Money Smart Kids
Tackling Private Student Loans
Private loans can be tougher to pay off than federal loans. Here's what you need to know to reduce the pain.
By Janet Bodnar, Editor, Kiplinger's Personal Finance
November 7, 2007
How can I get out from under my $43,000 of student-loan debt? Most articles I see reference the federal student-loan program, but what about private student loans? Are there any little-known methods or laws that will help people like me reduce their monthly payments?
Outside the federal student-loan program, your options are limited. Federal Stafford loans offer more-favorable repayment terms than private loans, plus more opportunities to have loans forgiven.
For example, you may be able to tie your payments to a formula based on your income. Or you may qualify for loan forgiveness if you teach in a low-income school (for details, go to http://studentaid.ed.gov).
Also, volunteering for the AmeriCorps program qualifies you for an education award of $4,725 a year for two years to help pay for student loans, and some colleges match the award (check with your school).
But those programs aren't available for private loans. In that situation, your best bet is to shop around for the best terms you can find on a private-loan consolidation (compare programs at SimpleTuition.com and FinAid.org). If your credit score has improved significantly since you took out the loans, you may be able to get a better rate.
Consolidating also lets you stretch out the term of the loan, which may lower your monthly payments. You'll pay more interest over time, but the breather could get you over a hump. And you can pay ahead on your loans as your income rises, as long as there are no prepayment penalties.
Some occupations forgive loans as a recruiting tool. And if you meet income requirements, you can deduct up to $2,500 per year in interest on any loans used for higher education.
Once you've arranged the best terms you can, you'll just have to bite the bullet.
Leisa Aiken, a financial adviser in Chicago, recommends that clients with significant student-loan debt go on a crash program to pay off high-rate debt as soon as possible, even if it means continuing to live like a student. Move back home with Mom and Dad, get rid of the car, take a second job, and put the extra cash toward your most expensive loans. Low-interest loans can wait. "Paying $150 a month on a 4% loan isn't all bad," says Aiken. "It's more of a nuisance."
A law recently signed by President Bush will help ease the burden for students who borrow through the federal program. Struggling grads will be able to tie student-loan payments to a more-generous income-based formula. And the government will forgive loan balances after 25 years. But the new law hasn't taken effect yet.
The best way to stay on top of student loans is to limit how much you borrow in the first place. Next week, readers tell how they did it.
Reader Comments (19)
Posted by: JR at 11/07/2007 11:40:15 AM
Just yesterday I read an article at the NY Times ('Move Over, Orbitz') that said that sites like Simple Tuition aren't totally straightforward because they have a financial interest in the lenders they list. In fact, right on their lender partners page they state “We receive a transaction/referral fee when a user selects a Partner Loan product.” There has actually been a good deal of negative media for these new loan search sites. Its important to shop around, but its even more important to know which companies you can trust.
Posted by: Bridget at 12/18/2007 12:48:20 PM
How are we, those struggling under a mountain of education debt, supposed to hold down two jobs if we "get rid of the car?"
Posted by: Kenneth Tyler at 01/18/2008 03:10:23 PM
I have a wife and two small children and am currently trying to support my family under a mountain of private loan school debt (about $80,000 worth). I currently make around $42,000 a year. With all of the required withholdings this leaves me clearing about $2,400 a month. Luckily I don't have a car payment, but I still have to pay $950 a month rent, electricity, utilities, and other various required things in order live. Not to mention I have to provide food for my family (which can easily be around $250/month if not more). On top of all that crap, Sallie Mae is wanting me to pay $1200 a month. THAT'S A WHOLE PAYCHECK. Then when I call and try to negotiate my debt, the only option they can give me to help out is an interest-only option (which basically means I'll never pay my loan off) of $900 a month. I just don't know what to do. If anyone does, please let me know.
Posted by: monica hugo at 01/24/2008 08:09:06 PM
I am right there with you Kenneth! I have over 100,000 in private student loans. I went to a private school where they didn't inform me of what it would be like after school to deal with these loans. I feel they had some kind of connection with outside lenders so they just kept giving private student loans. This is turn has put me in the same situation you described yourself in... I have called numourous times to Sallie Mae to come up with a solution and be able to pay something each month but I can not afford to pay $1500 a month or $900 (after consolidation)...I am at my wit's end!!... Wish we had the answer for each other.
Posted by: amanda at 02/09/2008 07:54:41 PM
Sallie Mae got the best of me too...there has GOT to be something we can do.
Posted by: Theresa at 02/21/2008 10:17:17 PM
I understand totaly, I have 54,000 in private loans and its killing me. The problem is know one seems to care. I jokinly tell my kids I will be dead before my student loans are paid off, the sad part is it may not be a joke.
Posted by: Knowledge at 03/05/2008 11:24:06 AM
Just don't pay them! Student loan companies prey on students with their unbelievable interest rates and the government lets them. I just am not going to pay mine. Yeah, it will be on my credit report for 7 years but who cares. I would rather my credit be jacked up for 7 years than pay someone $1,500 for 30 years. That's $540,000!! You would be better just to save that money under your bed for retirement. Why give away a half a million dollars and all you get is a degree and the opportunity to work a job that doesn't pay you what you're worth, doesn't want you to take a vacation and has no problem of firing you tomorrow!!
Posted by: Stella at 03/05/2008 01:21:08 PM
Comment for Knowledge: It's not just your credit report that suffers. If you don't repay your student loans the government can garnish your wages and the IRS can withhold tax refunds until you're paid off. Not even declaring bankruptcy will get you off the hook with student loans. Better to pay them than endure a LIFETIME of financial hardship.
Posted by: Knowledge at 03/05/2008 06:14:49 PM
Stella, the government won't come after you if you don't pay a private loan that's not guaranteed by them. They could care less! At worst, the private loan lender can try and take you to court and get a judgement. This, as crazy as it might sound may not be such a bad thing to let happen. The courts will rule in the lenders favor but force them to work out a reasonable payment plan with you according to your income and your necessary needs(housing,car payment, medical ins, etc.)I have seen this done and 99% of the people end up getting a reasonable monthly payment plan worked out at a much lower rate than demanded by the lender or by you when you try to negotiate with them as Kenneth (above) said he tried to do. ... The loan people would rather get something than nothing in the end. ...
Posted by: DB at 05/19/2008 06:29:53 PM
After much research I agree with knowlege's post - private student loans are subject to the same SOL (statute of limitations) that all private debts are. This varies by state from 3 to 10 years and begins counting from the moment you don't make a payment....
Posted by: Marilyn at 12/30/2008 01:38:01 AM
I'm a single mother that has ($85,000) worth of private and federal student loans,after four years of college. I cant afford $1250 a month in payments. no one seems to care. I'm doing all I can to cut everything, even selling our home is next. my private lender refuses to let me consolidate my loans, because they will lose money that way. I never dreamed it would be like this after four long years of stressful school, only to endure this mountain of financial stress for 20 yrs to come. please LORD HELP ME!!!!...I pray that OBAMA helps out people in our situation with student loans..... can we go to the government and ask for some BAILOUT MONEY!!!!!!
Posted by: Chris at 02/07/2009 08:56:44 AM
Marilyn, How much of the 85K is federal? Have you consolidated the federal with the Dept of Education's Direct Loans program? If not, you should. Assuming a large portion of the 85K is federal loans, your monthly payments should not be so high. By consolidating with Direct Loans you can probably get better terms. And also, you can get a pretty much guaranteed temporary forebearance so that you don't have to pay for up to a year, its not the smartest thing to do in the long term, but when you are in a pinch month-to-month (as it sounds like you are) its nice to have that breather. Hope this helps.
Posted by: crystal at 03/25/2009 01:14:17 AM
Sometimes its not the burden of federal loans, its all about the private education loans. companies like sallie mae dont care how good or bad your credit is they still charge you interest rates up to 18.25%. I cant afford my private loans but i can afford my federal loans. any suggestiond on ways to get them to budge on the interest rates??
Posted by: V at 04/10/2009 06:45:22 PM
Right now I have $20,000 in private student loans through Sallie Mae. The monthly payment is $300 and we only have one income. We have to move because we cant afford our bills. I told Sallie Mae that I can pay $50 and asked that they consolidate and begged them to help in some way. Their only solution is to pay $50 per loan to forbear them for 3 mos along with $319 as a "good faith payment". I have 3 loans, so I would have to pay $469 to forbear them for 3 mos when my monthly payment is $300.. What part of "I have no money" do they not understand? Isnt there something I can do? A grant, forgiveness...something? Please!! We cant even afford health care and food.
Posted by: TC at 06/11/2009 06:17:19 PM
I’m a college graduate currently struggling mightily with student loan debt. I was laid off work back in November of 2008, and never dreamed that with a college degree and 2 years experience in my field of work… that I would still be unemployed 6 months later. I have around $100,000 total in student loans from college, and $55,000 is in private loans through Sallie Mae (approx $600.00 per month due). Sallie Mae calls around 5 times a day, and no matter what I tell them, they tell me there is nothing they can do to help me. So the days past due and amount due and fees keeps adding up. All they want is $150 to put the loans into forbearance (which I don’t have). I can no longer even count the number of times I’ve been harassed by them or hung up on by their operators. My unemployment has run out, I’ve cut every possible expense I can, moved in with my parents, and I can’t remember the last time I went out with friends… this isn’t living!...Coming out of high school, I was told… “you can’t survive today without a college degree.” So I signed on the dotted line, and have regretted it since. I literally feel as if I’m drowning here, and there’s nothing out there to help me. As someone else mentioned, why does NO ONE SEEM TO CARE? Am I the only person going through this? What can I do!?!?!?
Posted by: Cheri at 06/27/2009 08:31:37 AM
Hi. I'm hearing all of you here. I regret nothing but taking out the private loans. I am going to suggest to all of you here to go to Suzeorman.com and post your questions to her. She is abreast of all financial info ...Perhaps nothing can be done, as is said here, but bite the bullet. Easier said than done given the state of the economy. As far as federally funded student loans, we are fortunate to have the new IBR coming out in July, or income based repayment plan. Look it up. Also, for those of you in public service (policemen, teachers, look it up if your profession qualifies) there is a new public service loan forgiveness program which can significantly lift your burden regarding federal loan repayment. In combination with your income based repayment, if that is to your advantage (check on IBR.org for a calculator to determine what your payment would be based on income and family size) you could at the end of 10 years of repayment have the bulk of your loan forgiven. Look up the details but I believe it will take into consideration 2 years of past payments so for some of you who've been in repayment for 2 or more years, you could have only 8 more years left to pay. That could be a significant financial burden lifted. Here is the lesson I have learned: beg, borrow or steal but DO NOT take out private loans to pay for your education! I have nearly 100,000 in student loan debt, most of it accrued post-graduate and much of which from private education loans. Fortunately, I am a teacher so will qualify for public service forgiveness (if I can find a job, that is!) and in combo with IBR really can breathe a little easier than previously. . . but what to do about those private loans??? Perhaps someone will hear our cries and help us out of private loan hell. Until then, let's help others avoid the lessons we are learning now by spreading the knowledge we've gained through our experiences. Peace & good luck!
Posted by: Molly at 09/13/2009 02:57:42 PM
I have private loans through Sallie Mae and have been struggling to pay them for months! I was in the same boat, they wanted $900/month to pay them off (which is 95% of my take-home pay per month!), and when I asked for a reduction, they wanted $425. That's more than my rent! I'm thinking of applying for welfare at this point to buy groceries. It's disgusting how unregulated the private loan industry is, and how little is done about it! I believe I'm going to apply for 6 month forbearance, try to save a years worth of payments with my Christmas bonus and tax return, and go back to paying them with my savings instead of taking them out of my paycheck. I've written to all of my state representatives and senators, even President Obama! Hopefully someone wakes up and gives us relief soon. Good luck to everyone out there, we're all in the same boat together!
Posted by: noy at 09/30/2009 06:47:01 AM
For those who think Private student loan is a Joke DO NOT DO IT. As the other post said beg borrow steal but do not sign your life away. Unfortunately most people who happen upon this post will be people in the same situation as I am $60,000 in dept, not to mention half is not in my name alone because I needed a cosigner. If you read this before getting a private student loan and still go out and get one then your are going to regret it. There are so many other ways to pay for an education, look it up on the net...
Posted by: Derek at 10/06/2009 11:04:55 PM
I'm in the same boat as the rest of you. Sallie Mae gave me over a $100,000 loan, with no co-signer. For some reason I thought that I could make minimum $50 payments. Next month my loan starts and they want $1400 a month. Get real! There's no possible way for me to pay that. They don't seem to be able to help either. I now wish that I wouldn't have went to college. I'm unemployed, and have this on my mind too. If anyone has any answers please let me know.