Greetings:

A friend of mine has a Sallie Mae SL coming out of deferment this month, and he just received the notice from ACS Inc. Sallie Mae Town Hall Funding in Utica, NY.

The notice says the original principal was $38,000, but the unpaid principal is $52,000. They have set the monthly payments at $311, with some 282 payments.

His basic question:

How can he lower the payments?

Related question: Does this principal differential make sense? He has no clue how the numbers could be so different.

For better or worse, his FICO's are all in the mid 700's at this point.

What other information might I need from the notice, or him, to provide for the most complete answer?

Federal or private loans?

The difference is interest...and capitalized interest.

I don't know yet whether the loans were Federal or private. I will see the actual notification today. I thought, little as I know, the term Sallie Mae implied the loans backer. No?

What else should I be looking for in the notification letter today?

Any explanations for the term capitalized interest? I know nothing of SL's, as you likely know by now.

Sallie Mae is a lender both federally insured loans and private educational loans.

With capitalization, the interest accrues and quarter is capitalized (add to) the balace.

So the principal is deferred, but the interest accumulates (has been accumulating) during the entire deferral period?

Is that correct?

If you have, or can point me to a SL primer, I would be happy to read about this rather than post basic questions like these.

Yes, the payments are deferred during the deferment period.

Without knowing what type of loan he owes, it is difficult to direct you to the correct place. Private loans are totally different from federal loans.

I understand. I know payments are deferred, I am confirming that interest accumulates on a SL during the deferment period. I assumed payments are deferred, since that is the whole point in deferment...

So what, specifically, would I look for to decide whether this is a private or Federal Loan, since this is a vital distinction?

They really should know whether or not they borrowed federal or private funds. Or they can call and ask. Private loans also tend to run much higher interest rates, sometimes in the 14-16% level vs federal loans of 6%

Certain subsidized federal (and state) loans also defer interest not just payments for a specified period of time so it really depends on the type of loan.

I got a copy of the payment plan yesterday, so I know a fair bit more than when I started the thread. It is a Federal Loan at 4.75%. It has already been consolidated once, it is now owned by

ACS, Inc.

Guarantor is AES/PHEAA
Principal is $51,540 (amount in first post is NOT correct, my apologies)

Loan dates from 2002, 2003

So the questions:

Is a second consolidation possible to renegotiate the interest rate of 4.75%?
What options for consolidation does he now have with three 750 FICO's?
What companies can he use for consolidation?

He cannot consolidate them again unless he has an additional loan to add into it. Even if he could, the interest rate would be the weighted average of what he has now. FICO's have no bearing on federal student loans.

His interest is running around $200/month right now..lowering the payments is going to cost him more and extend his payment plan.

Yes there are other payment options available. Question is, has your friend called his lender or looked on ACS's website?

He called ACS, yes. They told him they would lower the payment amount to $200, but he has no idea what that would do to his totals. So what they agreed to, when they lowered his payment to $200, is they would allow him to pay only interest, as per your calculations. Right?

So if he goes back to school and gets another loan, he can consolidate again, adding in the new loan? I presume the new loan also has to be Federal?

He can consolidate again if he gets another federal loan but his 4.75% interest rate will not change as it is fixed. His new loan might might be lower but it would be weighted against the $50k plus balance.

Got it. So he has only one chance to consolidate or defer a second time, and that is to enroll in school again, get another federal loan, and then he can go to any consolidation company and consolidate again?

To make sure I understand how interest works in a Federal Student Loan, then, interest accrues for the unpaid balance during deferment? So if he defers for one year, he pays interest on the principal for one year, but if he defers for 10 years, he pays/accrues interest for 10 years

Many thanks for all the responses. How might we find out whether the group of loans (6 separate loans now consolidated into this current one) are subsidized or not? Is there a code which will be carried forth throughout the years which indicates whether it was subsidized or not?