Posted on August 30, 2008 21 Comments
A few weeks ago, my super talented, creative and beautiful cousin, K, 23, called me in tears. She just graduated from the Harrington Institute of Design in Chicago, and like most of us, was blown away by the cost of her monthly payments on her loans.
She went to see her family’s banker to find out how to lower her monthly payment – which, by the way, was the cost of a mortgage. The banker, likely unaware of what it actually costs to go to college these days, chastised K for spending too much on her education and taking out too many loans. She basically said, “Good luck. There’s nothing I can do.”
K felt totally taken aback, helpless and frustrated. Nothing she had done throughout her long education had prepared her for this. Her parents, though upset, had no answers. And so, on a random Wednesday morning, I received a frantic call from K, pleading to meet with me and learn more about how to consolidate loans.
I directed her to this site, to my consolidation post. I told her that a lot of people have a similar debt upon earning a master’s degree, and that many of my friends in similar situations had consolidated their loans for lower monthly payments. I encouraged her to look into consolidation options.
But in later conversations, we hit a bump in the road. K had taken out her loans through Sallie Mae. She thought that meant they were government loans when she took them out. (Like many, she thought “student loans” automatically meant they were borrowed from the government.) But it turns out, they’re through a private bank. The interest rates are much higher than they should be, but she wasn’t sure if she could consolidate them through the government Web site, which appeared to be only for government loans. What’s a girl to do?
I consulted my bookshelf, but all the books I found only talked about government loans. Most of my friends my age had government loans, but as I spoke with our younger interns and my brothers, I realized something had changed in recent years. Everybody has Sallie Mae loans now. But I got the sense that nobody really knew why they had them, and that the borrowers thought they had government loans.
So, what is Sallie Mae? Are Sallie Mae loans government loans?
Sallie Mae was originally created as The Student Loan Marketing Association in 1972 as a “government sponsored entity.” According to its Web site, it began privatizing operations in 1997, and in 2004 “terminated its ties to the federal government.” It is now a publicly traded, for-profit company, and is the leading provider of student loans and administrator of college savings plans. It currently owns or manages loans for 10 million people in the US.
Got that? It’s a private company that lends money to 10 million people, NOT a government entity.
Interestingly, I visited the consolidation portion of the Sallie Mae site today, and got this message:
“Thank you for your interest in Sallie Mae, the nation’s leading provider of saving- and paying-for-college programs. Severe legislative cuts made by Congress made federal student loan consolidation uneconomical. This, combined with the credit market deterioration, has caused us to suspend participation in the federal consolidation loan program.”
And below some corporate babble about the mission of the company, this:
“Sallie Mae reserves the right to modify or discontinue loan programs at any time without notice.”
I went on the student loan site, where I consolidated my loan, and found nothing about Sallie Mae loans. Only a list of what is an “eligible” loan (mostly looked like Direct Loans, Stafford Loans, etc.) and what is “ineligible,” including private loans.
So how do we make sense of this all? I’m no expert, and truth be told, I found most of the information online to be very confusing and hard to navigate. This was the closest article I found:
From SmartMoney, April 2008
Sallie Mae Halts Student Loan Consolidation
…As a result, borrowers will have to pay the price. Former students who want to consolidate their loans can now only turn to the government and a small pool of lenders.
Read the whole article here: SmartMoney
I’m going to do some more digging, and certainly if you have more information, post it here. For the time being, my brother, who used to work at a bank, advised my cousin K to look into Chase Bank’s Private Student Loan Consolidation options. He has a similar amount of debt, but consolidated all his loans through Chase and they are roughly $600 to $1,000 cheaper per month than hers were expected to be through Sallie Mae.
For those of you wading through the student loan waters, check out www.FinAid.org to learn more. For me, the student loan process was easy, but talking with K and others about their trouble has been an eye-opening experience.