Reader Question: My GF is burdened by enormous student loan debt and it is impacting my life as well.

She has a mixture of private and federal loans, mostly private so the income based payment plans and such do not apply. I was suggesting she consolidate them, which would take the current amount and bring it back to 25-year terms, which would lower the payment and make life a bit less burdensome. Granted she’d pay more in the long run but at least it wouldn’t be a $1000/month payment as it is now.

Many places aren’t consolidating and for private loans, you can only do a variable rate. I’m curious to your experiences and if you can shed some light on how you handled your debt, other than making extra payments to pay off earlier.

My husband and I consolidated our loans (separately from each other) before the new consolidation laws took effect, but much of what the reader says holds true for private loans. Here’s how it works:

Federal Loan Consolidation
When we consolidated, we were able to combine our Federal loans into one loan with an averaged fixed interest rate. For example, my rate is 2.85%. My husband’s rate is higher because some of his original loans had much higher rates. Then, with on-time payments and auto pay, we were able to reduce our interest rates by .25 to .5% after 36 months. So, actually my rate is now 2.35%. Not too shabby! This was, of course, before the changes to the law that made the new base rate significantly higher. This law makes me a bit stabby, but that’s another post.

You can still consolidate Federal student loans, but only with the Direct Loan program. Private lenders no longer offer federal consolidation. Your rate may not be reduced much because of the new mandatory rates, but you will get a single payment and a longer term, which lowers the monthly payment.

Private Student Loan Consolidation
Private student loan consolidation is trickier. You can’t combine your federal and private loans into one consolidation, so my husband has two consolidations – a private and a federal. He also has a couple of small standalone loans that couldn’t be consolidated. Although the loans are consolidated, the rates are still variable. However, we only have one payment for the bulk of those loans. The benefits of consolidating are threefold:

1. We don’t have to track 15 different loans (three years of professional school, plus four years of undergrad produce a lot of loans!)

2. We get a longer term. Rather than the original 10-year term that most of those loans came with, the term is 30 years. We’ll pay them off faster if we can, but it gives us breathing room.

3. Co-signers are removed. I’m still a co-signer on one of my husband’s smaller, non-consolidated loans, but consolidating removed me from the larger loans, which means I won’t be on the hook if he dies early or defaults.

Options for Reducing Monthly Payments
If you consolidate, get the longest term you can. Usually this is dependent on the amount of the loans, but large balances like those of the above questioner would probably qualify for the longest term.

Even with private consolidation, you can ask for a graduated payment plan. That reduces the payment for the first few years, but you end up paying more interest in the end. Our payments are set to jump $500 next year because my husband’s graduated payment plan is converting to a full payment plan. We’re already budgeting for that eventuality, and it’s one reason we bought our house when we did.

If you’re interested in a private loan consolidation, start by contacting your lender to see if that option is available and which loans can be consolidated into it. Although you may not get them all, getting at least some will help.

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