This is about to get scary.
September 3, 2010 7:45 AM   Subscribe

I have about 56,000 in private student loans from Citibank. They are at a variable interest rate. The interest rate right now is, of course, very low. When interest rates inevitably go back up, these loans are going to get very expensive. I have been unable to find anyone who will consolidate or refinance these loans.

Is there anyone who will consolidate private student loans? Is there any way I can get citibank to change their interest rate to a fixed one? I have called them and have been unable to make any progress. Help!
posted by troublemenot to Work & Money (11 answers total) 7 users marked this as a favorite
Here's some info. The upshot is you consolidate your private student loans for the convenience of a single payment or a reduced interest rate if your credit is now better than when you took the loan. You may also be able to get a longer repayment term. But I don't think you're going to find any fixed-rate consolidation loans -- private loans are all variable (as far as I know) so I don't know why the market would offer consolidation loans on different terms.

Also, even if you find a deal that looks good to you and lowers your interest rate, make sure that you're not losing any value in origination fees or other new fees. There are also some perks in your existing private loans you might lose (e.g., hardship repayment plans; reduction in interest rate if you do autopayments.)
posted by yarly at 8:33 AM on September 3, 2010

When you call Citibank, ask to speak to a supervisor.

Tell them you want to pay your loans, but you need a little help doing so. Ask them repeatedly what options are available. Tell them you can pay x-amount of your loans each month, but you can't pay the amount they're asking.

Insist, insist, insist on speaking with a supervisor.

Really show them that you do want to work with them.

I had some similar troubles with Citibank and was able to work something out, though not on the interest rate.

You can also try for a forbearance or a deferment, if you qualify, and while the loans are in forbearance or deferment, pay what you can each month. This way for 6 months to a year, you can make whatever payments you can afford. Of course, when they come due again, they'll likely come due at the same rate you're paying them now, but maybe that time will give you a chance to save up some or get other financial matters better organized that it won't be an issue. The issue with the deferment or the forbearance to work for you in your situation is you absolutely have to be good about making payments each month. It can be really easy to say, "Oh, but I don't have to pay them right now," since technically you don't. But you really should put something on them each month.

I know it's not exactly what you're looking for and it won't affect the interest rate much, if at all, but it may be one option to pursue for the time being.

Another option, if you can swing it, is to pay more than you owe each month while the interest rate is low and apply it to the principle amount on the loan. Applying extra money to the principle will prevent the monthly due date from moving up and will make the interest lower. Less owed on the principle, less the interest you pay. This means when the interest rate does go back up, you'll have more paid off to start with.
posted by zizzle at 8:34 AM on September 3, 2010

zizzle, I'm not seeing that the OP is having trouble paying, but is only interested in locking in a low, fixed rate.
posted by HuronBob at 8:48 AM on September 3, 2010

Be aware that if you are able to consolidate the loans into a single loan with a fixed-rate, that the fixed-rate you will be charged will likely be higher than the current variable rate you pay. Of course, as you say, if/when interest rates rise, having a fixed-rate loan will benefit you.
posted by dfriedman at 8:50 AM on September 3, 2010

Response by poster: Thanks, zizzle, I'm actually trying to pay them off as far ahead of time as I can, so the payments aren't so much the issue. I am just trying to avoid the scary inevitable ballooning of the interest rate on these loans.
posted by troublemenot at 8:54 AM on September 3, 2010

Try Credit Unions. They often have better rates, and are often *much* more willing to work with you than big banks.
posted by kryptonik at 9:26 AM on September 3, 2010

I had the same issue with law school debt. I looked all over for a fixed-rate way to refinance these loans, but couldn't find one anywhere. It seems the only way to get fixed-rate loans is to secure them with something (a house or a car, for example) or to get the government involved (government-backed student loans.) Unfortunately the only thing you can really do is get these things paid off as soon as you can, or hitch onto the next bubble and extract some money out of it and use that to pay down the debt.
posted by massysett at 9:30 AM on September 3, 2010

massysett: "Unfortunately the only thing you can really do is get these things paid off as soon as you can, or hitch onto the next bubble and extract some money out of it and use that to pay down the debt."

Well, you can buy interest rate swaps or something, but I think those are pretty much for institutions only. However, you can probably simulate it by buying options on something that affects your variable interest rate, like treasuries or some contract based on LIBOR. The fact that these things cost money is one reason why fixed rate loans are higher interest.
posted by pwnguin at 10:24 AM on September 3, 2010

Tl;dr version: This isn't actually as big a deal as you think, which is good, because there isn't much you can do about it either.

Boring version: I have more than that much student indebtedness currently held by Citibank, and the interest rates are spectacularly low. Three of them are sitting at 2.00%. Just ungodly.

Thing of it is, yes, interest rates will presumably start going up again at some point, but they won't immediately jump six points. They'll add a quarter point here, a quarter point there, no more frequently than two, maybe three times a year. And no one thinks that's going to happen any time before 2012.

I think you're probably getting a false sense of insecurity from the stories you hear about adjustable rate mortgages, the infamous ARMs. The reason those caught so many people by surprise is that they started with a low teaser rate--a rate which was actually well below prime at the time--and then three to five years later jumped to a rate which was at or slightly above prime. So a mortgage which started at 2.00% would suddenly be at 8.5%, and people would default.

That's not going to happen here. Your loans can change every time the interest rate does, and they aren't going to jump to some pre-determined rate as part of a promotional deal. They'll slowly ease upward as the economy recovers.

Which is good, because you're going to be hard-pressed to find anyone to refinance or consolidate these loans. It's my understanding that the government has largely ended its program whereby people could consolidate while preserving the loan's status as educational debt, making them difficult to discharge in bankruptcy. This was important because educational debt is unsecured, so if you default, your creditors are up shit creek without a paddle. So now that that program is gone, banks are going to treat it like unsecured consumer debt, charging you, somewhere in the neighborhood of your left kidney in interest.
posted by valkyryn at 10:27 AM on September 3, 2010

Interest rate swaps are not available for individual investors looking to reduce interest rate risk on a $56,000 loan.
posted by dfriedman at 10:36 AM on September 3, 2010

If you are good enough with math to pull it off you could short a bond fund etf (or alternatively buy a unleveraged short bond etf). If you do the math right you should be able to get it so that your net loss is zero no matter which way interest rates go. This would require a fair amount of research to do effectively, and if you are going to do it you need to fully understand and read the prospectus for whatever you short. (Note this assumes that bonds do not diverge from interest rates; this is a nontrivial risk in the current environment). This wouldn't exactly replicate an interest rate swap but should be close enough for your purposes.
posted by An algorithmic dog at 12:50 PM on September 3, 2010 [1 favorite]

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