{
  "id": "RL32424",
  "type": "CRS Report",
  "typeId": "REPORTS",
  "number": "RL32424",
  "active": false,
  "source": "EveryCRSReport.com",
  "versions": [
    {
      "source": "EveryCRSReport.com",
      "id": 305131,
      "date": "2004-06-08",
      "retrieved": "2016-04-07T20:14:35.432908",
      "title": "Consolidation Loans: Redesign Options and Considerations",
      "summary": "This report provides background information on Federal Family Education Loan (FFEL)\nprogram\nconsolidation loans and discusses options for redesigning consolidation loans. Specifically, it\nprovides background information on the FFEL program and on the role consolidation loans play\nwithin the program. It also examines recent concerns voiced over the cost of consolidation loans,\nand discusses the types of consolidation loan redesign options that are receiving some consideration \nwithin the context of the reauthorization of the Higher Education Act (HEA). In brief, the report\nfinds the following:\n   Consolidation loans were initially introduced to simplify loan repayment and\noffer borrowers relief in the form of extended repayment. As the consolidation loan interest rate\nformula has been modified by Congress, consolidation loans have evolved into a refinance benefit\nas well.  \n   The current consolidation loan interest rate formula affords borrowers the\nopportunity to secure a fixed rate equal to the weighted average of the rates in effect on underlying\n(variable rate) loans being consolidated rounded up to the nearest one eighth of 1%. In the recent\nlow interest rate environment consolidation volume has grown dramatically as borrowers have\nsought to lock in as permanent the favorable rates currently in effect on their variable loans. This\nhas enabled a large number of borrowers to secure a valuable refinance\nbenefit.  \n   Borrowers who lock in fixed rates through consolidation in other periods,\nhowever, can miss out on more advantageous variable rates that they would have had on underlying\nloans. This raises concerns with regard to those using consolidation for repayment relief who may\nneed to consolidate in years in which the available fixed rate is high and thus\ndisadvantageous.  \n   It is generally acknowledged that recent cohorts of low fixed rate consolidation\nloans will be costly to the federal government. This is because the government pays program lenders\nan interest subsidy designed to compensate lenders for the difference between the below market\nstatutorily set rate charged to borrowers and fair market compensation on the loan. The rates being\nprovided to borrowers on these consolidation loans, over time, are expected to be well below market\nrate.   \n   To gauge with precision the added subsidy cost associated with the\nconsolidation refinance benefit it is necessary to look beyond the recent time period and assess\ncomprehensively how the subsidy rates on cohorts of loans are affected by the refinance\nbenefit.  \n   The central questions underlying the debate on the desirability of the existing\nconsolidation loan rate structure seem to be: How favorable should the borrower interest rate be on\na federally subsidized refinance benefit? Is the current rate structure well suited to accomplish policy\naims?",
      "type": "CRS Report",
      "typeId": "REPORTS",
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      "topics": []
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}