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An expensive private student loan

Question: My husband has a consolidated private student loan of $47,000. Our interest rate is 9% which seems really high for this market. We pay a monthly payment of $406 and only $104 eats at our principal.

I have never had student loans of any kind so I don't know how they work. Can we switch this loan back to a federal loan? Should we just try to lower the interest rate? Should we move the loan to another bank with a lower rate? What are my options and what do you think is the best way to lower the interest rate and payment amount? Sincerely,
Jessica, Boca Raton, FL

Answer: You can't transform a private student loan into a federal student loan. In essence, a private student loan is really a label for a consumer loan.

What can you do? Well, you can always try to lower the interest rate. The odds of success are dim. For example, if your credit score has improved since the loan was taken out you can talk to the lender and see if it will recognize the improvement. To get some leverage you can try to shop the loan to other student lenders and see if any of them will give you a better deal. Still, I'm skeptical these tactics will work out in the current environment.

Another common option is taking out a home equity loan to retire the debt at a lower rate. The rate should be much lower. I would really evaluate the costs and the benefits, however. A home equity loan can backfire as far too many homeowners have found out in recent years.

You could also shop around for a personal loan to see if you could get a lower rate. But I ran a quick check on an unsecured personal loan from a major national bank and the rate was higher than what you're currently paying.

I think the main thing is to get aggressive in retiring the loan, even if you do manage to lower the rate. Of course, that's an easy sentence to write. It's hard to do considering all the other demands on your money. But I would make eliminating it a budgeting priority.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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