Friday, November 2, 2007

How Did I Get Here? – Part V: Student Loan Consolidation Is a Pain in the—yeah, that

After creating a budget and eliminating a few things from it, I ended up with a small debt snowball. Obviously the bigger I could make the snowball, the faster I could get out of debt, so I went through each item on my budget to see if I could save any more money.

The biggest monster was my student loans – the bane of my existence for the past couple of years. I had had about twelve different loans from five different companies, and it was almost impossible to keep track of them all. Some of them had nearly identical minimum payments, some of the companies had almost identical names (ACS and AES), and some of the loans would come from the same company, but at different times of the month, on separate bills, and with varying account numbers.

Before my financial revolution, the student loans were my worst nightmare. My mom and I spent hours trying to sort everything out, and I cried over the stacks and stacks of paperwork on her kitchen table more than once. We consolidated a couple years ago, but not everything got included, and I accrued more loans later, so things were still a mess.

After my financial revolution, I felt more of an attack mentality, and I was determined to not only save money, but to understand my loans and simplify things once and for all.

The combined total of the minimum payments was roughly $950 – almost twice my rent—and the amount was going to go up as more grace periods ended in the near future. Although I wanted to save money in the short term by lowering my monthly payment, the last thing I wanted to do was pay more money in the long run, so forbearance and deferment weren’t options. Instead, I looked into consolidation.

The federal loans were fairly easy. Everything was done over the computer, and I ended up with a 5.65% interest rate on a 25 year loan. The interest rate was about the same as the averages of the rates on my previously unconsolidated loans, but the longer term made the monthly payment lower. If I make only the minimum payments, I’ll pay more interest in the long run, but I’ll most likely make extra payments in the future to lessen the effects.

The private loans were more of a challenge. I researched rate quotes from a couple companies, and armed with that information, I called Sallie Mae.

I got a bit of a run around from the first person I talked to. He wouldn’t give me an interest rate quote and said that I’d have to go through the entire application process to find out what my rate would be.

I asked for a supervisor, who gave me the same story until I mentioned the quote I’d gotten from another company. Suddenly, she was all about the numbers. She gave me the exact rates for each credit level of the borrower and co-borrower, the best of which was 8.75%. I knew my parents’ (the co-signers) credit was good, and I figured we would qualify for that lowest rate.

When the paperwork was all said and done, the rate was 8.25% – half a percent lower than what she’d quoted. Fabulous!

The rate on the private loans is variable, but only based on the index – Sallie Mae’s margin is fixed. Also, if the rate adjusts, they prorate the amount so your payment only adjusts once a year, which makes it a lot easier to budget. It’s not ideal, but it’s light years better than before, and I plan to be rid of it in six years or less.

The whole process is slower than a ten year itch, so dispersal seemed to take forever, but the last piece of the puzzle fell into place on Wednesday when ACS received and processed Sallie Mae’s payment.

Both ACS and AES had accrued interest during the application process and dispersal period, so there was still a bit left on each loan. ACS had about $16 left so I sent the payment on Wednesday and I’m DONE with that one. AES was $1,008.80, so that’s at the top of the debt snowball now and should be done by January – I’ve already paid it down to $817.89.

The whole thing was a HUGE headache, but lowering my monthly payment by almost $300 and reducing my budget by ten lines was definitely worth it.

This post is part of my Financial Revolution Series, which is my personal financial story. Each post gives a piece of the story, detailing how I got into debt and how I turned things around.

Next time on TVG&M: The Pruning Gets Easier


Matt and Carol said...

Good for you! I bet you have it paid off LONG before the 25 years is up!!

TV Girl said...

Definitely! I estimate I'll be debt free except for the low interest federal loan in six years. That's barring any major catastrophes and assuming that my income grows on par with inflation. Not bad for that much debt! :)

Free From Broke said...

Watch out if the Sallie Mae loan gets consolidated with any other loans. My wife had a private loan (high interest) and a couple of Federal loans (low interest) that she consolidated to make the payments easier. What we didn't realize until recently is that the private loan, with the higher rate, was getting paid off on the same schedule as the other loans, meaning the high rate would be stretched for 25 years! We are now paying off the private loan in the consolidation so what is remaining is at the lower interest rate.

Sallie Mae doesn't exactly make it easy to see what is happening with their loans.

TV Girl said...

From everything I've researched, federal loans and private loans can't be consolidated together, so I'm surprised your wife was able to do that. Maybe laws and/or practices have changed since then?

Anyway, I currently have three student loans. One is high interest with a company that has been a pain to work with, but it's only $800 so it'll be paid off in a couple of months. The other two are at SM, one is private and the other is federal, and I pay them separately. I've actually found SM's interface really easy to navigate compared to other lenders, which is a big reason why I went with them.