Student Loan Debt to Income Ratio Too High

[Anonymous]

Hello everyone. I've been reading these boards for information lately and although I have scoured for information on improving debt to income ratio, I cannot find it.

I have multiple student loans (both federal and private) and was recently denied a private student loan consolidation due to my high debt to income ratio. I'm lost as far as what I need to do to improve my credit. My student loans amount to almost $100,000, with about $45,000 of that in Federal loans (which I will consolidate again come January for the new 2012 benefits). I am making a ton of payments each month on different loan amounts that are just confusing. Some of the interest rates on these loans are as high as 10.25% and although I have been making on time payments, I am hardly seeing my debt reducing.

I am well aware that I am liable for this debt. I made mistakes taking out so many loans, but I understand I must pay them back. I have even gotten a second job in order to make these full payments each month, however it is killing me. Even with my second job, my monthly take home is about $3000 and I'm making $900/month in loan payments. Believe me, if there was any extra money each month after my bills I would apply it to a student loan.

So, I have the following questions:

-Should I request a debt validation letter from each servicing company? I know my debts have been sold off to other banks and I want to make sure nothing is duplicated.

-All of my loans are in good standing except for one 30 days late payment in April 2010 with AES. I simply forgot. Should I send in a goodwill letter and ask for them to remove that from my reports?

-How can I drastically reduce my debt to income ratio considering I cannot get a consolidation loan and my debt keeps rising although I'm making full payments.

I'm so lost as to what to do. I have okay credit (I've been trying to rebuild it over the past 14 months) and I always pull my free reports and monitor everything. I just don't know how to solve this issue of the rising debt. I don't want to be stuck like this for the rest of my life. Asking my parents to cosign a loan is out of the question; I have no spouse to cosign; my parents cannot take out a home equity loan to pay off balances; I do not have the money to request a debt settlement; I do not work in any of the programs that allow for federal loan forgivness.

Any help would be appreciated!

[LTomBerry]

Welcome to the forums!

1. A debt validation letter is traditionally for when you are disputing the validity of a debt with a collection agency. I'm not sure it applies in your case. As long as you are clear on who you owe money to, there's no point. If you're not sure because they have been sold, I would call the original creditors to iron out the details.

2. A goodwill letter would be a good idea, the worst they can do is say no. Give it a shot.

3. To reduce your monthly debt to income ratio (aside from generating more income, which is not always a viable option) the only thing I can think of is to see if you can lower your payments on the federal loans. They have income based repayment options, I bet you could work something out. You might look into deferral options depending on your situation. Obviously that is not going to help you lower your overall debt but it would bring your monthly payments under control until you are more able to deal with things.

Hang in there, at least you are trying your best to get it under control. Things will work out eventually!

[Anonymous]

Thank you for replying! Your information was very helpful. I will send a goodwill letter to AES and see what they say, it can't hurt to try.

I do have another question... When credit companies look at my debt to income ratio, are they looking at my debt in full? Or are they looking at how much I pay towards my debt each month compared to my income? I only have this installment debt and maybe that was where I was getting confused.

Another question, a little off topic... I checked my credit scores (which are now in the 680s compared to about 590-620 a year ago, yay!) and it appears that all 3 bureaus are reporting different amounts of debt. The amounts are as far apart as $25,000. How is this possible? Is this something that needs to be corrected? Do I need to go over my credit report with a finer tooth comb?

Again, thanks for helping me out with these questions.

[IOBA]

When creditors look at your debt to income ratio, they look at total monthly payments.   So add up all of the minimum payments and you will have a total of what is due monthly.   You mentioned $900 a month in payments.   So if your income was 3k (you said your second job brings in that much), and your monthly payments are $900....

$900/$3000=30%  (I think I did that right)

[Tazman81]

I have to agree with others on this.  The only way you will be able to get your debt to income ratio at a better place is to either make more money or decrease your monthly liabilities.  Here are my throughts:

#1:  Write down all the bills, the monthly amounts, and the due dates.

#2:  Determine your current expenses verses your income.  Do you have enough to pay all of your bills each month?

#3:  Look into an Income Based Repayment (IBR) for both your federal student loans, and check with each loan company for your private student loans to see if they offer a similar program.

#4:  Determine the interest rates for all of your loans.  Put them in order from highest to lowest.

#5:  Pay the minimal payment on all of your loans other than the one with the highest interest rate.  Pay as much toward that loan each month as you can.  After that loan is paid off, then repeat for the next loans.  (a different version of this is paying as much as you can toward the loan with the lowest balance and pay the minimum on all loans, then repeat).  This way does not save you interest money in the long run, but will help to decrease your debt to income ratio in the short run as you will be eliminating monthly expenses from your credit.

Hope this helps.

[KatherineLee]

The three agencies may be reporting different amounts if your Federal Direct loans are not reporting on all three reports.  Last time I had my Transunion pulled the $24k I owe in federal student loans showed a $0 balance.  I am unsure if it is reporting again, and if this is similarly affecting EQ and EX reports.  Several other people have stated similar issues with their direct loans.

[IOBA]

It may have reported zero owing if the loan is brand new, in any type of deferment, or about to be transferred to a new servicer/lender.    Or, if it has already gone to collections.