Help me figure out what to do about my student loans.
December 29, 2009 8:51 AM   Subscribe

Unemployed, no other debt, currently making interest-only payments on school loans - what can I do to make this feel less looming over my life?

I've been working part-time/temp work on and off since graduating with a BA in English in spring '08. I currently live in the greater Boston area in an apartment with my girlfriend (who has a full time job) and more or less living off her salary during periods which I am unemployed I have called all my loan agencies and have reduced my monthly payments as much as possible. I've used most of my deferments/forbearances and income-based payment plans. I am currently paying around $900 dollars a month toward my loans as interest-only payments, which would be fine, except we still need to pay for rent, utilities, vehicle insurance, groceries, etc. Additionally, I feel like I'm just buying time and making my debt larger as my principal grows and increases the amount added by interest, which gets compounded into the principal, which grows... and so on. I've been thinking about going back to school for a graduate degree, but the main thing holding me back is the cost and my already unmanageable debt.

I recently received an e-mail from one of my loan providers ( suggesting I consolidate my loans - they are offering regular benefits of deferment/forbearance. Their interest rate is fixed and calculated as "the weighted average of the interest rates of the consolidated loans, rounded to the nearest eighth of one percent". I'm awfully tempted to try this (if for no other reason than to at least simplify my monthly payments), but I don't want to end up hurting myself badly down the road.

My current loans/interest rates (most are not fixed rates):
$12,100 - 8.43%
$5,800 - 8.43%
$9,600 - 8.43%
$1,300 - 3.03%
$10,300 - 5.75%
$800 (subsidized) - 2.48%
$500 - 2.48%
$7,800 - 4.21%
$3,800 - 4.21%
$3,400 - 6.8%
$2,700 - 6.8%
$6,100 - 6.8%
$21,000 - 3.95%

Total Est = $85,200

I'm feeling trapped by my situation and need a more manageable way to deal with this. Is there something I'm missing? Financial aid? Some sort of partial debt forgiveness? Consolidate after all? Keep paying what I'm able and hope for the best? Hive mind, I need your help!
posted by monkeyagent to Work & Money (14 answers total) 2 users marked this as a favorite
I would find a long-term fixed rate **legitimate** student loan consolidator, there are plenty if you look for them and alternatives that will give you a fixed rate somewhere between 6-8% annual rate (as are mine through my home state). I say legitimate also because there are plenty of scams right now targeting student loans so double check all sources, particularly when dealing with debt of this size. You may consider one of your current lenders to consolidate with or begin anyway with checking out that list.

College loans is the new indentured servitude and as long as you make peace with that, you shouldn't stress so much about the amount once you've got it under control. I graduated with similar debt. Yes, it totally sucks. Yes I'm reaching my mid-30s and only now about to pay it off, but student loans at least had the bonus of deferment when I had life events to take care of.

I am not the most versed on the subject, but I believe there are groups such as Teach for America which also help you pay for your loans while getting valuable work experience and serving the nation. Perhaps with an English degree, this might be your cup of tea?
posted by eatdonuts at 9:04 AM on December 29, 2009

Best answer: There are probably folks here who can provide you with much more expert advice, but here is what I think:

The link you provided is from the federal government. I would strongly suggest consolidating with the government. In the long run, I think it's a lot easier to deal with the government than a private bank. The repayment options are flexible and you can qualify for income-sensitive payments. If you do that, then your monthly payment shouldn't exceed 15% of your income (which should be a lot less than $900 a month).

I think that this is the link you need:

You may also want to consider only consolidating some of your loans. I didn't consolidate my smallest loan with a high interest rate because I wanted to knock it out separately and quickly.
posted by val5a at 9:17 AM on December 29, 2009 [1 favorite]

Best answer: If you consolidate with Direct Loans, you may be eligible for the new (as of July) Income-Based Repayment plan, which includes a certain amount of neg amortization for interest. That also comes with the offer of full loan forgiveness after ten years of work in public education, for state or federal government, or for a non-profit org and forgiveness after 25 years in other fields. The calculator factors in a spouse's income (if you're married-filing-jointly) but not an unmarried partner; but with that balance and a relatively low income, it should knock down your monthly payment to a much less onerous sum.

If you were to go back for a graduate degree, you'd presumably be placed in forbearance for the duration, but given that you already have the best part of a mortgage's worth of debt, you're really going to need to do some thinking about the cost/benefit analysis.
posted by holgate at 9:21 AM on December 29, 2009 [2 favorites]

Grad school might not be a bad idea if you get full funding. That will allow you to defer the loans while the economy improves and ideally you'll land a higher paying job at the end of it. Do not go to graduate school if they aren't paying you to do it.
posted by pseudonick at 9:36 AM on December 29, 2009

How have you used most of your forbearances? I don't believe there is a limit. The limit per forbearance is 36 months, but I don't know of a limit on the number of total forbearances over the life of the loan. If you are unemployed you should apply for a forbearance and temporarily stop making payments.
posted by mattbucher at 9:42 AM on December 29, 2009

Best answer: I would agree with holgate.

I recently consolidated a similar number of my government loans into one. In addition to the income contingent repayment (which is based at least initially on LAST year's tax return) you can also get a 0.25% rate reduction by signing up for their automatic withdrawal program (it has some fancy name...). At the moment I too am underemployed and occasionally have to do some juggling of my bank accounts, so I have not signed up for this.

The forgiveness after 25 years is key as well, depending on when your loans were initially opened they might not currently be eligible for this, however if you were to consolidate it WOULD be eligible. When you sign into there is a calculator that you can go through that will estimate your total amount paid. My government loans are somewhere in the neighborhood of $45,000, the difference in total money paid between the income contingent plan and the other plans was astronomical when I looked at it. Based on my low income, it said that my total amount paid will be in the neighborhood of $75,000, with the other plans it was somewhere in the neighborhood of $90,000-$100,000

One last thing that I would suggest (note: I am not a financial advisor...), go with fixed rate when you consolidate. The adjustable rate will be lower, but it can balloon out of proportion very quickly when things get funky in the money markets. I made the mistake of going adjustable with one of my private loans and for no apparent reason it ballooned up to around 14% at one point. I was later able to consolidate that into another private loan and lock in a lower percentage (around 6%).

Good luck, it's a hard time to be searching for jobs, I just finished my masters last spring and I'm finding myself still having to borrow the occasional cash from the parents to make rent.
posted by aloiv2 at 9:43 AM on December 29, 2009

Definitely consolidate. The offer you got from the DOE is a good one. Besides making things simpler, it'll actually reduce your total payments by a smidgen. (Not much, but every penny counts!)

When you are making money - which will eventually happen - repay your loans aggressively. Make two payments as once, if you can. You'll make out in the long run.

Good luck!
posted by Citrus at 11:18 AM on December 29, 2009

I'm not an expert on student loans, and I don't know all the benefits of consolidating. However, I can comment a bit on the math, as I understand it.

It doesn't make sense to me that your interest-only payments are $900. These are the numbers I'm looking at:

$12100 * 0.0843 = $1020.03
$5800 * 0.0843 = $488.94
$9600 * 0.0843 = $809.28
$1300 * 0.0303 = $39.39
$10300 * 0.0575 = $592.25
$800 * 0.0248 = $19.84
$500 * 0.0248 = $12.4
$7800 * 0.0421 = $328.38
$3800 * 0.0421 = $159.98
$3400 * 0.068 = $231.2
$2700 * 0.068 = $183.6
$6100 * 0.068 = $414.8
$21000 * 0.0395 = $829.5

Total yearly interest: $5,129.59 / 12 months = roughly $427.47.

The actual figure may be slightly different due to rounding, variables rates, and whatnot. But if you're paying all the interest, and ONLY the interest, every month, then your payment should be about half of what you say you're paying.

If you consolidated your loans for the "the weighted average of the interest rates of the consolidated loans", and then continued making interest-only payments, there would be no significant short-term difference. The interest and principle amounts would total out to be the same, and so the payments would also be the same. Unless I made a mistake, you'd be getting a 6% interest rate on an $85,200 loan. $85,200 * 0.06 = $5112 per year / 12 months = $426 per month.

In the long term, assuming you get a good job and your interest rates don't change, you might be better off NOT consolidating. This is because you could start paying them off starting with the highest interest loan, and therefore end up having a lower average interest rate as the principle amount declines.

Of course, there may be other factors. Perhaps consolidating may allow you to pay less than interest-only payments. There may be loan forgiveness involve like aloiv2 said. Since the consolidated loan would have fixed interest, that might be desirable since your current rates are variable.
posted by Vorteks at 11:21 AM on December 29, 2009

Nthing those who suggest consolidating through the government. Besides the Income-Based mentioned above, they have options for Standard, Extended, Graduated, and Income Contingent. You can find out about the different options here, and then its a matter of crunching the numbers and finding the plan that works for you. They also allow you to change your repayment plan, so if your financial situation changes, you have some flexibility. I made changes directly through the website and didn't have to do any refinancing at all.

If you can get funding for grad school through a teaching or research assistantship, it may not be a bad idea. I was able to get full deferments for my undergrad debt when I was attending, so not even interest was accumulating (if you have unsubsidized loans, YMMV). Of course, much would depend on what you are going to grad school for and if you can secure funding.

Good luck!
posted by weathergal at 11:31 AM on December 29, 2009

Response by poster: I can speak to the math issue - several of my loan companies will not allow me to make interest-only payments requiring a minimum monthly payment that is greater than the interest accrued. Of course, the ones that have allowed me lower monthly payments are accruing interest at the same time. I'm currently paying the following amounts per month to 5 different loan companies, some of which are managing multiple loans:
$20 (this loan currently requires no minimum payment, but I do because it's just 1300 at 3%, so I can afford to pay into the principal)
Also, I called the government Direct Loan Services and most of my loans don't qualify for their consolidation program, as they are private loans (I qualified for almost no financial aid while in school). Several of my loans have no visible "type" (listed on the Direct Loan Services online application) - so I'm going to have to call up most of my loan companies to find out what types they are.
I'm not expecting to make a lot of money with an English degree any time soon - in retrospect, I'm wondering why I bothered at all (especially since I don't want to teach). So I'm feeling like consolidation is probably my best option.
For my private loans - what kind of reputable consolidation lenders are out there that will help me with this?
posted by monkeyagent at 12:48 PM on December 29, 2009

Best answer: For my private loans - what kind of reputable consolidation lenders are out there that will help me with this?

Again, I'm not sure about student loans, but I once got a loan to consolidate and pay off my credit cards from my local credit union. Perhaps your credit union or bank could be of assistance?

A google search seems to indicate this sort of lending might be hard to get right now. NextStudent has this message on their site:
Please be aware that due to current conditions in the student loan market in particular and in the financial sector in general, NextStudent is not currently able to accept any new applications for our private consolidation loans.
H.E.L.P. also isn't taking new applications. Chase Private Loans bears a similar message, but they say they'll start taking applications in Spring 2010. I don't see such a message on Wells Fargo's site, so they may be able to help you.
posted by Vorteks at 1:12 PM on December 29, 2009

Response by poster: I've called all my loan companies, and all my loans are considered private except the Direct Loan and all but one Nelnet loan. I've submitted/signed an application for a consolidation of the qualifying loans (the 6th through 12th), leaving me with (assuming that all gets approved):
a. $12,100 - 8.43%
b. $5,800 - 8.43%
c. $9,600 - 8.43%
d. $1,300 - 3.03%
e. $10,300 - 5.75%
f. $21,000 - 3.95%
I'd really like to get away from the company that handles my a, b, & c loans as they're my most expensive and most difficult to deal with when I call.
I'm hesitant about getting a private bank loan consolidation for a host of illogical/downright silly (?) reasons - 1. private loans are my problem to begin with 2. if it ever comes down to backrupcy, I feel like loans labeled as "educational" are easier debts to forgive 3. places that appear to specialize in educational loans make me feel more comfortable
Logically, I know that these are all likely false if not only partial true, but I still can't help being swayed by pictures of happy students on their webpages.
I looked at those consolidation website and indeed, they are not longer accepting new applications. Wells Fargo looks available but still seems to use a Variable Interest Rate. Should I just tough it out until I have more options?
posted by monkeyagent at 3:18 PM on December 29, 2009

Private as opposed to federal loans make this a major pain. There are a ton of private loans out there, so I won't post all this unless it's relevant, but if you happen to have loans that are currently held by Wachovia or Keybank, memail me. I've spent the last ten years negotiating with those psychos.
Either way, good luck. It's a hugely stressful thing to have to deal with.
posted by Dormant Gorilla at 8:44 PM on December 29, 2009

Response by poster: I wasn't going to be this specific, but give credit where credit's due and all that.

My private loans are with:

-Nelnet (just manages the loan, doesn't own it, but are incredibly friendly, understanding, helpful, and flexible - they've even helped me figure out my *other* loans - ones they don't own or manage. I would recommend this company to others.)

American Education Services -

Granite State Management Resources -

Firstmark Services -

Firstmark is the most miserable to deal with - when I tell them I can't afford the monthly payments and don't want to use my last forbearance in case I get a job soon (I only have 1 6-month forbearance left, and was told I have to use all of it at once), they tell me my only other option is to consolidate my loans, which as it turns out, isn't terribly easy (they don't offer consolidations).

The other two are alright (I don't deal with AES much as their loan is the closest to being paid off), but GSMR is *always* nasty to me when I call. They have enough flexibility and options for me, but their customer service reps just always seem incredibly annoyed that you're bothering them, and always treat me like I'm an idiot when I ask questions.
posted by monkeyagent at 6:55 AM on December 31, 2009

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