Does it make sense to transfer my Sallie Mae loans?

Posts Tagged ‘loan consolidation’

Does it make sense to transfer my Sallie Mae loans?

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Q: I Have Four Stafford Loans With Sallie Mae – Three are Subsidized and One is Unsubsidized. I Also Have One Student Loan with Direct Loan. I am Considering Transferring the Sallie Mae Loans to Direct Loan. Does it Make Sense to Transfer These Loans?

A: When you say “Direct Loan,” I believe you are referring to the U.S. Department of Education’s Direct Loan Program (http://www.dl.ed.gov), where you can transfer and consolidate your federal education loans into a single, new loan which offers lower monthly payments. Whether or not it makes economic sense to transfer the loans depends on a host of factors, including: how manageable (or unmanageable) your monthly payments are; how many payments are left on your existing loan; the amount of time and interest you are willing to pay over time; and the interest rates on your current loans.

If you have variable rates on those Stafford Loans, it may be helpful to consolidate them in order to get a fixed rate. On a Direct Consolidation Loan, the rate is based on the weighted average of all your combined loans, rounded up to the next highest 1/8th of a percent. Your loan rate can never go above 8.25%. There are two quick and easy ways to see the financial ramifications of transferring/consolidating your loans. You can use this online calculator provided by the Department of Education. Or you can simply call the Department of Ed at 800-557-7392 and a customer service representative will be able to tell you your new payments — as well as how much extra you will pay in interest charges by consolidating.

Should I Repay my Stafford Loans Early? (studentloannetwork.com)
Zero Debt for College Grads

I filed bankruptcy but still owe my student loans. What should I do?

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Author: The Money Coach

Question: I Went to Culinary School Not Realizing My Student Loans Would Cost Me Around $1,000 a Month. We Had to File a Chapter 13 Bankruptcy to Hold Them Off for 5 years, But I Will Still Be Hurting When It Is Over and Sallie Mae Will Not Even Consolidate the Loans Anymore. I am Now a Police Officer Because Cooking Jobs in Alabama Will Not Support My Family, Much Less Pay My Loans. Any Tips?

Answer: Since you are now working as a police officer, your best option may be to investigate whether you will qualify for student loan forgiveness. This is granted to certain individuals who work in public service fields. To be specific, look into the debt-forgiveness provisions of the College Cost Reduction and Access Act, which became effective July 1, 2008. Its purpose is to help eliminate the student loan burden of public services employees, ranging from school teachers and social workers to fire fighters and police officers like yourself.

I don’t know many key facts about your situation, like whether or not you had federal loans or private loans, the exact total of all your college loans, and how long you may have been paying on them in the past. Nor do I have any idea about your income and expenses, or how long ago it was that you filed for bankruptcy protection. So it’s hard for me to give you more individualized guidance. In any event, you can get additional information and advice about your
loans online from the federal government at: http://www.studentaid.ed.gov. Also, even though Sallie Mae appears to have told you that you can’t consolidate, I wouldn’t rely solely on their word. To find out if you are eligible for a federal direct consolidation loan (which would also help you qualify for loan forgiveness) call the Department of Education at 800-557-7392 or visit their loan consolidation page.

Can I refinance my student loan debt?

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Author: The Money Coach

Q:I am a Medical Student With Four Years of Tuition at Around $50,000 a Year for Four Years Plus $20,000 of Living Expenses. I Have a Total of Around $300,000 in Student Loan Debt Taken Out in Both Stafford and Grad PLUS Loans at Around 6.5 and 7.5 Percent Respectively. I Now Have to Complete a Residency. Is Consolidation My Best Option? Also, Where Might I Be Able to Refinance at a Lower Rate?

A: Consolidating your loans likely will be your best short-term option — at least once you start out working, because your initial student loan repayments are going to be gigantic. I’ll tell you exactly how much in just a moment. But you have an enormous amount of student loan debt, and unfortunately it sounds like you’ll have to borrow more (or are contemplating doing so) while you complete your residency. Although you will likely earn a good salary once you are done with your residency, I would caution you against getting even more indebted. The reason is simple: You are already facing massive student loan repayments. I ran some numbers for you, using the calculators at www.finaid.org. Based on the information you gave me, I took an average of your interest rates and plugged in a 7% rate for all your loans. Here’s what I found:

* The 10-Year Standard Loan Repayment Program
If you stick to this program, you will be required to repayment $3,483.25 a month for 120 months, or 10 years. You will pay an additional $117,990.76 in interest charges for a cumulative total of $417,990.76 in student loan payments. According to FinAid’s estimates, you will need an annual salary of at least $417,990 to be able to repay this loan. This corresponds to a debt-to-income ratio of 0.7. Also, this estimate assumes that 10% of your gross monthly income will be devoted to repayment of your college debts. Using 15% of your gross monthly income to repay your student loans means you will need an annual salary of $278,660; that works out to a debt to income ratio of 1.1.

* The Extended Loan Repayment Program
If you consolidate your loans and stretch them out over 30 years, you will have to pay $1,995.91 a month for 360 months, or 30 years. While the monthly cash outlay is less in the extended repayment option, recognize that you will pay far more money overall. Under this program, your total interest paid will be $418,524.53, according to FinAid, bringing your total amount of loan repayments to a whopping $718,524.53. FinAid’s calculators also stated that you need a yearly salary of at least $239,509.20 to afford to repay this loan using 10% of your gross sslary, with a debt to income ratio of 1.3. If you use 15% of your gross monthly pay, you’ll need a salary of $159,672.80, which corresponds to a debt to income ratio of 1.9.

As you can see, unless you’re completely rolling in the dough as soon as you begin working full-time, you will likely have no option but to stretch out your payments, just so that they will be remotely affordable. One other benefit of consolidation is that you will likely be able to get a lower rate than you are currently carrying on your loans. Therefore, to refinance and get the advantage of a lower rate via loan consolidation, visit the Department of Education. Visit the department at: http://loanconsolidation.ed.gov.

Lastly, there are a few other things you can do to make your student loans more affordable or to eliminate them more quickly. You can pay extra payments on consolidated loans. That will decrease the interest charges you pay over time. You can live modestly, so that you have more money to put toward your college debt. You can see if a potential or future employer might be willing to pay off some of your student loans. And you can investigate various student loan forgiveness programs that are offered to people in the medical or healthcare fields.

I give more tips on all these strategies in my book, Zero Debt for College Grads: From Student Loans to Financial Freedom.

My Student Loan is In Collection. What Steps Can I Take To Remedy This Situation?

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Author: The Money Coach

Q: My Student Loan is In Collection. What Steps Can I Take To Remedy This Situation?

A: You did not state whether you are struggling with federal student loans or private loans. Whatever the case, I believe the article I’ve written below answers your question about how to handle student loans in collection. Essentially, you have four options:
•           Consolidate the loan(s)
•           Enter a loan rehabilitation program;
•           Pay the loan(s) off completely
•           Get the loan(s) totally discharged or canceled
Read on for more details about each of these alternatives, and to discover how to fix other common problems associated with having delinquent/defaulted student loans.

How to Fix Defaulted Student Loans and Wage Garnishments

In this tough economy, an increasing number of college graduates (and college drop-outs) are falling behind on their student loans. According to the Department of Education, federal student loan defaults were up to 6.9% in 2009, well above their 2008 of 5.2%. For those carrying private loans, defaults hit 3.37% in 2008 versus 1.47% in 2006, according to Sallie Mae, one of America’s largest providers of private loans.

As you probably already know, defaulting on a student loan is a very serious matter. A federal college loan falls into default status if you are supposed to make monthly payments, but have not done so for 270 days. For those whose student loan payments are less frequent, a default occurs once you haven’t made payments for 330 days. In either case, the government has the right to take your federal tax refund check or garnish up to 15% of your disposable pay in order to collect on a defaulted federal student loan. Defaulted student loans also negatively impact your credit.
Appealing a Wage Garnishment

The good news is that you can appeal a wage garnishment and request a hearing on the matter in order to demonstrate why it is that you can’t afford that the payments and wage garnishment your lender or guaranty agency is seeking. The U.S. Department of Education Debt Collection Services Office (DCS) holds the hearing after you fill out a “Request for Hearing” form regarding your wage garnishment, and send it to the Department of Education. Find the document online at: http://www.ed.gov/offices/OSFAP/DCS/forms/Request.For.Hearing.pdf
Your hearing can be done in-person, over the telephone, or in writing; the choice is up to you.

IMPORTANT NOTE: When you submit your Request for Hearing, make sure you also send another EXTREMELY IMPORTANT document. It is the “Financial Disclosure Statement,” a 3-page document in which you must document your income and itemize all your expenses. Here is a link to the document online: http://www.ed.gov/offices/OSFAP/DCS/forms/fs.pdf. This “Financial Disclosure Statement” form will be critical in the hearing/appeal process, and will be closely evaluated, so take the time to carefully list all your bills, and provide copies of those bills as requested. On page 3 of the Financial Disclosure Statement, you will notice a line that says:
“Based on this Statement, I think I can afford to pay $               per month.” This is where you have an opportunity to essentially offer a counter-proposal to the Department of Education about your student loans. Regardless of what you’ve been asked to pay in the past, here is where you should realistically evaluate your budget and come up with a number that you can undoubtedly pay (without a huge financial strain) month after month.
The Department of Education will make a decision about your case within 60 days after your hearing. But in the meantime, any wage garnishment that has already started will continue to be in force.
Four Options to Cure a Defaulted Student Loan
Now, in order to get your student loan(s) out of default, you have four options:
•           Consolidate the loan(s)
•           Enter a loan rehabilitation program;
•           Pay the loan(s) off completely
•           Get the loan(s) totally discharged or canceled
The last two are probably not realistic options. I know you don’t have the money to pay off the loan(s). That’s why you’re in this predicament; and loan cancellations are rare (though they can be obtained). You’ll likely have to “rehabilitate” your loan(s) or consolidate.
Should You “Rehabilitate” Your Loans or Consolidate?

Before you can consolidate, you have to bring your loan(s) out of default status. You do this by making just three monthly payments — on time, and in any amount that you and your lender agree upon. To find out if you qualify for loan consolidation, contact the Federal Direct Consolidation Loan Info Center at 800-557-7392 or go online to http://loanconsolidation.ed.gov.

If you call, the staff there should be able to tell you what your monthly payment will need to be for those three months while your loan is in repayment. The one drawback to consolidation is that your credit remains tarnished. Even though your loan will be paid off and listed as “paid in full” on your credit report, you’ll get a new loan through consolidation and that previous default still shows on your credit report for seven years.

An alternative, to fix your credit, and have all past negative information about your student loans completely deleted from your credit file is to go through loan rehabilitation:

In a nutshell with rehabilitation you make 9 or 12 on-time payments on your student loans in an amount you can afford. You make nine monthly payments on Direct Loans and Federal Family Education Loans, or 12 monthly payments on Perkins Loans. This, in my opinion, is the preferred route as it will help you restore your credit in a big way, so your past default won’t haunt you for years to come.
For more details about various alternatives to cure your student loan delinquency, check out the Department of Education’s guidebook called “Options for Financially-Challenged Borrowers in Default.” Here is a link to the guide online: http://www.ed.gov/offices/OSFAP/DCS/forms/2004.Borrower.Options.pdf

Get Help From an Ombudsman

Additionally, you should know that if you ever have a dispute with your lender or loan services about anything related to your federal student loans, there is a government agency that may be of assistance in resolving that dispute. It’s called the Federal Student Aid Office of the Ombudsman (http://www.ombudsman.ed.gov). Always try to work things out first with your lender by using this online “Self Resolution Checklist” from the Ombudsman’s office: http://ombudsman.ed.gov/resources/toolschecklists/selfresolution-checklist.html. But let’s say you think your loan was mistakenly placed in default by your lender – maybe you were in school at least half-time, you had a loan deferment or forbearance, or you actually made payments on your loan – and you can’t get a satisfactory resolution of the issue, then it’s time to reach out to the Ombudsman’s office.

Here is a link to the section of the Ombudsman’s website that gives you more information about handling defaulted student loans: http://ombudsman.ed.gov/loandefault.html. Also, this link gives you more info about wage garnishments: http://ombudsman.ed.gov/garnishment.html.

No matter what economic challenges you’re facing, you don’t have to live with wage garnishments and blemishes on your credit report because of defaulted student loans. Reach out for help today, and start the process of turning that college debt problem around.

Ask The Money Coach

Posts Tagged ‘loan consolidation’