Get Out of Debt Guy

How Can I Lower My Discover Student Loans? - Paul

Posted July 24, 2013

WRAL Reader Question

Dear Steve,

I took out a private student loan through Citibank which was then bought out by discover student loans. The original loan amount was $30,992 and the balance is now up to $41,475 because of the outrageous interest rate of 11.375%.

I have made the minimum payment on time for about a year now since the loan entered repayment status. I have called the loan company (discover student loans) multiple times asking if there is anything they can do to lower my interest rate and have been given no help every time. I have also tried multiple times to consolidate through Wells Fargo but have been denied because I am unable to obtain a cosigner.

Is there anyway to lower my outrageous interest rate without being able to obtain a cosigner.

Paul

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Answer

Dear Paul,

An unfortunate common misperception people have is there is something special about private student loans like you obtained. While it is called a student loan it is really nothing more than a consumer loan. The only special feature it has is the lender will deny that it can be discharged in bankruptcy. But that's not exactly a true statement.

I'm in the middle of a big research project on private student loans and bankruptcy and one glaring result is if the private student loan was used for a vocational, trade, pilot, or other school outside of a typical college or university, it can be easily discharged in full in bankruptcy. Or if you have an underlying medical condition or your maximum income is insufficient to support massive loans it might be partially or fully discharged in a bankruptcy adversary proceeding. More on that later but for now you can read my initial results here.

The minimum payment a lender sets is not designed to get you out of debt but to ride that fine line between maximizing lender profits and minimizing lender risk. An 11.375% interest rate on essentially an unsecured loan and based on your risk it is not a horrible rate. So to bring the balance down and payoff the loan quicker you'd need to increase your payments to $580 a month and in ten years the loan should be paid in full.

There is no program available to reduce or lower private student loan payments like you have without either the current lender offering such a program or refinancing the entire loan.

Steve Rhode
WRAL Get Out of Debt Guy

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5 Comments

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  • grimreaper Jul 29, 2013

    The best way to avoid student loan interest is to work your butt off and live within your means while going to school and take out NO loans...it works...its a cop-out to take these loans...

  • firefalcon100 Jul 25, 2013

    Kendra, one thing you have to understand is that most of these student loans to kids just out of high school who are starry eyed about going to college. they are not thinking about the future implications of their actions now. So part of it i blame on parents to because they are not counseling their kids on not to take the bad deal. Ultimately you are correct, it is their own fault for not understanding the details.

  • steverhode Jul 25, 2013

    @kendra2 I hear what you are saying but for most people that I've seen over the past couple of decades their situations are not one of just deciding they don't want to pay. In nearly all the thousands and thousands of cases and situations I've looked at there is an underlying reason the debt can no longer be paid. Most often is surrounds an issue with medical bills, divorce, or downsizing.

    But in this case the reader is upset with the interest rate he agreed to and I would completely agree with you that knowing and understanding the terms before signing for credit is a goal I wish everyone would achieve. The reality is they don't. I wonder how many people read all the pages of documents they sign at a mortgage closing?

  • kendra2 Jul 25, 2013

    Did the letter writer not sign an agreement to the loan terms? Did he not receive the service for which he applied for the loan? The advice I've given to my now-adult and financially responsible children is do not purchase what you cannot afford. If you cannot afford to repay the loan, do not apply for the loan. As a responsible, bill paying adult, I am infuriated at the ease in which people can "discharge their debt" (sounds so clean) through bankruptcy. It is no wonder our economy was cut off at its knees with our easy credit/easy shedding of responsibility. The sad thing is it appears no one has learned a lesson. Those who do not learn from history are bound to repeat it.

  • rachel Jul 25, 2013

    I read your column all the time for tips and advice. One thing I don't think people realize is that 11.375% as an interest rate-is NOT what they end up paying on the original loan. This guy has a loan for $30,992-at the $580.00 a month for ten years he ends up actually paying $69,600.00-well over 50% more then he borrowed-for a bank, that's nice work if you can get it. We used to call that loan sharking when I was growing up-now "its not a bad interest rate"-$3408.92 is about 11% of the original amount borrowed-the problem is that the lending institution projects out and compounds the interest rate over a long window-so that $580.00 per month will not make a big dent in the principal for a long time and the bank will just rake in the cash for several years until this man's balance finally starts to move down. What we need to help people out of debt are laws which require a higher % be applied to principal on the front end and less compounding by lending institutions

About this Blog:

Steve Rhode has had careers in opthalmology, real estate and as the head of a nonprofit debt counseling firm. On his blog, he offers hard-won, free advice about getting out of debt, consolidation and making the right choices as you manage your money.