Paying for culinary school
Question: My daughter got a Sallie Mae loan to go to culinary school. She was 27 so did not get the special low rates for younger students, rather got a variable rate that can fluctuate between 10% and 17%. Her loan was for $48,000 and for now, it looks like it will be a $650/mo. pay back for 15 years, starting in another 4 months. Is there another, better way perhaps, to finance this burdensome loan? Where should we look? Who should we trust? Cynthia, Shreveport, LA
Answer: It looks like your daughter took out what's called a "private student loan." Not everyone agrees with me, but I don't think private student loans should be called student loans at all. It suggests that they're similar to federally-sponsored student loans and that isn't the case. Federal loans (both subsidized and unsubsidized) offer borrowers a great deal of built-in financial flexibility with repayment terms. (Of course, you'll end up paying more for your education if you take advantage of the options.) The same isn't true with private student loans. In essence, it's a straight-forward consumer loan with monthly minimum payments that have to be met.
To be sure, there are a few avenues for nicking away at payments. For instance, most lenders will offer a better rate with a co-signer (but that's usually a bad idea for the co-signer.) Borrowers often get a small interest rate reduction for setting up automatic monthly payments. Lenders do have the discretion to change the terms if the borrower is in troubled straits, but it's their call, not yours. That's pretty much it.
The terms of the loan are clearly laid out at the Sallie Mae website. You can always talk to Sallie Mae and see what they can do. But looking at the loan terms it doesn't appear that there is much she can do to reduce the financial burden. Other student loan lenders will offer essentially the same terms, too. My only suggestion is if she ends up struggling financially perhaps you could help her out a bit until she gets the kind of job her degree has qualified her for? And hopefully going to school and taking on the loan opens up the kind of career opportunities she wants.