Help us wrap our college-educated minds around our student loans.
September 19, 2012 6:25 PM   Subscribe

Please school me on student loan debt consolidation.

So, my wife and I have taken out student loans. Awesome.

My loans are easy, I only went to undergrad and and only pay back a small portion of that loan (I owe less than $9k, and pay about $160 a month, just above the minimum). They're not the problem at all.

My wife's loans are much messier, and we're having trouble wrapping our head around them, and how to tackle these beasts. We're not even sure if we can consolidate them. She has both undergrad, and grad loans. All of her loans are either subsidized, or unsubsidized stafford loans, but they vary in interest rate from as low as 2.39% all the way up to 6.75%. They're serviced through Great Lakes, and through Sallie Mae.

Details in bullet point form:
-We're paying the minimum on all of them, and are over $650 a month, which is rivaling our rent for most expensive budget item.
-We've applied for income-based repayment, but Sallie Mae is apparently staffed by monkeys who can't even tell us when paperwork doesn't go through.
-My wife has 25 months total of deferment that she can use.
-We have no other debt, other than $6k left on a car loan. No CC's or anything.

We're trying to explore our options for reasonably paying these wife is a mental health provider who is working towards licensure, and stands to make more in the next 1-2 years, and we also have a 1 year old which limits our employment flexibility options. We're basically you're typical young family, struggling while starting out.

1. I know what the words "loan consolidation" are, but I have no idea what they do, or if they apply to us in this situation. What is loan consolidation in real life? Can it be beneficial to us?
2. If loan consolidation doesn't apply to us, How do we best tackle these loans? We're willing to defer loans strategically to make this happen.
3. Is there any way we can convince these motherfuckers that we don't make much money, and we are struggling to pay them? How do we escalate this at Sallie Mae and get to talk to people who aren't reading from a script, or picking their nose?
posted by furnace.heart to Work & Money (3 answers total) 6 users marked this as a favorite
I'm assuming these are all federal. Okay, so your wife needs to go to the National Student Loan Department of Ed site (on phone - can't find link) and get a list of all of her loans.

Then she can figure out if the current consolidation rate is better or worse that some of her loans. Anything higher than the current rate should be consolidated.

Then she needs to apply, through the federal government (I think) for Income Based Repayment. There are calculators online that will tell you what that rate is.

Is she working for a non-profit or a public entity? She'll probably qualify for the new loan forgiveness plan - paying in for 360 months, then forgive your loans. It is awesome.
posted by k8t at 6:36 PM on September 19, 2012

Loan consolidation:

Loan forgiveness:
(That's 120 months, not 360)

The site that lists all your loans:
posted by k8t at 6:42 PM on September 19, 2012

To respond to your first tl;dr question:

In general*, consolidation takes the separate federal loans, pays each lender for those loans, then issues a new loan to the borrower equal to the balance of the original loans, plus whatever unpaid interest has accrued. Instead of having several loans with varying interest rates and balances, you get one loan, with one payment, and one interest rate (equal to the weighted average of the interest rates of the original loans).

So, suppose you have three loans, like so:
  • $5,000 @ 2.00%
  • $3,000 @ 3.00%
  • $8,000 @ 5.00%
Assuming there's no unpaid interest, those loans would consolidate into a single loan totalling $16,000 @ 3.69% (assuming I did the math right here).

Consolidated loans are useful because they sometimes have longer repayment terms (depending on the balances of the loans), thus lowering the minimum payment, and because it's just one loan and servicer to deal with (which would be especially helpful changing repayment methods, for example).

If you're able to afford paying more than the minimum on your loans—or expect to sometime soon, relative to the term of the loan—having separate loans is preferable, because you could pay the higher interest rate loans first, benefiting from the lower rate on the other loans. But since that doesn't appear to be the case for you, consolidation is probably a good idea. You can get a better sense of this by comparing your current repayment situation with the result of the Department of Education's consolidation calculator. And they provide official numbers during the consolidation process, at which time you can still back out (or, at least, that was the case when I consolidated in 2009).

* There's another program, which my SO did, that uses the word consolidation, but only moves all of the loans to a single servicer. I'm not talking about that program.
posted by ddbeck at 8:14 PM on September 19, 2012

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