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Question for the Money Doctors

Question submitted on Nov 27, 2012.

Question

Having so much student loan debt is frightening. I pay about $450 in loans a month, going up to $550 in January due to my grad school loans. I pay $151 to the government for direct loans, and $266 to Wells Fargo. One of my Wells Fargo loans has a 12% interest rate since I took it out with my parents as co-signers, as they were on the verge of bankruptcy.

My questions- If one month I can only make one payment, private or government, which one should I choose?

Should I be trying to overpay my loans every month?

Should I consolidate my 3 Wells Fargo loans since the other two are 7% interest and the one is 12% interest? Would that help at all?

Thank you for your time.

Answer

It is not a good idea to skip any payments. If you are having trouble making your payments, talk to the lenders first. If you need some breathing room, you can talk to them about a forebearance or an economic hardship deferment. These solutions will not eliminate your debt, only give you some breathing room.

Your rates sound a bit high. You should consider refinancing these loans with one lender to get a lower rate and also be able to work out an affordable repayment plan. There are many types of repayment plans. You can learn more about this by going to www.studentaid.ed.gov/repay-loans/understand/plans.

You can learn more about consolidating your student loans by going to http://studentaid.ed.gov/repay-loans/consolidation or you can call 1-800-557-7392.

Once you can lower your interest rate, more of your payment will go towards principal and not just interest.

You may be able to deduct the interest on your tax return so don''t forget to include that in your tax calculation.

There have been some favorable changes to the student loan terms you should defnitely use for your benefit.


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