Fundamental law of student loan economics: Consolidate now
I don't know what to do. I already have three mortgages in my name, a line of credit on my prime residence that is already almost to its limit. I own four income properties, but the rents have not been doing much for us the last few years. We've had quite a bit of bad luck lately.
Please help. How can we take over the payments at a lower interest rate and not put it in our name? AES was the biggest mistake we made. The first two years we went through the U.S. Department of Education's Direct Loans, and we should have continued with them.
A: Well, a couple of responses.
First, I'm not familiar with AES. Is it a federally subsidized student loan or a private loan? If it is a student loan, either federal or private, it should be eligible for consolidation. Click on my website below, and read the column from last week, by scrolling back under columns. She should start the consolidation process today, yes in her own name, because that will lock in lower rates. If this is her only loan, and it is a federal student loan, then she must consolidate with her original lender. If it is a private loan, go to that section of the SallieMae.com website.
Once she's got the rate locked in, then if you want -- after reading the next thing I'm going to say -- you can help her pay down the loan.
Okay, here's the second point: You are stretched beyond your limits, and that is a recipe for disaster. And that's not counting your student loans.
Without knowing details, and tax consequences, I'd definitely recommend selling at least one, and probably two of your rental properties, and paying down your own debt first. Then you can re-evaluate your cash flow, and see if you can help your daughter out with the monthly payments.
But remember, on an airplane, when they give instructions to "put your oxygen mask on first, and then help others?" Well, that's your situation here. She'll work her way through her own debt. That's what a college education is all about. You need to reconsider your own situation first.
Q: I was just reading your articles on consolidating student loans. I never paid too much attention to any of this and stumbled on your articles by accident while surfing. Is is too late to consolidate my student loans and what steps do you suggest that I take?
A: It's not too late, if you haven't consolidated before. But because you waited until after July 1st, you'll pay higher rates.
Actually, what you should do is go to SallieMae.com and learn all about consolidating, or speak to one of their representatives. Then wait until next May, on the slight chance that rates -- established at the end of may -- will actually drop in July of 2007.
But if rates are going to move up again, based on the May Treasury bill auction, then you'll have plenty of time to lock in the current rates in the month before July 1, 2007. Understand?
Terry Savage is a registered investment advisor and the author of the newly published The Savage Number: How Much Money Do You Need To Retire? (256 pages, Wiley, $24.95).
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