The other day I received an email from a reader trying to help her brother, who lives out of the country, with his student loans:
My brother has 2 private loans, each 40K. First loan has 7% rate and the other has 10%. My brother had studied on a student visa, and is back in his home country, since graduation in 2009. We have been paying around $950 every month, which we cannot afford at all any more.
He has had no income and I was helping him pay his monthly amounts.
How can we reduce that interest rate and monthly payment, while keeping loan period the same?
Should we try to re-finance?
Thanks a lot!
Typically there are two ways to get lower interest rates on your private student loans. The first way is to get your lender to willingly lower their rates. Sallie Mae, for example, will lower their rates, but only for borrowers who can’t keep up with their current payments.
Option number two, as noted by our reader question, is to refinance or consolidate your loans with another company. While there is a huge list of student loan consolidation companies, most people who are having trouble keeping up on their loans will have a hard time getting consolidation approved. If a new lender doesn’t think you will be able to pay your bills with plenty of room to spare, you won’t be getting the loan.
Lowering Rates From Overseas
The interesting wrinkle in this particular reader question is that her brother is back in his home country. Conceivably, this could help his quest to get lower interest rates. This is because collecting debts in another country is both difficult and expensive for lenders. (Note: we won’t get into the legal specifics of collection laws overseas as this gets very complicated very quickly. If you want to get into the specifics in one of these situations, it is probably best to hire an attorney. For our purposes, the key point is that collecting debt in other countries is harder than in the United States.)
Due to the difficulty that Sallie Mae might have collecting the debt if you don’t pay at all, they may be more likely to accept a reduced interest rate agreement. The tricky part about getting this to work is finding someone at Sallie Mae who 1) understands the complexity of the situation and 2) is willing and able to get it resolved. You best bet may be talking to someone in the collections department.
The downside to your brother living overseas is that consolidating his loans with another company will be much more difficult for the same reasons. Because a new lender would recognize the difficulty in collecting debt in another country, they will be hesitant to give you any money.
The Cosigner Problem
One final issue to consider would be whether or not anyone cosigned either of his loans. If there is a cosigner, getting a lower rate directly from Sallie Mae becomes much more difficult. If the cosigner is here in the US, Sallie Mae knows they have someone local that they can collect the debt from. Having somebody locally who is obligated to pay the bill eliminates the advantage of being out of the country.
Your greatest chance of getting a lower rate will probably be signing up for Sallie Mae’s Rate Reduction Program. Getting approved for the program isn’t a sure thing, but given your circumstances, if you and your brother are persistent, you should be able to get it done.