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What to do? Consolidate? Keep on w/DoE?

Miranda M

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I hope some of you can share your knowledge and experiences to help me with my particular situation.

In brief:

Graduated in 1990 w/30,000 debt. Couldn't pay so I didn't-- for 15 years. By then I had 65,000 w/accumulated interest. All now in default with the Dept of Ed.

Have been paying $535/mo for at least 6 years. Did not consolidate (about 10 loans) because I found out that I was not paying any interest on my interest -- and would if I consolidated.

Interest rate was variable at one time, but has been 8% in default. and still is.

I am technically still in default. DofE sent papers for me to sign that would rehab the loans, but they seem contingent on my consolidating w/a new lender. I do not want to do this until I pay off the accumulated interest -- maybe by Spring of 2011.

I have no other debt. I have a couple of "dings" on my very low credit rating (hate debt, no c-cards, nothing)... I am beginning to fix that and get a secured card, etc. to build some credit now. The student loans are not mentioned on my credit reports --positively or negatively.

Here are my (first) questions:

--Do you think I will be able to drop this interest rate (given my poor rating) by consolidating? It seems so high.

[i can afford the $535, but live in a dump and can't do most of what my friends do --including travel and buying a house. I'm also afraid that a consolidation will raise my payments because of my on-paper income.]

I have a 401K that I'm thinking about borrowing against or liquidating to pay off this loan... Lost 30% of it in 2008 anyway. I haven't done all the math yet, but it seems like it earns less than I am incurring on the student loans.

--Does the DofE accept less than full principle if people offer lump sum buy-outs? I do not have the full amount owed.

I am 55. I will not be able to make these payments on social security so really need to "get a plan" to clear this before 10 years -- any other options or ideas will be appreciated.

thanks in advance


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Thanks for your summary. I am aware of what debt consolidation is. I guess I was too general or off-track in my initial post, so let me re-state my main concerns:

--with no house or other collateral, could I get a lower interest rate by consolidating? My current rate is 8% (the top of the variable rate i had before defaulting).

I saw a reply from someone (2009) saying they did this (had terrible credit, consolidated w/a rate of 2-3%), but they no longer post here.

--What is the best way to calculate what my payments might be before committing to the loan, and before pumping all my personal info into various websites, so I don't increase my monthly payment (which is at the top of what I can pull off)?

I've heard so so many stories about unscrupulous financial outfits, I wanted to get an idea of my options here before trying to get that information from someone who is selling me something.

Pointing me toward previous posts is just as appreciated as an answer here--I just couldn't find this info through the search function.



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