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Rule to let lenders vie for students

An expected change in law will allow borrowers to pick among consolidation firms, benefiting several in the Tampa Bay area.

By HELEN HUNTLEY
Published June 15, 2006

The outcome is expected to be better deals for student borrowers and more business for several dozen Tampa Bay area companies.

The provision now before Congress repeals what is known as the "single-holder rule," which forces people whose federal student loans are all from one lender to go back to that lender for consolidation, a type of refinancing. Repealing it would allow them to take their business anywhere.

"Leveling the playing field is really the right thing to do," said Troy Jackson, general manager of Collegiate Risk Management in Tarpon Springs.

The spending bill, which the House of Representatives passed Tuesday, is scheduled to go to the Senate today. Its primary focus is $94.5-billion in appropriations for military operations, hurricane relief and other government projects.

Chris Gurney, chief executive of University Financial Services in Clearwater, said three-fourths of the student borrowers his company solicits turn out to be single-lender borrowers. Changing the rules will turn them into potential customers.

"With the playing field wide open, the companies that really have something to offer are going to stand out," he said. The biggest lenders, such as Sallie Mae and NelNet, have the most to lose.

The Tampa Bay area has become a hotbed of student loan consolidation activity as former employees of Collegiate Funding Services launched their own small competing companies. Virginia-based Collegiate Funding, which has a call center in Pinellas Park, is part of Chase Education Finance.

"It's a great business to be in," said Joe Pursley, executive director of Student Funding Services in Largo. "There's essentially no risk for anybody buying these loans."

Some of the Tampa Bay companies are lenders, which may keep or resell the loans they make, while others are simply brokers, performing a role similar to mortgage brokers who match borrowers and lenders.

Loan consolidators all follow a federally set interest rate schedule for the basic loan rate. They compete based on service and incentives, such as a percentage point-rate reduction after making a certain number of on-time payments.

There's a big push to consolidate before July 1 because interest rates on adjustable-rate education loans are going up nearly 2 percentage points.

Although all new loans will be at fixed rates 6.8 percent for Stafford loans, consolidation is expected to continue to be in demand because it allows borrowers to extend the repayment period from 10 to 30 years.

Some of the consolidators already are taking applications from single-lender borrowers, expecting the rules will be repealed.

Helen Huntley can be reached at hhuntley@sptimes.com or (727) 893-8230.

[Last modified June 15, 2006, 06:29:21]