college

Refinance student loans I've consolidated?

Don TaylorDear Dr. Don,
My son's college education was 100 percent financed through student loans and parent Plus loans. The parent Plus loans were granted based on my income and that of my now-ex-husband, though the loans are in my name only. My ex-husband is not contributing to the monthly payments. The Plus loans have been consolidated, and the consolidation loan has an interest rate of 8.25 percent.

While the interest is deductible, my income is such that only a fraction of the interest can be deducted. I am struggling with the more than $900 monthly payments, and the thought of making these payments for the next 20-plus years is frightening. I would love to find out that you can refinance student loans at a much lower rate, but I do not know what financial institution does this. Are there any options out there for me to help reduce the monthly payment amount?

Thank you for your time!
-- Judy Juncture

Dear Judy,
Since you've already consolidated the loans and have an extended payment plan of 20 years, reconsolidating isn't likely to be a way for you to refinance student loans.

According to the FAQ page on the website for federal consolidation student loans, there are three situations where an existing consolidation loan can be consolidated again.

  • Borrowers can consolidate existing consolidation loans into a new one if they add at least one other FFEL, or Federal Family Education Loan, or federal Direct student loan into the mix.
  • Borrowers can consolidate a single federal consolidation loan if the loan is in default status or has been submitted to a guaranty agency for default aversion by the loan holder.
  • Borrowers can consolidate a single federal consolidation loan if they intend to apply for loan forgiveness under the Public Service Loan Forgiveness program.

None of these situations appear to apply to your loan. Even if they did apply, you're not going to get much relief from consolidating your consolidated loan.

I may be a little naive here, but have you given any thought to approaching your ex-husband or -- less naively -- your son about contributing toward these student loan payments? Your son gained the benefit of your financial commitment to his education. While it wasn't your plan to do this, ask him to pay part of the freight.

When a new consolidation loan isn't a way to refinance student loans in your case, some borrowers in your position have turned to using home equity loans or a cash-out refinancing of a first mortgage to pay off student loans and come away with a lower interest rate. If you have the equity in your home to do this, you could reduce your interest expense. You should then be able to take advantage of the mortgage interest tax deduction for most or all of the debt.

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