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My husband has 10 student loans that are all in default. The loans were originally taken out through Sallie Mae and are currently being managed by USA Funds/Allied Interstate (a collection agency). We began a rehab program this month and are now thinking about long term repayment options.

A few more details:
All of the loans are federal Stafford loans. The total amount is currently ~25k. Interest rates on 8 of the loans is 2.39%, and 6.8% on the other 2. The amounts per loan range from $750 up to $5,000. In the future, I expect that we will be pretty financially stable. We're planning to move states in the near future, but after that I think it will be pretty smooth sailing. (I am, of course, an optimist.) :)

Recently, a bunch of paperwork arrived from Allied Interstate that involved consolidating our loans. Our question: is consolidation the best route for repayment?

Here's my thoughts on why it may not be, and PLEASE correct me if any of these assumptions are wrong: My husband had a private loan through Sallie Mae that had also defaulted. It was worth at least $2,000. However, we were able to settle the loan with a one-time payment of about $1,000. The negotiations went well and the loan agent was polite. This makes me wonder, do federal loans work the same way? Would we be able to pay off the loans by negotiating the same way we did with the private loan (in other words, can we negotiate with Allied Interstate to settle each loan, or some of the loans)? Or, will we end up paying 25k (plus interest) to USA Funds no matter what, end of story?

Another question is how much control we have over repayment on the federal loans. If we do not consolidate, are we able to choose which of the 10 loans we want to pay off first? If so, it seems like we should focus on paying off the smaller loans first, while doing minimum payments on the rest of the loans to prevent them from going back into delinquency. However, if the standard repayment plan just dictates a $X monthly payment, and we have no control over where that money goes at all, then perhaps consolidating is in fact our better option.

Consolidation certainly seems easier -- after all, it's just one (mega) loan instead of tons of smaller ones. But since our loans are not spread across multiple lenders, and we are willing to invest time in managing our "loan portfolio", we're hesitant to settle for this repayment plan if there are better (faster, cheaper) options out there.

Thank you so much for reading, and please let me know if I can clarify anything.


Federal student loans do not settle at 50% off. As a general rule they will settle off a portion of the collection fees that are added on top of your principal/interest balance. So you looking at probably around a $22k settlement.

Being in collections right now you are going to have to make a decision either to rehab, consolidate or pay it off in full quickly. They are not going to want to wait for a settlement either.

Sub: #1 posted on Tue, 09/25/2012 - 19:53

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Do we have to settle all 10 loans at once, or can we, for example, settle on 2 of them and consolidate the rest?

If we choose a standard repayment plan (don't consolidate) can we arrange to pay off one loan faster than the rest? (Assuming we're making minimum payments on all the other loans.)

I'm trying to figure out if USA Funds/etc views these as a package of loans, or if they are really 10 unique loans that have nothing to do with one another.

Thank you for your quick reply!


Sub: #2 posted on Tue, 09/25/2012 - 21:42


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