Federal Student Loans - Questions? Need Advice?

[stevie2012]

Just found this forum and it appears to be a great support system. Perhaps I can help on the student loan front (federal loans only).

For the last five years, I have been working as a Financial Specialist for Federal Student Loan consolidations. If any of you have questions regarding federal student loans, feel free to ask, I most likely have the answer.

PS: And if any of you do not know, the rates for Federal Student Loans are going up 1.93% July 1st. If you haven't already, be sure to consolidate now and lock in a historically low interest rate!! The government also recently passed a ruling that you can now consolidate, even if you are "in school" status. Depending on how much you owe, this can save you thousands of dollars!!

[skyan]

What about the "one lender rule"? I heard they were trying to get that changed. Has that happened yet?

Also, how does consolidation work on a loan that has already been consolidated? Does the rate go down enough to bother? My husband's was consolidated in '95, with a rate of 9. He falls under the "one lender rule", so right now is stuck.

Thanks.

[stevie2012]

The "one lender rule" you are speaking of is actually called the "single lender rule." Basically, if all of your loans are being held by the same lender and servicer (unless it is the Department of Education), you can ONLY consolidate with the lender/servicer that holds your loans. There is a proposal in congress to try and get that changed but so far, to no avail.

With regard to reconsolidation, the only way you can reconsolidate a previously consolidated loan is if:

(a) there were loans left out of the previous consolidation; or
(b) you previously consolidated with the Department of Education; or
(c) you took out student loans since you consolidated.

It's important to remember that the government has a 'weighted average' when it comes to re/consolidation. In short, the "weighted average" is a formula provided by the Department of Education that follows strict Federal guidelines. It takes your current balances and interest rates and determines the EXACT RATE that you currently pay on all loans collectively. From there, it is rounded up to the nearest 1/8th% or 8.25%, whichever is less.

Last, I'd encourage your husband to contact his lender/servicer and request that his interest rate be reduced to 8.25%, which is the current cap on Federal student loans.

[skyan]

Thank you. My husband's lender is Sallie Mae. He did call them and ask them to lower his interest rate. They said they can't because he is already consolidated and his rate is "locked". I don't buy it, I think they have the ability to drop it if they choose to. What do you think?

[stevie2012]

Sounds like they are being *******s.

If the federal CAP is 8.25%, they should readily REDUCE it to the 8.25% CAP. He may have asked them to reconsolidate and if that's the case, them saying no is "proper."

He has to use the proper terminology when he calls, such as: "I understand I have consolidated with you and cannot reconsolidate. However, the federal cap on student loans is now 8.25% and I am paying 9.0%. Therefore, I am respectfully requesting that you ADJUST my interest rate to the federal CAP of 8.25%."

If Sallie Mae are still jerks about it, have him call the Department of Education; they are the only entity that can OVERRIDE Sallie Mae's decision.

[skyan]

Thank You Very Much. Passing this on to my husband...

[skyan]

One more question... I don't know if you'll know it or not. We were told when we made our last payment arrangements, (we were defaulting, but stopped it), that we didn't qualify for income sensitive payments because at that time, almost the whole payment was interest. Well, I went to their website and went throught the steps as if we were going to try to get the income sensitive payments now. I just didn't go through with actually filling out the paperwork to actually apply. But, according to the website, we can pay $100 month less right now. My question is, if my husband applies for that, can they turn it down? And if they do approve it, is there a maximum number of months that he can utilize this payment plan? The website implied only 12 months. But we could stand to have a break for a little more than that. He no longer qualifies for any forbearances. Do you know if that is forever? Or if he can earn back some forbearance time after so many good payments? This is with Sallie Mae...

I am editing to add that this loan is currently in good standing and has been since the last payment arrangements. There have been ten months of payments since then. The account was pulled out of default last Oct. This loan is NOT in rehabilitation.

Thanks again.

[stevie2012]

Income sensitive plans are at the discretion of the lender/servicer...so yes, they can turn it down. If your husband meets certain criteria (ie., income reduction), that benefit can be extended to him.

I must say, often times those income sensitive programs are actually less than the interest only payment. If at all possible, you want to pay AT LEAST the minimum interest that accrues every month, so the outstanding principle balance doesn't get out of control (your balance is greater than your original disbursement amount). Once that happens, it's usually hard to get above water.

This also goes without being said, but make sure your husband knows the difference between a forbearance and deferment. You always want to strive for the deferment moreover the forebearance - mainly if there are subsidized loans. The government allots a maximum of THREE years for a forbearance/deferment. If he already maximized that benefit, it cannot be extended.

Loans do not go into Default unless they reach 270 days without payment. If the loans were in default (regardless if they were pulled out), the only way to get them out of that status is through a rehabilitation program (12 consecutive monthly payments on time).

[OverMyHead]

It sounds like you are the perosn to talk to. I have been thinking about BK for almost a year now, primarily to hopefull declare that paying my student loans would be an undue hardship. I have about $70,0000 in a consolidated loan. No I'm not a doctor. I got my BA in psychology! I was dumb and didn't realize how difficult it would be to pay these loans back. I have worked in human service/social work positions. I started a family. I recently resigned my position to work with my husband full-time in our business. I don't know what to do. I didn't come from a wealthy family and I always carried a chip on my shoulder about not have enough financially. I feel like filing would take a personal blow to my self-esteem. I didn't have a lot of financial education growing up and I've had to teach myself or learn the hard way. I don't blow money on "stuff". We rent, all of our cars are over 10 years old, I shop at thrift stores. We want to expand our business and secure a home/shop, but we feel stuck. Our credit wasn't great before, but I think with a BK it will be aweful. I thought about "taking the dive" so that my husband can keep his credit, better his credit and we could maybe have something. Is there anything, ANYTHING I can do besides BK to reduce my student loan debt? I have a few months of forebearance/deferrments left, but I don't know if it's enough. What if I default. I am TERRIFIED of a life with worry and debt. We have struggled so long and we work hard, but we can't seem to "figure it out". Has anyone been in a similar situation?

[stevie2012]

It's near impossible to include federal student loans in a BK. In my several years in the business, I have yet to know of ONE person who was able to do so (you have to literally prove the loans are the prime cause of your financial burden).

If you default, that is the worst thing...ever. Why? The government can garnish your wages, tax refunds, and so on. You do not want that.

While you won't be able to reduce your outstanding balance without paying it down yourself, there are options. I'd only use the deferment/forbearance benefit in the most extreme situations because the cap is three years. Once it is exhausted, it's exhausted.

You may want to look into an income sensitive payment plan. Keep in mind though, those plans very rarely cover the interest alone on your loan. As a result, your balance quickly becomes greater than what you initially took out on the loans. On 70K, it would be real easy to turn that into 100K if you aren't careful.

Good luck!

PS: Who did you consolidate your loans with? Let me know the lender/servicer and your interest rate.

[OverMyHead]

Ocuh!!!! My loan servicer is Nel-Net and I believe the interest rate was 7.25%. I have been told by a lot of people that Nel-Net is not very nice to do business with. At this time in my life this debt is BY FAR my largest financial burden. The next largest debt would be our credt cards and I don't think all together they would even be $7500. My lawyer seems to think that I have a good chance of reducing the total amount due, but if it went before the judge it is all or nothing. He has experince with loans that were guaranteed by the Dept. of Ed, but my loans were guaranteed by Iowa College student Aid.