I don't know what the largest student loan is, but I think a colleague of mine may have it. We teach at a small, impoverished college, and last week he told me that he owes $150,000 to Sallie Mae, pays a quarter of his net income every year, and can't even cover the interest. He's at his wit's end. He says he's had his loans consolidated, but it hasn't helped. Is there anything he can do?

I already have another question about this. Reading through some of the other posts here, I see that many people have lower interest rates than he does--his is 8.25%. Is it possible he could get his rate reduced, and how would he go about doing that?

Geo

While your friend does have a large student loan, it is by no means anywhere near to a maximum. I have personally been involved with the consolidation of loans that were more than twice as large, and they were not spousal consolidations either. The largest spousal consolidation that I was involved with was for more than $500K.





Geo

Once a person consolidates their loans, the interest rate becomes a fixed rate. That rate will not change. Depending on who the servicer is, there are a few consolidation companies that can offer reconsolidation programs. However, the reconsolidation would still be based on the existing rate, which in this scenario is 8.25%.


fla-tan

Thanks very much for this info. I have to say that I don't think this is fair to him. It's nice for people who are able to lock in a low rate, but people with high rates should be able to renegotiate. In this case, the amount they are asking for is close to what he brings home every month. (I just calculated it--they want 65% of his net income). He has been at the college a few years longer than I have, but they haven't granted any raises in a couple of years, so it's pretty irrelevant.

What can he do, since giving them the amount they are demanding will leave him virtually nothing for rent, food, utilities, gas for the car, etc?

Depends on what kind of loans they are - are they all FFEL (government-backed loans, like Stafford)?

I don't know, Publius, but I'll ask and get back to you. Thanks very much for your help.

Is your friend a teacher? There's something that I remember reading that if you become a teacher your loans are forgiven. Does anyone else know of this?

Yes, he teaches physics. I have heard about teachers' loans being forgiven, too, but I thought it was just for people teaching in the public schools. If it's for college teachers as well, that would be a great help. Thanks for that suggestion!

Here's something I just found at a website called mapping-your-future.org (wait; a link: http://www.mapping-your-future.org): you can have a lot of your loan forgiven if you join the Peace Corps or ACTION.

Vista or Peace Corps Volunteer Cancellation Return to List of Conditions
Up to 70 percent of your loan will be cancelled if you serve as a Peace Corps or ACTION volunteer. Schools apply cancellation for volunteer service in the following increments:

* 15 percent of the original principal loan amount - plus any interest that accrued during the year - for each of the first and second 12-month periods of service; and
* 20 percent of the original principal loan amount - plus any interest that accrued during the year - for each of the third and fourth 12-month periods of service.

If they're primarily Stafford and/or Perkins loans, there should be an income-contingent or income-sensitive repayment option available to him. Payments are limited to 20% of net income, and any balance left over after 25 years of payments is forgiven.

Really? That would be great! They sent him a letter in which they said that they couldn't give him the income-sensitive thing anymore, and NOTHING about forgiving what would be left over after 25 years. Maybe he has the wrong kind of loans.

I have sent him an email about the kind of loans he has; hope to hear back shortly.

And now I've heard back. He says he thinks that they were Stafford loans originally, but since they have been consolidated, they are listed as SM, which he assumes means Sallie Mae.

Here's a new development:

Last month Sallie Mae went into his bank account and took a payment. He had sent them a check, but they hadn't received it yet, so they got paid twice. He never told them they could do this, but apparently they took the routing number off his check, and got in that way. They took an amount that was $0.35 less than the amount of the payment.

This month they are wanting the 65% of his net income, and he didn't want them to just take it, and cause all his checks to bounce, so he asked the bank what he could do. They said, "Close the account and send only cashiers checks from now on." They can block someone taking a particular amont, but if the amount is different from the blocked amount (like the amount that was less than his regular payment), there's nothing they can do.

I am astonished and horrified--this seems like something that would happen in a police state, not in America. Is it a common occurence?

I just realized that I still don't know the answer to my original question: what his the worst thing that can happen to a person in my colleague's situation? He already has anxiety, and some inconvenience from having to open a new checking account, but are there things that will happen to him if he doesn't give 65% of his take home pay to Sallie Mae?

If there are things that will happen, what are they? About how long does it take for the things to happen? What (if anything) can he do to protect himself?

Now my colleague is thinking of filing for Chapter 7 bankruptcy. Since attorneys always want their money up front (very wise of them), I am afraid that he will end up paying a lot for very little result. He owns virtually nothing: a partially paid-for used car, two old computers, and some household effects, no land or untapped bank accounts or anything like that. How likely is it that he will be able to get free of his school loan debt by this method?

Tell him to try this site: http://www.fafs.us/. I don't have a lot of details to offer, as I am just getting started with them. But their interest rates are extremely low.

Also, you can't discharge student loans in bankruptcy. God knows I wish I could.

Thanks, I'll give him the link. I told him that I didn't think he could beat the loan by filing Chapter 7, but he has a printout from a website that says it can be discharged if paying it would prove a hardship, or something like that. I certainly wouldn't say that made it a sure thing, but it gives him some hope.

Kaysei

They are simply a consolidation company and they cannot offer a different rate than any other consolidation company.


fla-tan

I understand that, but they are offering ranges of 1.65%-4% as compared to the 8.25%(?) he's paying now.

Also, I understand it is very, very difficult to try to prove hardship and get the loans discharged. I only wish I could do it. I'll be dead before my loans are even 1/3 paid off. :roll:

Kaysei, Fla-tan says earlier in this thread that once loans are consolidated the interest rate is fixed (as in my colleague's case), but I don't understand WHY that's the case. The interest rate he has is more than twice what other people are paying, and is too high for him to ever start reducing the principle. He feels desperate about this--he'd like to pay it off, but the interest rate makes it impossible.

I am sure you are going to be right about the impossibility of his getting the loan discharged. I would like to hear from (or at least about) people who succeeded in getting a student loan discharged under Chapter 7 by pleading hardship. What kind of hardship was involved?

As I stated above, I'm just getting started, so I'm certainly no expert on the interest rates or even how consolidation works.

Try www.prairielaw.com and do a search for 'hardship', 'student hardship', etc. I love attorneys.

You could also do a search thru the bankruptcy judges' opinions on www.gamb.uscourts.gov/.

Good luck!

Think of a consolidation loan this way: a lender takes all a student's federal loans and takes out a new loan to pay off all the old loans. The student then has just one larger loan to make payments on.

Your friend's interest rate is so much higher on his consolidation loan that what is being offered currently is because when he consolidated, that 8.25% was the interest rate on his loans, and consolidation takes whatever the CURRENT interest rate is at the time of consolidation. Consolidation interest rates are so much lower right now because the interest rate for federal loans is ridiculously low, and lots of students have consolidated to lock in those low rates.

I hope this helps... consolidation is one of the most complicated things in the FFELP program.

Thanks, TracerBullet, that's a very concise explanation of consolidation. I understand why is rate is higher; what I don't understand is why they can't offer a lower rate now that rates have fallen. He can't pay them what they want. He will be paying for the rest of his life no matter what. How does this make sense?

geo

The short and simple answer is because that is the way congress wrote the law. The method by which the interest rate on a consolidation loan is calculated is a weighted average of existing loan balances and their corresponding interest rates. So when your friend originally consolidated, his rate was based on the interest rates at the time of consolidation. In his case, that was apparantly 8.25%. Congress, when the HEA was passed as well as when it was reauthorized, made no provision for allowing for reconsolidation of Federally Guaranteed Student Loans except if there was an addtional loan added to it. Since there was no provision, the Student Loan manual states that a reconsolidation of a single FFELP consolidation loan is not allowed. Congress did visit with the possibility of changing the regulation this year, but the amendment was defeated in committee and is no longer part of the reauthorization.


fla-tan

Okay, I think I'm beginning to understand. Does that mean that if he goes back to school, and seeks another loan in order to do so, then he could reconsolidate his original loans with the new loan at a lower interest rate?

geo

It would be at a weighted average of the existing loan and the new loan. For example, if the existing loan is $100,000 @ 8% and the new loan is for $5000 at 4% then the new loan would be for $105,000. The new interest rate would be calculated by dividing each existing loan by the new loan amount and multiplying each interest rate by that figure and then adding the two numbers together. That would give you the new interest rate. This would give you a new raw rate of 7.81%. This would then be round up to the nearest 1/8 percentile, in this case that would be 7.875%.

Hope this helps you some.


fla-tan

Thanks, fla-tan. It helps me to learn this, but it's not going to help him at all. He doesn't make enough to pay the amount Sallie Mae is demanding of him. He had the income-sensitive thing, but it ran out. Getting another loan is not going to help. What is going to happen?

If he can't afford to pay, then he'll go into default, it will be reported on his credit report, and they'll try to collect from him. I don't know if they can garnish wages for student loan debt.

I would have him check on the income-sensitive repayment again... as far as I know, it shouldn't "run out". Perhaps that is a uniquely Sallie Mae provision. How long has he been paying on these loans, and how much longer does he have to repay them?

Thanks again, TracerBullet. I think he's been paying on the loans for about six years--he started teaching at the college in 1998, so I'm guessing that's when they started wanting money. He has been paying $450 per month on the income-sensitive thing, but beginning yesterday, they want 359 payments of $1200 per month.

The maximum repayment term for a consolidation loan is 30 years. 359 monthly payments is about 30 years, but he's been paying on this loan for six years already. So I'm not sure why they're doing that, because they shouldn't be able to extend the repayment term like that.

I would advise your friend to call Sallie Mae to see what exactly they're doing. As long as your friend is unable to pay $1200 a month, they should work with him under the income sensitive option.