Fine print on a new student-loan offer

Student-loan holder? Uncle Sam may have a payback plan for you.

The US Department of Education has started a one-year program to encourage student-loan borrowers to use its Direct Consolidation Program. The department offers to cut 0.8 percent off whatever interest rate a student had been paying, for the first 12 months of repayment. Failure to repay each installment within the first six days of each month will result in the rate defaulting to the previous interest rate, however.

Sound good? The plan is meeting fierce opposition from the Washington-based National Council of Higher Education Loan Programs. Pointing to the Department of Education's own internal forecasts, which predict that only 23 percent of students will make payments on time, the group warns that students could find themselves mired in debt over the long term.

Shelley Repp, an attorney for the group, says the program is inflexible, locking students into higher rates that won't change even if rates go down.

The department's forecasts, however, are based on a worst-case scenario, as required by law, points out William Graham, a spokesperson for the Department of Education.

Mr. Graham says students need not worry about getting locked into higher interest rates."If [rates] go down, the department always allows you to reconsolidate. All it takes is a phone call."

(c) Copyright 2000. The Christian Science Publishing Society