Comments on: Reader Question: Find Better Loan to Pay Off Student Loan?

By: Emily

Emily — Wed, 28 Dec 2011 20:59:53 +0000

Can anyone explain this to me – I have a terrible rate on my government student loans from grad school – at 6.8% over 10 years, my remaining $7400 balance is going to accrue more than $2800 in interest. Through my credit union, I am eligible for a loan at 2.4% over 5 years (by pledging some of my investment certificates as collateral and freezing my access to the funds for the loan term; I’m fine with that because the certificate won’t mature before then anyway and I don’t need the funds any time soon). But when I told them I wanted to use the funds to pay off my student loan, they abruptly stopped the process and told me they were not allowed to do student loans. I got confused and said it was just a loan to me, and I would just be spending the money, and the person told me, “Now that you’ve told us what you plan to do with it, though, we’re not allowed to.”

He seemed to be suggesting there was some kind of law or regulation that prevented a lender from giving you money to pay off a student loan, but I can’t find any evidence of such a law or regulation. Does anyone know what I’m missing? Could it be I just had a confused rep working with me and he was wrong?

By: common sense

common sense — Fri, 27 May 2011 08:38:49 +0000

Justanotherday? Are you serious? How the hell can ANY company collect a debt from a corpse? In the afterworld? Did.you read what you wrote? Also you are wrong about much of what you posted. You can declare bankruptcy on a private loan if you got one to pay off a student loan. You also have rights as a student meaning no student loan company can harass or threaten you or call your employer or family without your permission. Are you a Sallie Mae troll.because you sure sound like one.

By: justanotherday

justanotherday — Sat, 16 Apr 2011 00:59:26 +0000

The best thing you can do is strategically pay off your student loans as soon as possible. Meaning not pay them down so fast that if you get into financial difficulty, you can’t pay at all. Live well below your means. If you are smart about it, you might be free within five years. The key is to read read read and learn learn learn on your own about everything you can. The key thing is to be absolutely clear what it means to have a Private/Federal student loan these days and more importantly what happens if you can not pay. In a short period of time student loans have escalated to over 800 billion dollars in outstanding student loans. For comparison, the total credit card debit of the US is also over 800 billion yet took a lot longer to grow. However, strangely the 4.5% is not where the real money is made. It is made when people go into default. Roughly 50% of the time–not what I would call “odds in your favor.” A non-student loan with higher interest may not be bad trade, however, the bank will not likely or be allowed to free you from this resurrected type of debt. (Debtor’s Prison) Here’s why: The only way you will be almost guaranteed to have a student loan discharged is death. I am not suggesting suicide, but some private student loans agreements do not discharge even upon death. Then there is the 25% penalty and other fees and charges. Also, forget about bankruptcy. The new laws can be summed up like this: If you are no longer self aware, you will likely qualify and in that frame of mind it wouldn’t matter either way. A lot of money is being made since all the new laws so don’t expect to get the whole truth when applying for student loans. It is easy money to be made. It is a don’t ask don’t tell and in some cases simply don’t tell regardless. Also, in short, you have no rights regarding student loan bill collectors contacting you. Licenses may not be renewable until paid. Tax return garnishment. SSI garnishment. Possible denied enrollment to the military. I could go on, but I can’t. You are going to just have to do your homework and read. A lower student loan is highly unlikely and if you do the agreement will have additional, fees, charges and other terms to make up for the low interest. Read what you sign and take it to a lawyer if you don’t understand.

By: John Rivers

John Rivers — Sat, 22 Aug 2009 01:47:19 +0000

I have about $30,000 in student loans. I have desperately been trying to pay it back. I have created an Alaska movie here:

http://www.filmbaby.com/films/4148

Any help would be greatly appreciated

THANKS!

By: Gerri

Gerri — Sat, 21 Mar 2009 14:38:04 +0000

First: I do not have any student loans. I have never had a student loan.

I heard a former colleague tell the following story in [about] 2000:

His son had racked up almost $100,000 in student loans after getting through a BA and MBA programs. He was working for a financial services company and hated the work so much that it was affecting his health. He decided he wanted to abandon a career in finance and pursue something entirely different, but the burden of the student loans was oppressive and that student loans could not be discharged through bankrupcy.

Since his credit was excellent, he got a regular loan: 10 years at a somewhat higher rate than his student loans and used the proceeds of that loan to pay off the student loans. He then defaulted on the new loan and declared bankrupcy.

The bankrupcy hung on for whatever statutory period while he learned plumbing but disappeared before he was 35. He is out from under the student loan with a fresh start.

OK, is the story true? Don’t know. I have long since lost contact with my former colleague and have no way to verify it.

By: Ken

Ken — Tue, 17 Mar 2009 20:38:01 +0000

The question is are these subsidized or not.

If they are not then he should be paying all the money to the higher interest one.

If they are subsidized, put the money in the bank and earn some interest.

By: mapgirl

mapgirl — Tue, 17 Mar 2009 18:17:19 +0000

At the heart of his question is ‘I was wondering if any bank might ever offer a 6 month or 12 month loan at a lower interest rate.’

I don’t believe that he could get a 6-12 month unsecured loan anywhere at a lower rate than his current student loans. If he does, please give him my email address because I’d totally jump on that.

The closest thing is the balance transfer suggestion by Rassah, but I have a hard time making those numbers work out if there’s a transaction fee involved for any of the APR specials being offered. (0% for 6 mos, 2.99% for 18 mos, etc.)

By: Gerry

Gerry — Tue, 17 Mar 2009 17:31:38 +0000

Thanks for posting my questions Flexo! Just a quick clarification:

I am currently in GRADUATE school, while working full time. So, being in graduate school caused my undergad loans to go back into deferment. And the large loan ($30,000) is private and not subsized….so still accruing interest. I’m just not required to make payments.

But good idea to at least put all money towards the big loan and not worry about the smaller one. The smaller one is a government one and subsized.

Thanks everyone!

By: Rassah

Rassah — Tue, 17 Mar 2009 17:18:16 +0000

I agree that it’s almost impossible to get a lower interest loan than a student loan, and the only other option that popped into my head was a 0% intro APR credit card. Problem is, they charge at least $90 for a cash transfer, and that’s already 3% to 4% of the $2,000 to $3,000 that the reader wants to borrow.

(Running the numbers and amortization schedules in Excel…)

After running the numbers, I realized that this will not be worth it, because the student loan continues to compound interest on top of interest. Even if you borrow $3,000 at 0%, and concentrate on paying that off during the first year, you will save $2,700 on the larger loan, but due to that $3,000 simply being shifted, will actually be $2,700 – $3,000 = -$300 worse off. Unless the reader is able to continue paying the $300 a month on the large loan, AND pay off the new $3,000 loan in one year AT THE SAME TIME, it’s not worth it. And if they can do that, it’s better to put that money towards the original loan, anyway.

By: Swamp Fox

Swamp Fox — Tue, 17 Mar 2009 16:55:45 +0000

Why pay anything towards this loans? Given how low the rates are and the tex-deductiblity of the interest, I would invest the the monthly payments instead (stocks if you think the market has reached bottom, municipal bonds from your state if you are leery of the market). This way, you’ll likely be no worse off, and probably better, than paying the loans. Once your deferment is over, either make a lump sum on the loans, or if your financial situation allows, ride the investment out. In addition, you’ll have the flexibility to cash out the investments if you have unexpected expenses or it takes longer to find a job out of school. Once you put money towards that loan, you’ll never have access to it again.

Re: taking out a small loan, no. First, it would be heard to find an unsecured loan offering a better after-tax rate than your student loans. Second, why bring another lender into the picture. Third, a bank loan won’t have the same protections (e.g., deferement for unemployment, economic hardship) and won’t be tax deductible.

Finally, if you’re going to keep paying off the loans, why put any towards the lower interest loan now. Put everything towards the higher rate loan.