What Will My New Repayment Terms Be?
Dear Betsy,
I have 2 loans: a Stafford and a loan from the school itself, for a total of about $11,000 as of this writing my minimum payments are $225/mo. I’d like to find where I can be able to consolidate my loans so that I can at least save $50/month or more. My total current principal of $11,000 seems to be “too little” for whatever financial institutions to want to consolidate, and they seem unwilling to touch the institutional loan.
What they fail to realize is that I have to budget on a MONTHLY basis and $225/mo is NOT a small amount to me. It seems a bit unfair that so many can take advantage of these consolidation offers, but I cannot. And I don’t want to get into a position where I have to default in order to, only THEN, be able to negotiate for a lower rate. I don’t want to shirk my responsibilities, but I also don’t want to be paying back more than I should or could. No one is willing to help with any information. Can you?
Thank you,
James
Hi James,
What kind of loan do you owe your institution? If it’s a Perkins loan, you are actually allowed to consolidate it with your Stafford—if it’s not a Perkins, you are indeed out of luck for that particular debt. You do, however, have other options for lowering you payment.
If the loan with your school is not a Perkins, contact them about any lower payment options that may be available to you. Regarding your Stafford loan, you absolutely have several options available to you to lower that monthly payment. Ask your loan servicer whether you qualify for either income sensitive repayment or the graduated repayment programs.
Income sensitive (for the Stafford loan program) allows you to choose a percentage of your income (between 4% and 25% generally) to be your monthly payment amount. The graduated repayment program has you paying interest only for the 1st 2 – 4 years, then gradually increases your monthly payment (hopefully in line with your income) over time. This would knock your Stafford loan payment down to approximately $30 per month (the minimum allowed) and, depending on your income, the income sensitive could get as low as $5 a month.
Keep in mind that the less you pay per month, the more you pay in interest in the long run, but it’s certainly better than defaulting. And speaking of defaulting—BAD IDEA! The consequences of default far out-weigh the benefit of becoming eligible for consolidation. Your credit will be severely affected for at least 7 years after you default, they will garnish your wages or even your paycheck and it could even affect your future job prospects.
With the options above, you can achieve your goal of a lower total monthly payment without putting yourself at this type of risk. I hope this is the information you were looking for.
Please don’t hesitate to contact me again if you have other questions.
Betsy
