By Dolores Kong
The Boston Globe

Julie Meyer graduated in 1998 with a master's in
environmental studies and $36,600 in student loans and
soon found the $500-a-month repayment hard to keep up
with on her starting salary at a nonprofit

So she worked out a consolidation plan with her lender
to cut payments to $350, by doubling repayment to 20
years, and by locking in at what then seemed a low
interest rate of 8.25 percent.

Now the 33-year-old Sunderland resident has started
her own business, Gardens of Delight Landscaping, and
qualified for an economic hardship deferment.

"I'm just doing the best I can do," said Meyer. But
her loan balance has jumped to $39,200 because of
interest still accruing at the fixed 8.25 percent.

By contrast, two other student loan borrowers from
Greater Boston, Wendy and Brian, who did not want
their last names used, just found out they can lock in
the rate on $30,000 worth of loans at 4.94 percent,
and the rate on another $60,000 at 6.575 percent.

"I was psyched about that," said Wendy, 31, an
affordable housing loan officer whose $30,000 loan
helped pay for her master's in public policy from
Harvard's Kennedy School of Government.

Her husband's $60,000 debt paid for his master's in
social work from Boston University and his
undergraduate education.

While the Federal Reserve has cut interest rates
several times this year, reducing the cost of
everything from mortgages to variable- rate credit
cards, the effect on educational loans has been mixed.
Certain student loan borrowers like Meyer have not
benefited, while others like Wendy and Brian have.

The differences result from the complexities of
educational loans, with the various rate structures
and financing schemes so complicated that they almost
require a doctorate to understand.

For instance, borrowers like Meyer who earlier
consolidated federal student loans at fixed rates as
high as 8.25 percent have little or no chance to
refinance at today's lower rates; government
regulations allow them to refinance just once over the
life of the loan. But borrowers like Wendy and Brian
who let their loans stay variable or who borrowed
directly from the US government can lock them in now
at or near all-time lows.

As of July 1, certain variable-rate federal Stafford
Loans - those issued to students on or after July 1,
1998 - dropped from 8.19 percent to 5.99 percent for
those borrowers already repaying, and from 7.59
percent to 5.39 percent for those borrowers still in
school, within the grace period or on deferment. The
rates are good for a year, but can be locked in.

"It's a historic low," said Patricia Scherschel, loan
consolidation executive for Sallie Mae, the leading
private provider of education funding.

The millions of borrowers with such Stafford Loans,
whether through a private institution such as Sallie
Mae or directly from the US government, will see the
adjustment made automatically. Borrowers issued
variable-rate Stafford Loans before July 1, 1998, may
also see a downward adjustment, but not necessarily to
the same low level.

Also as of the first of July, so-called federal PLUS
loans issued to parents of undergraduate students on
or after July 1, 1998, dropped from 8.99 percent to
6.79 percent, a rate that's good for a year as well.

And for Bay State families financing higher education
at colleges here or in other states, the Massachusetts
Educational Financing Authority is now offering fixed
rate loans at 6.98 percent and variable rate loans at
5.98 percent, adjusted every April. The state
authority has recently advertised the low variable
rate in the Globe and elsewhere with such catchy
phrases as: "You don't have to cancel your mid-life
crisis just because you have a kid starting college."

As complicated as educational loans are, it's more
important than ever for borrowers to master the
intricacies, according to financial aid specialists.

With the cost of attending a four-year private college
now averaging $22,500 annually, with loans now far
outdistancing grants as a share of college financial
aid packages, and with the student loan burden now
averaging $16,000 after four years, how a borrower
manages the debt can have personal finance
implications for decades to come, say specialists.

"Some people are going to be still paying off their
student loans when their children are in college,"
said Mark Kantrowitz, publisher of, a
financial aid Web site owned by
Kantrowitz, a Brookline native, has degrees from the
Massachusetts Institute of Technology and Carnegie
Mellon University, and he's a doctoral candidate in
computer science.

Kim Stillwell, 35, a speech pathologist with
Communication Therapy Associates in Arlington, now
wishes she hadn't consolidated some of her student
loans in 1995, doubling the payment period to 20 years
and fixing the interest rate at 8 percent.

"I was so young and so strapped," said Stillwell,
whose $511 a month loan repayment is almost as much as
her share of rent. "Having to pay this incredible
interest rate over time, it is like a mortgage. I
could be potentially paying off a home or investing in
the stock market. But instead, I'm scraping by paying
off Sallie Mae."

"Once rates are locked, they're locked," said Sallie
Mae's Scherschel.

Because consolidation is allowed just once, she said,
she discourages people from extending the payback
period when consolidating, because that usually
increases the total interest payments over the life of
the loan.

The US government is offering a little-known,
limited-time 0.8 percent interest rate reduction on
certain so-called Direct Consolidation Loans made by
the US Department of Education, which Wendy found out
about this month only after calling her loan servicing
center to get information in response to a Globe
reporter's request. That discount, combined with other
discounts, is what is allowing her and her husband to
lock in their rates at 4.94 percent and 6.575 percent.

But that special 0.8 percent discount by the US
government has been challenged in court by bank-based
lenders who say that's unfair competition, and it
probably won't be renewed beyond its Sept. 30
expiration date, according to's Kantrowitz.

There's another little-known aspect of Direct Loans,
according to Kantrowitz, which may help certain
borrowers such as Meyer or Stillwell, whose income may
not be high enough to keep up with loan payments, and
who may have already consolidated once and locked in
their rate.

Direct Loans offer a so-called income-contingent
feature, pegging repayment to income, poverty rates,
and other factors. If after 25 years there's still a
balance left, the federal government forgives it.

Because Direct Loans offer this feature and bank-based
ones don't, federal law allows an exception to the
usual rule about consolidating once. So that means a
borrower who has already consolidated, but whose
income can't keep up with payments, may be able to
apply for a Direct Consolidation Loan (with that
special 0.8 percent rate reduction good through Sept.
30) and take advantage of the income- contingent

"It's very complex," said Kantrowitz.

Neither Meyer the landscape business owner nor
Stillwell the speech pathologist had heard of this
possibility before, but say they will look into it.
Both of them feel the crushing load of student debt
and are living as simply as possible to keep other
expenses down, but still find it difficult to manage.

"I feel like my whole life, my whole future has
shifted for the worse after going to school," said
Meyer, who creates self- sustaining landscapes through
her Gardens of Delight business. "It's a mistake I
hope I can help other people avoid. In the meanwhile,
I try to make the best of it."

"I just feel like I can't be a contributing member to
the economy like some of my peers are," said
Stillwell, who can't imagine buying a new car or
owning a home with her $511 a month educational loan
payments through 2015.

"I feel like there's a growing number of people my age
who are starting to really feel the effects of this
burden. I think it's an area ripe for political