel said, "They told me they fired the guy for misinformation."
A spokesperson for PCFS tells Consumerwatch "Flor Gressel was never told there was anyone fired due to her situation." She did not qualify for a deferment plan which was outlined in the loan consolidation agreement that she signed.
Robert Shireman with the Student Loan Project said it is easy for consumers to get confused or misled with all of the different options and loan plans. Even though she signed the documents that did not mention a 3-year payment deferment, she may have a way of canceling that loan consolidation.
He said Gressel's option now is to hire an attorney to prove she was misled.
"The consumer would have a strong case, even if the loan was sold to someone else," said Shireman. "When a company is purchasing loans from another company they take on the responsibility as if they had been the ones making the loans. The owner of the loan carries that."
Shireman says it's more important than ever for consumers to research their loan options before consolidating their debt, because the new College Cost Reduction and Access Act could actually erase some debt.
"We are seeing that people need more loans. Congress has responded by increasing those limits and helping make them more available," said Shireman. "The law also reduces some of the interest rates and provides for more opportunities for loan forgiveness for teachers and public servants."
Ironically, if Gressel had done nothing to consolidate her Federal loans, she would have been eligible for debt forgiveness. Now she is stuck with a $400 a month bill, and no cash to pay.
For more information on managing school debt, see the
Project on Student Debt.
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
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