Dear YOUNG MONEY,

I have four private student loans amouting to $66K. The interest rates range from 7% to 11% and are on the rise. All four are funded through Sallie Mae. I've had to go into deferment on two of them because the payment was much more than I could afford ($535). I now pay $450 a month, which is more than the payment on the two loans not in deferment, so I am essentially paying as much as I can on all four.

My question is, is there anything I can do to lower those rates? Get a fixed rate? My father refuses to co-sign on anything so I am all on my own. Please help. Right now I just plan on saving as much cash as possible and buying a condo/house in five years and then taking out a home equity loan, but what do I do until then?

Ashleigh

Dear Ashleigh,

This is a really tough situation – private education loans can be consolidated, HOWEVER, all consolidation will do for you is extend the repayment term – it won’t lock down the interest rate (at least I am not aware of any program that will). 

The choices become very limited and there really isn’t any good option – you could get private consumer loan, 2nd mortgage, line of credit – general consumer loans to pay off these private education loans so you can lock down an interest rate but even then your interest rate will probably be really high.

Another idea from my mortgage friends is that you borrow more on the mortgage loan and use the extra money to pay off your private education loans.  I would defer to a mortgage lender on how or even IF this idea would work.

The one thing you DON”T want to do is combine any Federal Education Loans with your private education loans –by doing that you lose all the benefits offered through the federal program like a FIXED interest rate, deferments, special payment plans, etc , just to name a few of the benefits available in the federal program.

Also, lenders are offering all kinds of incentives right now on federal consolidation loans so you can actually reduce your interest rate, get money back on your loans – there are all sorts of programs out there so this is prime consumer shopping time between now and July when interest rates on federal education loans will be going up.  If you haven’t consolidated your education loans, NOW is the time to do that.

In any event, there are companies that will consolidate your private education loans – once again this is all about shopping around, be a smart consumer – OR – just suck it up – put as much money as you can on the private loans to get them paid off – if you have federal loans, maybe put them in a forbearance for a few months (this is an interest only period) – take any extra money and apply it to your private loans.

Again, this is a really tough situation to be in - my best advice is not to use private education or alternative loans if you can avoid it.  As of July, grad school students and professional school students can borrow under a new federal program, GRAD PLUS – this is essentially the Parent Loan (PLUS Loan) program. However, it is now open for grad students to borrow under this program without the parent. 

There is no limit on how much you can borrow other than what the school certifies you need – you must complete a FAFSA to be eligible – there are other rules and requirements around this program but is by far a better alternative to private education loans.  With that being said, if the only way to complete your education is to get a private education loan, then by all means get one – in the long run you will be far better off with that degree but once again just keep in mind – CONSUMER BEWARE!

Sandra Baker Evans

Customer Service Manager

Student Lending Works (SLW)

Student Lending Works is a nonprofit student lender that offers a choice of education loan discounts based on the individual needs of student and parent borrowers.