Private student loans, how-to

August 6, 2007 1:05 PM

I have private student loans (not fed subsidized) through Sallie Mae. I, accidentally, have found myself delinquent on the loans for one month. A friend is offering to pay a large portion of the loans, but not the entire amount. Can I use this to negotiate wiping my delinquency from the records and thus not have it hit my credit report? Also how bad will going into forbearance during my (unpaid) internship be until my full-time job starts? One more, due private student loans qualify for the interest deduction on my taxes?

I was traveling, not home, and thus did not receive any mailings or phone calls. This is my fault, as I should have known my loans were coming due. That really can't be solved. I don't want it to hit my credit rating, and I've heard of stories about people with loans in similar situation saying "I'll pay (insert amount) if you do not report to credit agencies." I cannot pay the full amount, but I can pay a sizable percent.

Is this possible? What is the best way to approach this?

Keep in mind I was one of the unfortunate cases of not qualifying for FAFSA and had to take out private loans to cover the entire cost, so I cannot defer like most people. I can go into forbearance but I'm having a hard time researching how bad that will be for my credit score.

And of course, do student loans qualify for interest on my deductions? Everything I read on the IRS web site seems to say "yes", that they do not make a distinction -- except the continued use of the word "qualified", which doesn't seem to make the distinction between private or not, as long as the money was used legitimately.

posted by geoff. to work & money (9 comments total)

I have a private loan from Sallie Mae and have always deducted the interest on my taxes, with no problems. Hope that helps.

I will say that I'm someone whose loans went into repayment a year early by mistake (their mistake), and I didn't correct their mistake in time, and had to wait 7 years before the delinquency would drop off my credit report.

It's one month though. I wouldn't sweat it. As long as you have decent credit otherwise, I don't think it will make a huge difference.
posted by chickaboo at 1:16 PM on August 6, 2007

In short: You should just call Sallie Mae and ask.

The longer answer, to prepare you for said call:

Are you truly a full month delinquent? Credit bureaus don't even count you as delinquent until you're not only late on your due date, but late by 30 days.

Furthermore, if you are paying a significant percentage of your due, but not all of it, that's fine. You're still probably not delinquent. You will end up paying a bit more interest since you'll be going past your loan term assuming you don't catch up, but that's fine by the lender.

The real question is: Will you be able to pay the next installment in full and on-time after having paid this one? If not, perhaps you need to talk to your lender about adjusting your payment plan.

At the end of the day, you really need to talk to your lender about this - all the advice we give you is far less meaningful than what the customer service rep on the other end can do for you. If you don't like the result, politely ask to speak to a manager. Your situation is so incredibly benign compared to the average non-paying person that I'm pretty sure you'll be taken care of.
posted by twiggy at 1:53 PM on August 6, 2007

Seconding twiggy. Call them and apologize. They probably will let you off the hook.
posted by k8t at 2:00 PM on August 6, 2007

One month? I did that several times, just being airheaded. I don't know if things have changed, but I always got great phone service from Sallie Mae, they've always accepted late payments, partial payments, they've postponed due dates for me. Not one of my trangressions was ever reported to a credit bureau and in the end, the loan was finally paid off, they made a little bit extra in interest for my dragging my feet a bit.
posted by Jazz Hands at 2:18 PM on August 6, 2007

The idea that they will "forgive" a late payment if you make X amount of payment does not work. They make more money by you slowly paying your debt. Banks hate when you pay off your loans early.

But, make sure its truelly a 30 day late. As in if your bill is due march 1st, you dont need to worry about it going on your credit until april 1st, and even then there is SOMETIMES flexability.

Good luck
posted by crewshell at 2:46 PM on August 6, 2007

My SO missed a payment or two by over a month with her consolidator (at like 2.5% APR) before she broke down and submitted the auto-debit paperwork.

Nothing bad showed up on her credit report.
posted by wierdo at 6:52 PM on August 6, 2007

The reason I was worried (and wanted to try to play hardball) was when one of my dear relatives called up:

"Hey geoff., how are you doing"
"Hello dear relative!"
"Yeah I just got a call from a loan company that is trying to track you down"

It was embarrassing and I thought I was in more trouble than I was. A friend told me that in the 60s they were working for a bank and had old men paying like $90 a month on student loans until the banks just wrote them off, they also said that the banks would reduce the debt and do all kinds of things to collect more immediately than risk having to write the debts off. I guess things have changed quite a bit.
posted by geoff. at 8:29 PM on August 6, 2007

Putting your loans in forbearance will not negatively affect your credit score. However, whether or not you qualify for forbearance is up to your loan provider (Sallie Mae). You will need to call and request a form to complete and continue to keep paying your loans until you receive notice that you have been put into forbearance. Also be aware that you (generally) are only allowed two years of forbearance during your ENTIRE loan period. So, if you think that you may want to request this grace period in the future, you may want to keep paying your loans at this time. Also, keep in mind that interest will continue to accumulate while you are in forbearance. (If you are doing an Americorps program or the Peace Corps, the government will pay off your interest at the end of the year.)

Another loan tip: if you pay $10-15 more each month on your loans, you will not only pay off your loans more quickly, you will be moving back your due date (that is, the loan provider treats this like you were paying part of next month's bill). I pay $15 more each month (every month), and my next "due" date is about 3 months away. This gives me some cushion in case something comes up and I can't pay for a month and keeps me from worrying I'm going to be a day or two off and face some kind of penalty.
posted by jrichards at 10:52 AM on August 7, 2007

When I asked Sallie Mae about forbearance when I was in-between jobs they wanted to charge me something ridiculous per loan, I want to say $60 each. There was no way I was going for that. I was lucky enough to borrow some money for another month's payment until I found a job.
posted by unsigned at 8:11 AM on August 8, 2007