Hello Heather,

Thank you so much for the helpful presentation last week, I learned a lot!  And thanks for taking the time to answer questions on this forum.

I have a question about loan consolidation.  I have 2 private loans (though Citi and Wells Fargo) and the rest are Federal loans (Grad Plus, Stafford).  I recently tried to consolidate my 2 private loans and Wells Fargo said I would need a cosigner to do so (which I do not have).  Do you know of any other options in consolidating private loans?  Also, do you know if this will be the case when I consolidate my Federal loans through Direct Loans?  If so, what happens to those people who do not have a cosigner available?

You mentioned the timing for consolidation, and that it’s best to do it after the the grace period.  I’m a May 2010 graduate, already used my grace period, and I’m currently using my unemployment/economic hardship deferment on my Federal loans since I’m not working.  Do you think I should consolidate now, or continue on the economic hardship deferment until I can find a job and consolidate once I find a job?

I also have a question about my 2 private loans.  I’m still looking for employment and I’m past my 1 time forbearance period on my private loans.  Do you know of any way to reduce the amount of monthly payments on those types of loans?  I’ve called the private lenders and they have not been helpful, and they I cannot extend my forbearance, even though I’m unemployed.  Right now, it’s at about $400/month (just for the 2 private loans!) which is very high for someone who is unemployed.

Thank you for your help!

My understanding is that there aren’t a lot of private consolidation loans available these days.  Why do you want to consolidate the private loans?

Most people want to take advantage of the grace period, but that’s not always best, it’s very individual. 

I like IBR as an option for folks who are out of work.  If you get into repayment and choose IBR, you could have very low payments with the advantage that they would count towards possible forgiveness after 25 years, if you still had a balance at that point.  Plus, IBR has an interest subsidy that is nice.  Think about IBR instead of forbearance for the federal loans.  The main advantages to consolidation include getting your loans in one place, getting into Federal Direct if you aren’t already and are looking for public interest work, but you don’t actually have to consolidate just to choose IBR.

Unfortunately, you don’t have the same flexible repayment options on the private loans.  As for what to pay first when your financial circumstances are tough, it makes sense to pay first your rent, mortgage, utility payments, or other priority debts.  I would consider federal student loans a medium priority debt because the government has so many collection tactics they can pursue.  As for private student loans, I don’t see them as that different for other unsecured debt like credit cards or personal loans.  Here are a few things to think about. Private collectors do not have as many collection tools as the government.  There is a lime limit for collection.  The limits are different in different sates, but tend to be six years after default.  You or an attorney in your state could research the statute of limitations where you are.  Often private lenders will hire collection agencies.  You have certain rights to fight back against any harassment or abuse by collection agencies.  Collection fees for private loans should be listed in the loan agreement.  There may also be other laws in your state that limit the amount of collection fees that private creditors can charge.  The main thing the private lender can do is sue you in court. Some private lenders may eventually negotiate a payment plan or debt settlement with you.

Hi Heather,

Thanks for the response.  I wanted to consolidate the private loans (through Wells Fargo) because I thought that would mean less of a monthly payment on them.  Is that incorrect?

Are there circumstances when someone is denied from consolidation of their federal loans through Direct Loans or required to have a cosigner (ie a bad credit score?)

Thank you again.

You don’t have to have good credit to get a federal consolidation loan, so no worries there.

On federal loans, consolidation gives you access to longer term repayment plans, which was the main reason people like me who borrowed a long time ago used to get them, but that reasoning is less important now with IBR.  Private consolidation loans, like other kinds of private student loans, can have all different kinds of terms and repayment options, and I suppose you wouldn’t choose to consolidate if you weren’t going to get some kind of improvement to your situation, but it all depends on the particular loan. 

Be careful that you understand what your repayment options would be on a particular private consolidation loan if you do find one.  And please also watch out about the whole co-signing thing.  I just spoke to a borrower in severe financial distress who is really in a bind because his mom and grandma co-signed for him on private loans that he’s having trouble paying.  People have different opinions about it, but I’d be very reluctant to ask someone to co-sign anything for me (I’d rather ask for cash or a personal loan from them directly because if my family member can’t afford to loan me the money, they can’t afford to co-sign) .  I also can’t imagine the circumstances where I’d co-sign for someone I love.  I’d give them the shirt off my back and every last dime I have (which ain’t saying much!), but I believe co-signing can be a bad influence on a good relationship.  Hope this helps.