What Loan company will take over my federal student loans when the loans are in default?
Lem C asks:
What Loan company will take over my federal student loans when the loans are in default? My loans are government loans from Saillie Mae. I owe them under $5000. I heard about this company that will take over your school loans from them but I don’t know the name of the company. I am at the point where I can’t get a federal student loan until I pay this off. I really need some student loan advice!
Student Loan Guru: When you’ve defaulted on your student loans, a student has several options he/she can pursue:
You can repay the loan in full.
You can negotiate a new payment plan with your lender.
You can “rehabilitate” your loan.
You can consolidate your loan.
It goes without say, if the student loan borrower could actually pay off the loan, they wouldn’t be in this situation, so scratch #1. We can say this probably isn’t an option for most borrowers unless they can qualify for a private student loan or *gasp* actually getting a job or two and paying this small amount off, which would be the best option. Even if you had to skip a semester or two to do it.
But let’s be real here. You owe less than 5 grand. How about getting two jobs to pay this off quickly? I know many students don’t want their “lifestyle” upset with things like actually working, but it sounds like you won’t be going back to school until you get this loan paid back. There are many ways to make money while in college. This amount shouldn’t take long to wipe out if you get up, get a job or two and pay it off. Now if we were talking about $50,000, this would be another matter.
Option two (renegotiate) should be investigated fully – most students skip this step, but it’s probably the best option for most people. Call your lender and ask to speak to someone in the department that handles renegotiation of student loans. Explain your situation to them (there’s nothing unusual about it) and ask what options are available to you for switching to a graduated, extended or income-sensitive repayment plan. If your lender will agree to change your repayment plan, a few regular payments will get your default status removed, and the new plan may be easier for you to keep up with.
Of course, many lenders and other people who should know better do not push this as often as they should. Instead, many want you to take out an additional loan to pay off the first. This should be your last resort, ALWAYS try and renegotiate a student loan that is in default.
Option three (rehabilitation) is really a specific form of a workout agreement. It probably won’t help you much in your situation, because it requires an agreement between you and the lender that will allow you to make 9 consecutive on-time payments of some agreed-upon amount.
Option four is everyone’s favorite, but you must absolutely understand what a consolidation loan will do. To keep this utterly simple – a consolidation loan is a brand new loan that will pay off your old, defaulted loan. A consolidation loan MAY lower your monthly payments, but understand how this works. A consolidation loan never lowers your payments by wiping away some of your debt – a consolidation loan lowers your payments by stretching out the length of your loan. If you pay less every month, you’ll make many additional monthly payments, and – in the end – you’ll pay far more back than you would have paid on the original loan.
This is one reason so many students get saddled paying monthly payments on their student loans for 25 years or more!
For example: Suppose I lent you $250 and you agreed to pay me back in 3 weeks by paying me $75 a week. You came back a few days later and explained that you weren’t going to be able to afford to pay me $75 – is there something else we could do? “Of course,” I’d say. “Instead of paying me $75 a week for 3 weeks, how about if you only pay me $20 a week for 20 weeks?”
See – in the end, you’ll pay me back $400 instead of $250 – that’s how a consolidation loan works. But remember – we’re not talking a $250 loan for a couple of weeks – by the time you pay that $5000 loan of yours back over many years, you’ll pay a few thousand more than you might have paid if you didn’t consolidate that loan.
There is some good information about consolidating from the Department of Education – take a few minutes to read it over. If you do choose to go this route, be sure to consolidate with a reputable lender (or directly with the government) and not with some bozo in a dark alley or some website you found on the Ineternet.
As you’v already found out, defaulted student loans have a way of messing up your life. It’s best to get them taken care of quickly once and for all. Never let them drag on, because they just get worse and worse as time creeps on. More options may be available to you in the links below.
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