A popular program that allows students to consolidate loans with a single locked interest rate has become a burden for the federal government.

Interest rates for students loans have dropped to 2.77 percent, leading many students to consolidate student loans at the low rate. This has led some members of Congress to introduce legislation that would eliminate the locked interest rate, instead creating a variable interest rate that would change every year.

The proposal came as an amendment to the Higher Education Act, which is currently in the process of being reauthorized by Congress.

Interim Director of Financial Aid Roberta Johnson said many students choose to consolidate their loans after they graduate. When a student consolidates his or her loans, the aggregate amount is rounded up into one large loan, she said, which is linked to a fixed interest rate set by the federal government.

Currently, a number of federally funded loans are available for consolidation, including the subsidized and unsubsidized Stafford Loans and the Perkins Loan, she said. Privately issued loans such as the ISU Partnership Loan cannot be consolidated.

“We have been encouraging [students] to take advantage of the low interest rates,” she said.

A person can consolidate his or her loans either through the federal government’s loan programs or through a private company, she said.

Brandon Gehrke, 2004 ISU agronomy alumnus, said he recently consolidated his loans through Iowa Student Loan, a non-profit company that specializes in federal and alternative student loans.

The process to consolidate was fairly easy, Gehrke said, taking only two phone calls to complete. Once the process was completed, Gehrke said, he only had one $15,000 loan.

The main problem with loan consolidation, Johnson said, is a discrepancy between interest rates on bonds issued to private lenders who give out Direct Loans and interest rates on consolidated loans of nearly 7 percent. The bonds, which help fund loans given out by the lenders, carry a 9 percent interest rate, she said, as well as a guaranteed rate of return from the government.

The Department of Education has had to pay whatever shortcomings there are in revenue from loans, Johnson said.

Congress has tried to find ways to fix the problem, such as placing caps on tuition rates at universities.

“[States] are facing budget challenges, so state support for education has stagnated,” she said. “We still need to pay the bills and keep the lights on.”