Monday, September 13, 2010

How to Negotiate Student Loan Interest Rates

The hardest debt for college graduates to get rid of is student loan debt. Trying to find out who you owe, how much you owe, your interest rate and monthly payment can be a nightmare.

If you defaulted on your loan, it is even harder to get information about your loan especially if you account have been forwarded to a collection agency. It takes a lot of perseverance and patience to navigate through the student loan maze but you can negotiate the terms of your loan. Here are some easy ways to negotiate your student loan interest rate.

Strategies for Negotiating
1. You may be eligible for an interest rate reduction if you consolidate your loans.
2. You can refinance your loan to get a lower interest rate if you have good credit.
3. You can request a loan modification if you are unable to make monthly payments for certain reasons such as: job loss, medical bills, reduced wages or hours or emergencies.
4. You can pay interest-only payments over a period of time and ask the lender to shorten the length of the loan.

How to Negotiate
1. You can request that the company lower your interest rate if you have made payment on time for one to two years or more and your loan is not in default because their main goal is to keep your loan from defaulting.
2. Remain in constant contact with your student loan lender and make payments on time. If you are unable to make payments setup a payment arrangement with your lender. Make sure your information on file with the lender is current. Don't ignore letters sent to you regarding your student loan.
3. Establish a relationship with at least one person at the lender company and remain in contact with that person when handling your loan. It helps to have an additional person at the lender company to work with; either their supervisor or co-worker in the event the person gets promoted or leaves the company.
4. Many private loan companies will lower your interest rate if you setup automatic payments. Sallie Mae does this and has another program that links your Upromise account to your Sallie Mae account which also lowers your interest rate.

Other Options
1. When looking for jobs ask about student loan forgiveness programs. If you work in the medical or judicial fields, for the federal government, non-profit or low-income areas you are eligible for a student loan forgiveness program that may pay 25% or more of your student loan each year. For more information visit
2. Work a full-time and a part-time job or 2 full-time jobs to pay down the student loans. The highest interest is accrued during the first two to five years of the loan so the more interest you pay on the loan during that time the faster your balance will go down and the less money you will owe over the life of the loan.
3. Live at home after graduation for at least two years to save money and put most of your earnings toward your student loans. During this time try to double, triple or quadruple your loan payments. After about six months you will be able to see your balance go down each month. If you are unable to live at home after graduation rent out a room or cheap apartment and stay there for at least two years.
4. Don't buy a car, catch public transportation. If you absolutely need a car because there is no public transportation near your job then buy a cheap used car that is in good condition.
5. Keep expenses to a minimum and buy more needs vs. wants. If possible, continue to pay down your student loan debt until your balance is paid in full.
6. Delay going to graduate school if you have student loans. Pay off your student loans before going to graduate school because it will be harder to pay off two loans instead of just one.
7. Get a job with an employer that will pay for you to go to graduate school.

Your Credit Score
1. Damaging your credit score by defaulting on your loan to get a lower interest rate is not worth it for several reasons: you end up owing more on your loan due to the missed payments and accrued interest, you damage your credit rating which can take years to fix and you will not be eligible for student loans in the future, you damage your relationship with the loan company.
2. If you receive an interest rate reduction it may only be temporary because it is harder now to get interest rate reduction due to defaulted loans. You will have to provide proof that you are unable to pay the loan, i.e. budget, paycheck stub, tax forms, etc.
3. There are instances where you can settle on a defaulted less for less than the principal amount but it may take months or years of fighting with the loan company. You will have to document a financial hardship, i.e. paystubs or W2 forms, provide documentation of where you obtained money to pay for the settlement and provide a reasonable explanation of why they should accept the settlement amount.


d.blake862 said...

I had similar issues with my student loans! It was insanity! So I sought out help with consolidation credit counseling, and got everything straightened out!

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