OT: Shady student loans?
Its almost impossible to go to college without taking out loans. I am sure many on this board are in the same boat as I am, huge loans and a long repayment period.
I start my repayment in April and have started to notice some shady tactics going on with my loans. I have a mix of stafford loans and then 2 private loans. Recently SallieMae decided to lump all of my loans into a "billing group" without my consent.
This means you send in your payment and they first pay fees, then interest, and then principal. You have no freedom as to what principal loan they pay down though. This means they can pay down low interest loans before any higher interest private loans.
Has anyone had any experience with this? I thought maybe being a college related board it would be a good place to ask. I called SallieMae and got Indian customer service and then an Indian Manager. Both were clueless and tried to enroll me in some non related garbage.
EDIT: Thanks for the help in this thread. I actually got an immediate response from SallieMae HQ in WA. They were EXTREMELY apologetic and offered to split my loans any way I wanted. I doubt very highly that they would have did anything had I not complained via the corporate email.
February 5th, 2010 at 1:07 PM ^
They used to offer a low, locked-in rate for people who consolidated the federal student loans. It was an incentive.
As for your situation, I don't know offhand.
Sounds like they just consolidated yours on their own initiative. They only way they can do that is if it is allowed in the loan documents. Read them over.
But, chances are that they drafted them completely in their favor since they were lending you money.
February 5th, 2010 at 1:13 PM ^
Thanks for the reply.
My loans aren't consolidated; I am positive of that. The only people out there still consolidating are the feds.
Was hoping someone else saw the same thing with their loans and raised a fuss over it like I am about to.
February 5th, 2010 at 1:08 PM ^
Agree with Peter. I had my loans consolidated with a lower rate when repayment started.
February 5th, 2010 at 1:12 PM ^
The same thing is happening to me with my federal loans. I have two separate consolidated loans, both contain a mix of subsidized and unsubsidized principal loans. Obviously I want to pay off the unsubsidized loans first as I'm still in school and don't want to accumulate interest while I'm here.
The problem is that my payments get applied disproportionately across my subsidized and unsubsidized loans -- the interest-deferred and low-interest rate loans always get the bulk of my payment, which is the exact opposite of how I want my payment applied.
I always have to call and ask them to re-apply my payment to the specific loans that I request. They'll apply your payment to whichever loans you want, but they don't make it easy to do this. It takes about 7-10 business days (I've seen it take longer) to re-apply your payment. And sometimes they will make a mistake (my payment for $2000 got changed to $200 when I asked them to apply it towards my unsubsidized loan).
I don't know how private loans work, but you could try asking them to apply your payment to a specific principal loan. It's a pain in the ass, but might be your only option.
February 5th, 2010 at 1:24 PM ^
Thanks, you just confirmed my suspicions. This makes my decision to consolidate all of my stafford longs with the government easier now. I am amazed something like this is even legal.
I just found a corporate customer advocate email that I am going to test the water with.
February 5th, 2010 at 1:23 PM ^
I had all of this too when I first started to repay back in '03. What I suggest is to consolidate, if you haven't already, and then figure out what your overall budget will be. My budget worked out so that I was paying around 225% of the "payment due amount". What this meant is that yes, fees and interest were paid first and then principal. Paying more per month allowed more money to hit the principal which allowed me to pay off a 15-year consolidated loan in exactly 6 years. I have been college-debt free since June of last year. If you can't pay a ton extra per month like I did, strive to pay a little extra per month every month. You'll still be putting more towards the principal each month allowing you pay it off sooner. You'd be surprised how paying even $25 extra a month can help 10 years down the line. I have two payments left on my car and was able to hack a whole year off my loan by paying $50 extra per month.
February 5th, 2010 at 1:36 PM ^
And I don't recommend that you consolidate unless you are unable to make your monthly payments. Nearly everyone who consolidates winds up paying a lot more in the long run.
It's a better idea to work with Sallie Mae to assign your payments to the loans that you want. There are minimums that they have to apply against your federal loans, though, based on the repayment you are on, in order to keep you on a ten year repayment plan for those loans.
February 5th, 2010 at 1:46 PM ^
Unfortunately that is really my only option. I thought my annual deans list and high GPA would help me once I graduated but I am still out of work in the GR area.
I am hoping I will be able to double down on payments once I find a stable job.
February 5th, 2010 at 2:26 PM ^
part of the new higher ed regulations passed in the last year or so put requirements on lenders to work with you on income based repayment or tiered repayments (meaning low payments now, when you aren't making much, and higher payments later on when you are the president of the world or whatever). Consolidation is the right choice for some people, just be really careful to explore all your options first.
Your lender/servicer have a big incentive to keep you out of default; their ability to continue processing student aid is in part dependent on it. They'll most likely be willing work with you on a plan that you can live with.
February 5th, 2010 at 3:00 PM ^
i acknowledge that i don't know what your financial situation is; however, you should really reconsider doubling down on payments. i posted some general rules to loan repayment at the bottom of this thread that you should really consider. do not be worried about the volume of loans that you have - school is an investment in yourself and you are more than worth it!
however, before paying anything additional to your repayment plan, consult a financial adviser - a real one and not FAFSA!!! again - i don't know what your financial situation is, but if you double down payments on your student loans, you will stand to lose tens-if-not-hundreds of thousands of dollars in the long-run. never, ever pay a $1 more of student loans than you absolutely have to...invest that money!!!
February 5th, 2010 at 3:07 PM ^
I agree with your advice below. I have no plans of taking out anything on my 401k to pay down debt(though I did look into it). Contributions towards the 401k will continue again with a priority over student loans.
I have read similar advice about loans being the best kind of debt because of the interest you get to claim on a yearly basis.
February 8th, 2010 at 9:04 PM ^
I did this the first time, and my loans never went away. I'm comfortable carrying a mortgage for 30 years, but a student loan, not so much.
That said, I do think it's worthwhile to do the stock participation plan, if you have that opportunity, but only if you can quicksale the stock the instant it's sold. That's an instant 17% profit. Likewise the 401(k) - I plan to contribute enough to get the maximum match from my employer; more free money.
Otherwise, while some may disagree, it suited me much better to get out of debt and invest all that suddenly disposable income than to try to do both at the same time.
Do the math. I have a spreadsheet that allows me to look at how much I'll pay out in student loan interest over the long haul, as well as all my other debts. If you're lucky, you can get a nice solid 6% return on your investments. Take the time to see which works out better for you, or pay someone to look for you. Just don't underestimate the positive feeling of being out of debt. That was huge for me.
February 5th, 2010 at 2:13 PM ^
I thought the idea of consolidating was to lock in a lower interest rate. When I consolidated my first set of loans, a huge, unmanageable payment fell to something I could deal with.
Does it have anything to do with the repayment habits of the payer? If i lower my payment and pay only the minimum, it logically follows that I'll pay a lot more in the long run. But if I consolidate with a lower interest rate and pay as much as I would have paid without consolidation, it seems that the overall amount paid would be less. To sum, if I consolidate and pay responsibly, I can pay a whole lot less. So, I can bury myself deeper, or I can help myself out quicker - it's up to me.
Is that even close to accurate?
February 5th, 2010 at 2:22 PM ^
if your consolidation loan interest rate is lower than the average weighted interest rates of your existing loans. Most of the time they are equal, though. And if you're consolidating your federal loans, then there is no early payment penalty. But, in my experience, almost no one who plans to make extra payments on their loans will actually do so once they have a lower monthly payment. If you're financially disciplined and confident that you will make payments over your required payment, then that may be an option for you.
February 8th, 2010 at 8:58 PM ^
At first I was unable to pay extra, but as my salary grew (yay for the 90's), I did find that freedom.
If I had to do it again (fortunately, I do have that opportunity), I'll pay these loans off as quickly as possible. If they adopt that 'all loans will be forgiven after 20 years' thing, I may reconsider. Here, trusty spreadsheet...
February 5th, 2010 at 1:38 PM ^
One option is you may be able to enroll in some sort of EFT program that allows you to target specific loans. Some major loan entities (SallieMae, AES) also offer financial incentives to do this (like a slightly lower interest rate).
As far as consolidating - you don't technically get a lower rate, just an average of your existing rates. The payment is lowered by extending your term. Preferable for simplicity and reduction of monthly payments but obviously paying more in the long term.
February 5th, 2010 at 2:18 PM ^
aren't they? Why come they won't let the good executives at Sallie Mae adopt policies that would help students..WHY COME??
February 5th, 2010 at 2:30 PM ^
OP's point was just that the information he needed was in one place but the people he was talking to did not have access to that info by virtue of being in a completely different office...Of course, I could be wrong...Anyway, everyone knows that it's the Austro-Hungarians (the left-handed ones) who run shady student loan outfits.
February 5th, 2010 at 2:38 PM ^
My comment was half tongue in cheek. Just bugs me that he felt the need to point out the nationality of the people he spoke to (Twice not once) as if that had a direct impact on the service he received.
If only I had a penny for every time I have received crappy service from Comcast customer service right here in good ol Michigan. Do you ever like the service at the RMV? Do you feel the need to state the nationality of the counter service agent when you whine about it to your colleagues?
February 5th, 2010 at 2:45 PM ^
I get you
February 5th, 2010 at 2:51 PM ^
I understand your point. Customer service in general sucks regardless of who is giving it.
Perhaps I should have said, "I could not understand them and I don't think they understood me either...". That is probably just as bad though huh....
February 5th, 2010 at 6:53 PM ^
It doesn't bother you to be forwarded to a person in frickin Idia when you need answers, or other important communication?
February 5th, 2010 at 2:21 PM ^
But don't hesitate to be a pain in the ass when it comes to telling them to apply your money to the correct loans. You may also check to see what extent the loans are grouped together. If you look at the front of the bill I get every month you would think I only have two loans. On the back, though, you can see that I really have four, lumped together in pairs on the front of the doc...I have very specifically put money toward my private loans (worse interest rates, etc.) and had to tell them several times to do it. The default in my case is always to spread my payments out equally over all of my loans.
February 5th, 2010 at 2:35 PM ^
it's illegal for sallie mae or big brother (US govt) to consolidate your loans without your consent...moreover, they cannot consolidate your loans until you graduate, which it doesn't sound like you have. you should definitely get to the bottom of whatever is going on b/c that is very, very shady.
as far as your repayment in general, i am always shocked at how little students really know about their loans, and, in particular, the payback. so many of my classmates have $50-150 worth of loans and say, "i am gonna pay these back as soon as possible...i hate my loans and just want them off!" that is the WORST idea ever.
unless your loans are under $30k, consolidate them and extend the repayment period as long as humanly possible. yes, you will end up paying a larger absolute dollar amount back to the government; however, the real value of that money is marginal. under no circumstances should you pay your loans back as soon as possible...for every $1 of loans that you pay back, you effectively forego $5 worth of investment potential. for every $5,000 you pay in loans/year, you lose out on more a potential $200,000 worth of investments over the course of 30 years.
now, depending on the volume of loans that you have, it may be worthwhile to pay a tiny premium over-and-above your monthly payment. that way, credit bureaus and banks will consider you "less risky" when you go to take out a loan for a house/car/etc. as a general rule of thumb, pay 5% higher than your monthly repayment.
the best thing you can do is seek the advice of a financial adviser - not financial aid adviser! ask your parents or family friends if they know someone that they invest with and get their input on structuring a long-term 25-30+ year payback plan. though it sounds like a long time - and it certainly is - the purpose is to make your money work for you, not the other way around!!! persons at the department of ed/fafsa office are not financial advisers and do not have a clue about what's best for your financial future.
here are some BASIC simple do's and don'ts with your loans: 1) DO NOT DEFER!!! that is the worst thing you can do and it destroys your credit, especially as a young post-grad; 2) never, ever, ever miss a monthly payment; 3) your student loans are not nearly as important as your 401K, roth IRA, and other savings plans - prioritize those as much as possible while still being able to pay money on your loans; 4) never, ever, ever pay a $1 more of student loans that could go into a 401k or savings plan; and, 5) buy the nicest bottle of wine you can afford the day you pay off your loans and drink a toast to your bad ass financial-planning self for paying off a boat load of debt and being able to retire in the Caribbean!
February 5th, 2010 at 3:57 PM ^
Your point about available investment dollars is a good one, but remember--if you invested in a Dow or S&P Spider fund ten years ago, you'd basically have broken even over the last 10 years.
I am a fan of being debt free, but financial planner advocates paying off debt when able, but ensuring you have a cash emergency fund first.
Also, call Salley Mae, and just harass them until your loans are not consolidated--unless they agree to consolidate and pay off your highest interest rate loans first.
February 5th, 2010 at 3:28 PM ^
Nobody here needs a financial advisor-these are very simple concepts.
The sooner you begin realizing that each dollar you consider putting toward paying off a loan early is an investment, the easier this becomes.
Just look at your highest interest loan and then compare it to what you can make out in the market (e.g., stock market, mutual fund, sticking it in the bank, etc). If your loan interest rates are higher than what you can expect to earn in the market (likely, at the moment) then spend it ALL on loans, to the extent you don't want to retain some for savings.
If you think you can earn more in the market, then you MIGHT not want to pay down loans. Then you have to consider your tolerance for risk (thinking you can beat the market is usually a bad idea) and whether you will actually follow through on your investment strategy to earn more than your loan rate. You also have to consider that additional loan payments are RISK FREE RATES OF RETURN - you are guaranteed to reduce future liabilities at the exact rate your loan is set at (it's a bit more complicated with variable interest rates but meh).
February 5th, 2010 at 5:22 PM ^
Student loan interest is also tax deductible (up to $2500) for income levels up to $60K, $120K if filing jointly.