Consolidating Navient (Sallie Mae) Loans with Department of Education

[rgwen]

I know this post is going to be long and boring, so anyone taking the time to read or assist I want to thank you in advance!

 

Background:

 

After receiving a BA, BS, and MBA I am now carrying nearly 90K in student loans. At the time I went for my MBA I knew I would be joining the Army which at the time had an enlistment incentive called Student Loan Repayment Program (SLRP). This program would have paid off 65K in loans over the course of three years. Unfortunately, the Army in all its wisdom canceled this incentive for Officer contracts just days before I swore in. Thus, I'm carrying a debt level that puts me as I understand it in the top five percent or so nationally (awesome...).

 

I'll be getting out of the Army in the next year or so and have already applied to a Masters program in the UK that I hope to a) be accepted into (I'd have to defer a year) and b )would like to be able to stay on for the 3-year PhD. Don't worry though, this would be entirely funded by the GI Bill and a small amount of savings I've put aside. I'm not crazy enough to take on more loans. My mid-term goal is to knock out the PhD and break into a top 10-20 consulting firm five years from now. If successful my level of debt will not be a huge problem, but I need to be smart. 

 

Current Loan Situation:

 

Currently my loans are serviced by Navient...formally Sallie Mae which had to restructure after screwing vets out of Civil Service Relief Act benefits (In fact they told me several times that I had to be deployed to collect these benefits which was a lie). These are structured under 13 different different loans and for simplicity's sake I'll say that they are essentially 50/50 on subsidized/unsubsidized. They range in interest rates from about 3-4% on the subsidized to 8% (ugh, I know) on the majority of the unsubsidized. All loans are limited to 6% during my service, but will go back up after I get out. 

 

Right now my subsidized loans are in military deferment and I pay $267 per month towards my unsubsidized. Paying this amount means that my principle is technically going down annually, but it's almost all going to cover the interest. I believe it moved from 91K last year to 90k this year. If I stay on the current plan after the Army my payments could theoretically raise 50 percent to cover the same small chipping away of the principle when considering adding the subsidized loans (with half the interest rate) back into the program. Not very sustainable.

 

A Possible Change:  

 

I received a mailing recently from a 'Consumer Advocacy Group' named "Student Processing Center" that is attempting to sell services relating to helping people file for Loan Consolidation with the Department of Education. After spending the afternoon reading all their literature I have realized that they are selling a service for a pretty big chunk of change that I can do myself for free (ie $699 for filing and $30 a month for handling for a 25 year loan aka 9k). So while clearly I won't be using them I am thinking that consolidating under the Health Care and Education Reconciliation Act with the Department of Education might be hugely beneficial as they had explained it to me.

 

My understanding of the benefits is that my 13 loans would be consolidated into one loan which would be serviced by the Department of Education rather than Navient. I also understand that this consolidated loan would use some weighting system to develop an average interest rate. Additionally, under the Department of Education, loans would be forgiven after 25 years rather than 30. 

 

Questions on Consolidating:

 

Consolidating loans seems like the smart move, but I'm looking for advice on the situation from anyone in the know. I want to make sure this is the right move because it's huge money that I didn't necessarily have enough respect for at 18, but now do at 28. 

 

Apparently because of the pay structure of the military I qualify for income based repayment which I've been told means that with a monthly payment of around $250 I would be covering all my loans and reducing the principle. Additionally, they claim that if I begin under this premise, even if my income increases substantially, my payments could only be increased to 50 percent of what they would be on a standard payment plan. This means that even if I got out of the PhD and began making 175K a year my loan payments could only increase to around $500 because the standard repayment for 90K is just over 1K/month. 

 

I'm just confused about how all the math is working out, because in my mind if I have 90K with an average interest rate of 5% that's $4500 in interest annually meaning I need to cover at least that in order to keep my principle from increasing. Yet, at $250 a month that's only $3000 per year. I don't understand how my principle would not be going up with such low payments? Does the consolidation somehow retain some of my original subsidized benefits? If so though, my payments would have to go up after the military when I had to begin paying them again, yet they claimed my payments would not increase and might even lower due to being back in grad school. It seems they are suggested that as my income drops from 40K in the army to 0 in grad school my payments could somehow be reduced without the 4.5k in interest adding on to my principle? Maybe this means I would still have to pay back that interest later, but that it wouldn't be capitalizing onto the principle? 

 

I just don't see how it's all adding up and really want (and need) to do the right thing here. I just want to keep the payments low and manageable until after grad school and ensure the principle does not increase because the possibility of paying monthly and still going backwards to be beyond depressing. Essentially, if I owe 90K right now I don't want to put myself in any situation where my total amount is going up whether that by be an increase in principle or some other crazy scheme where they hide interest somewhere else and my total owed is increasing quietly. 

 

Any help with this issue would be HUGE and if more details are needed let me know

Edited February 18, 2015 by rgwen