Some advice, and a shovel, would be handy (re: student loans)

January 6, 2011 10:49 AM

Can you help me figure out what to do with my student loans? Payments are due next month and I have no clue what to do next.

I graduated from nursing school last August, and because there were no jobs for new-grads in Boston, I ended up moving to a rural area where there was a job. I'm not making that much money. $~42,000. As far as I can figure it, I have $62,117.12 in debt.

Discover Alternative Loan
Unsubsidized $20,831.00 2.75%
Unsubsidized $7,000.00 8.00%
Unsubsidized $3,000.00 8.50%
Interest $546

Stafford Loan
US Department of Education
Subsidized $5,500.00 5.60%
Unsubsidized $7,000.00 6.80%
Interest $402.96

Stafford Loan
Discover SL Funding
Subsidized $5,500.00 6.00%
Unsubsidized $7,000.00 6.80%
Interest $704.23

Stafford Loan
Us D. E
Subsidized $3,500.00 6.00%
Unsubsidized $1,000.00 6.80%
Interest $132.93

Total $62,117.12

They are being serviced by Great Lakes.

I seriously have no idea what to make of any of this. I'm confused, can I consolidate all the loans into one loan? Or just the Stafford loans, or just the federal Stafford loan and not the Discover Stafford loan?

My dad's friend was telling me about some consolidation strategy where you can pay 10% of your salary for 10 years and after that the remainder is forgiven?

Due to the market, there was no loan forgiveness offered to me through work. Hopefully in a year or two I'll be making significantly more money.

Any suggestions for a strategy for paying them off? I originally thought I would try to be really aggressive in paying them off, but considering how much I'm making, regardless of how I try to pay them off, they will be around for a while, and I could have them paid off without having anything in the bank, which doesn't sound good. Should I try to pay them off slowly and focus on at least getting a little money in the bank?

And if this is not the appropriate place to ask, can someone point me in the direction of some relatively easy to understand help? I've never had any debt in my life before and this is freaking me out.

Thanks so much. If you have questions I'll send them with through the admins.

posted by anonymous to work & money (25 answers total)

Are bank loans being offered at a better interest rate than what you've listed here? One thing you might consider, since you're now gainfully employed, would be to look for a bank loan with a better interest rate (or a more amenable repayment schedule) and use that to pay off the student loans. Once you have your feet under you, you can then renegotiate with the bank to either pay it back more aggressively or whatever.

I didn't do that with my student loan, and in retrospect, should have done.
posted by LN at 10:56 AM on January 6, 2011

Call the servicer and ask what your options are. Ask about consolidation, ask about payment options, find out your minimum payments. They are there to answer your questions and help.

Don't stress about paying them all off right this second. You'll eventually be in a better financial place where you might be able to pay off a larger chunk or more than the minimum. Don't stress, this is normal. Congrats on having a job out of college, you're already ahead of the curve on that one.

Generally, we've all carried student loans or big loans like mortgages, etc. It seems insurmountable and ridiculously scary, but you adapt to the idea and when it's all paid off, now that's some celebration.
posted by jerseygirl at 10:57 AM on January 6, 2011

I should mention that I have excellent credit, or at least, had excellent credit before I took out all these loans.

LN, hadn't thought about that. I thought there were some advantages of keeping the federal loans federal.

I guess I'll just check in with answers. I just didn't want the question to pop up with my profile, so I asked anon. Thanks.
posted by sully75 at 10:59 AM on January 6, 2011

Cll the direct loan service center. They should be able to tell you what your options are. I've had to call them in the last couple of years and they've been very helpful, great customer service.

That ten year thing only works, I think, if they're subsidized loans, and you have to work for some public entity.

Good luck.
posted by mareli at 11:00 AM on January 6, 2011

Personally, I have felt that those loan consolidations are a scam, and I would avoid them. You can only consolidate once, and after that, even if interest rates become more beneficial, you can't do it again.

Should I try to pay them off slowly and focus on at least getting a little money in the bank?

I think it's useful to "stay liquid" by building up a savings and starting to contribute to your retirement accounts. However, that $10,000 of 8% unsubsidized loans should really be paid off as quickly as possible.

Things that caused me to pay off my loans much more slowly than I originally anticipated:

o Maintenance on my car
o Savings for a replacement car
o My IRA contributions.
o My 401(k) contributions
o Higher rent and then mortgage when I decided to stop living with roommates

The last one is really the only one I think I regret in terms of what delayed my loan payoffs. Given the choice of having well-funded retirement accounts and a 6 month cushion of savings and moderate monthly loan payments vs. no loan payments but no savings, I would choose to still have some low-interest outstanding loans.
posted by deanc at 11:03 AM on January 6, 2011 [1 favorite]

I should mention that I have excellent credit, or at least, had excellent credit before I took out all these loans.


This won't necessarily affect your credit. There are a lot of variables, but the bigger issue is not defaulting on your payments. Consistently paying them on time is good for your credit.
posted by SpacemanStix at 11:04 AM on January 6, 2011 [1 favorite]

Do you know what your monthly payments are going to be? I borrowed something like $150K for law school and my payments started out around only $800 or so a month (on a 30-year plan). When I graduated, I consolidated all of the federal loans at a lower rate (you can't consolidate private loans, though, theoretically, you can get a new loan at a lower rate and pay off the private loans--though I wouldn't hold your breath). I've paid off all but $5000 in private loans--all of the federal loans are still outstanding--and I think my total payment is something like $250 per month. I'm not sure I'll pay off that last private loan, though--my payments are low, and I'd just as soon keep the cash in my bank in case of an emergency.

Obviously, I don't know the terms of your loans or your payment schedules, but if you've got $60K, and I had $150K, you might assume your monthly payment is somewhere well south of the $800 I was paying--which (if you'll forgive my presumptuousness) seems managable.

Don't freak! You'll get through this. My personal approach was to throw any and all extra money (after making a cushion in case of emergencies) to take out the high rate loans as soon as possible. Ack, get rid of that $3K at 8.5% asap! Personally, I'd pay off those loans before making IRA contributions, given that there is no way you'll make 8% on any investment in the near term...
posted by Admiral Haddock at 11:07 AM on January 6, 2011 [1 favorite]

There is a rule that you shouldn't have to pay more than 10% of your salary, but I don't know if it's the law.

When I consolidated, I was given several options: keep repayment at 10 years, stretch it to 15, stretch it to 20. Look at how much your payments would be if you stretched it out - it may be way more affordable, and if you start making more money a few years from now, you can go ahead and pay more; it doesn't really have to take 20 years even if that's the consolidation option you choose. Keep in mind that your loan holders also have the right to refuse to sell your loans for consolidation. That happened to me - my Perkins loan holder refused to sell.

Make sure they are giving you a lower rate than what you've got right now, and that it's locked in, not variable. Also, I was hoping to get some kind of grace period while they were processing all the paperwork, but that didn't happen.
posted by Knowyournuts at 11:09 AM on January 6, 2011

Agreeing that you should call your servicer and ask about consolidation. The important part is to keep in touch. I used to work for a student loan company, and the only thing that would get students in trouble was avoiding dealing with the issue. If you get in trouble making the payment, you can always ask for a deferment or forebearance. The people you'll be dealing with don't want to bleed you dry, so you can generally trust them to give you the best advice on how to get the best deal.
posted by Gilbert at 11:11 AM on January 6, 2011

Not sure if this is feasible, but can you go to the financial aid office at your nursing school and ask if they have an advisor who can help you figure it out? I know I ended up doing a loan consolidation (William D. Ford Federal Direct Loan), but I can't remember if I found it on my own or if the loan officers at Berkeley helped me figure it out. I did make a big mess of my credit, defaulting and all that, first (due to youth and paralyzing fear but mainly idiocy). Don't do that (not that you sound like you would).
posted by JenMarie at 11:16 AM on January 6, 2011

Income-Based Repayment Plan

But also don't be afraid to consolidate. Interest rates are quite low right now and if you can end up only making one bulk payment a month, it will be so much easier. The consolidation companies want your business because they want to make that interest off you, not because they are going to mess you over.
posted by Knowyournuts at 11:19 AM on January 6, 2011

There's some info about loan forgiveness here
http://www.ibrinfo.org/what.vp.html
posted by oneear at 11:25 AM on January 6, 2011

Please keep in mind that there are federal loan forgiveness programs for nurses, depending upon the market in which you work, so please do some research on those and see if there are restrictions on the forgiveness if you were to consolidate or "refinance" with a private bank loan.
posted by scarykarrey at 11:25 AM on January 6, 2011

Here's information on the nursing loan repayment programs.
posted by scarykarrey at 11:26 AM on January 6, 2011

Couple points:
1. I would consolidate any Federal loans together with the Federal Direct Consolidation Loans program. It looks like the Discover Alternative loans are private and thus not eligible to consolidate. The advantages of Direct Loans are the repayment plans, particularly Income-Based, and the deferment and forbearance options. With Direct Loans, you can set up a monthly auto-withdrawal and then you just don't have to worry.

2. I would NOT take out a private loan for any of these, especially the Federal loans, because that nullifies the aforementioned deferment and forbearance options. Want to go back to school? Tough, because you still have to keep paying. Lost your job? Tough, you still have to keep paying.

3. The Forgiveness that your dad's friend and Mareli mentioned is the Public Service Loan Forgiveness program, available for Direct Loans (but not your private loans). Looking at the info, it looks like you probably would qualify for forgiveness after 120 payments as an nursing employee of a not-for-profit organization (PDF link).* Those payments can be made under any Direct Loans repayment plan, specified in that PDF, including Income-Based and Income-Contingent if you qualify for one or the other.

* This is my interpretation of freely available information on the linked sites and other documents linked from them and should not be interpreted as the Truth. YMMV, IANYL, etc.
posted by The Michael The at 11:29 AM on January 6, 2011

I service student loans for a living. You need to call Great Lakes to discuss your situation; they may be able to do a forbearance to temporarily reduce your payments, but it will extend the repayment term. Alternative loans cannot be consolidated, but you would be able to consolidate the others. Only Direct Loans can do consolidation loans now so you'd need to call them.

Don't do IBR (what knowyournuts links to above). It can be beneficial but is extremely risky; if your income increases, so does your payment, and it can become astronomical. A few weeks ago we had a lady whose monthly payments increased by $700 because of IBR. Unless you are quite certain your income will never change, don't do it.

Please memail me for more info if you need it. I'm happy to help. This is what I do every day.
posted by Lobster Garden at 11:35 AM on January 6, 2011

You have to pay either the standard amount- based on a ten year repayment- or the income based amount to qualify for the ten year Public Service Forgiveness thing. So, in other words, if you can afford to pay the standard amount you'll have your loan repaid in ten years anyway.
posted by mareli at 11:45 AM on January 6, 2011

Don't do IBR (what knowyournuts links to above). It can be beneficial but is extremely risky; if your income increases, so does your payment, and it can become astronomical. A few weeks ago we had a lady whose monthly payments increased by $700 because of IBR. Unless you are quite certain your income will never change, don't do it.

This is, as far as I can understand, wrong. Your payment will never be more than your standard 10-year repayment amount, period, per the clause quoted below from knowyournuts' link:

After the initial determination of your eligibility for IBR, your payment may be adjusted each year based on your income and family size, but your required payment will never be more than the standard 10-year payment amount (unless you choose to exit the IBR program). [emphasis mine]

So, first, I don't necessarily believe this story of a $700/mo increase, and even if it's true, here's how IBR payment is calculated: subtract 150% of the Federal Poverty Guideline ($16245) from your adjusted gross income, then multiply the remaining amount by 15%. That means this woman was making well north of $70,000 per year, and was still paying the lesser of 15% of her income minus $16,000 or her 10-year payment.

So, yeah, that $700/mo increase is probably wrong, and if it's not, she can afford it.
posted by The Michael The at 12:07 PM on January 6, 2011 [1 favorite]

If you consolidate, definitely do the Federal program linked above. When I looked into consolidating a few years back, almost no loan companies themselves did loan consolidation.

For consolidation, the government averages all your interest rates and add like %0.025, but also reduces a similar percentage for using electronic debit and paying on time monthly. You can then do a graduated monthly payment plan over 25 years. On that payment plan, I pay about $250/month with loans similar to yours. Granted, I'm paying mostly interest at this point, but you also make significantly more than me.
posted by jmd82 at 12:11 PM on January 6, 2011

I owe around 80k for all my higher ed work, which has amounted to around $450/mth on a standard 30-year plan. It's currently around $330/mth on the IBR plan, which I got on so I could qualify for the public service loan forgiveness program. With IBR, there is the option of switching back to the 10-year basic plan, as noted above, so there is some upper limit to factor in. I earn a little more than your listed income, and my interest rate is a bit lower (~4%) so YMMV. Most loan servicers do have handy calculators on their webpages to help you figure out these kinds of things.
posted by bizzyb at 12:19 PM on January 6, 2011

I also don't believe the $700 increase story above, and it makes me question that person's veracity. If that's the advice they're giving out for a living they appear to be doing a great many people a terrible disservice. Maybe her payments increased TO $700 a month, but if increase BY $700, she got one hell of a raise to put her total earnings solidly in the six figures. I owe over $180k after law school, and pay $410 on IBR. My 10 year standard payment wouldve been in excess of $2000/mo, over 80% of my net income. IBR is a great resource, and combined with the Public Service Forgiveness option if you are eligible, it's the best thing going for new graduates.

It sucks that your biggest amount is through a private source, which would exclude it from IBR. What I would do is consolidate your federal loans and put them on IBR, which would put those payments at a very low amount. Work on paying off the private loans ASAP (yes, easier said than done) and pay the minimum on the federal ones. Call your servicer as ask about graduated or extended repayment options (some private servicers may offer them, or may not) and get your minimum payments as low as possible. If you can, pay extra above the minimum to get those private loans knocked out. $62k debt is a lot, but it's more manageable than you think and trust me, lots of us are in the exact same boat.
posted by T.D. Strange at 1:21 PM on January 6, 2011

So, first, I don't necessarily believe this story of a $700/mo increase, and even if it's true, here's how IBR payment is calculated: subtract 150% of the Federal Poverty Guideline ($16245) from your adjusted gross income, then multiply the remaining amount by 15%. That means this woman was making well north of $70,000 per year, and was still paying the lesser of 15% of her income minus $16,000 or her 10-year payment.

So, yeah, that $700/mo increase is probably wrong, and if it's not, she can afford it.

The calculation above is correct, but it's worth noting that the 10-year plan involves significantly higher payments than the 30-year plan, as can 15% of income minus $16,000. It is possible to end up paying much more than you "have" to with IBR, if you start to make good money -- it happened to me, and while I could certainly afford it, making ten years' worth of ~$300 monthly payments on 18K worth of low-interest loans was a mistake. It would have been better for me to make minimum payments on the 30-year plan, and invest the rest.

In short: IBR is a great idea if the monthly payment is a significant savings over the 30-year plan, and you're pretty sure your income won't shoot up over the next ten years or so. As a nurse in a rural area, this might be the case for you, but run the numbers and see what you think; don't just assume that the income-linked plan will be cheaper.
posted by vorfeed at 1:36 PM on January 6, 2011

I can't give you specific advice, but all my Federal loans are consolidated and serviced by Great Lakes. The few times I've needed to talk to them they have been really helpful. Like real people who know what they're talking about helpful. So I'd suggest calling them up and talking through your options.
posted by grapesaresour at 2:36 PM on January 6, 2011

Nope, what I said about IBR is not wrong. This is my job, I know what I'm talking about. Since the OP specifically said his/her income will increase down the line, IBR is a very bad idea.
posted by Lobster Garden at 2:39 PM on January 6, 2011

I should also add that if the OP feels s/he needs the payment adjusted based on income, much better options are a low-pay forbearance or income sensitive repayment. These have no risk associated with them, they merely prolong the term of the repayment.
posted by Lobster Garden at 2:50 PM on January 6, 2011