Julie is a 58-year-old teacher working in a high-needs school, with college loan debt that just keeps on growing despite the monthly payments she’s making. She recently described her situation on the Credit.com blog. Here’s what she told us:
I’m 58 yrs old, started with $43,000 student loan debt. I deferred for probably 12 years as a single parent… my loan debt grew to $58,000– I started repaying with monthly payments of $451… but because interest accrues daily even in repayment, even with a steady on-time payment the balance keeps growing– it’s Very Discouraging,,, and may I say Disgusting….. I am a teacher, and I work in a district that is 75% or more free & reduced (lunches) — but my loans were taken out before a certain year and I cannot qualify the the current loan forgiveness program …. My balance is now at $65,000 and I don’t know how to get this off my back!!! I’m starting to feel desperate….. and am considering selling my house to get out of this debt.!!! I am working full time, but I’m not getting any younger, and I need a new car but with the monthly payment for student loans, I’m worried about a car payment also. Any suggestions would be welcomed!
We reached out to Gordon Oliver of Cambridge Credit Counseling, one of several such services that now offers help with student loans. Oliver told us that Julie’s situation, frustrating as it is, is not uncommon.
What typically happens, says Oliver, is that student loan borrowers who can’t pay call their loan servicer to see if deferment is an option. If it is, the servicer says so and then reads a statement warning that interest will accrue and the balance will increase. But for a borrower in over their head, everything after “yes” may sound a little like adult conversation does to Charlie Brown characters.
Deferments, says Oliver, should be seen as short-term relief while the borrower comes up with a plan to actually attack the debt and pay off the principal. Without a plan to pay off the debt, a consumer risks falling into a deeper situation than they can afford, and stand to ruin their credit in the process. (If you want to see how your student loans are affecting your credit, you can get your free credit report summary on Credit.com.)
But when a consumer asks to delay payments, the phone representatives who work for loan service providers are not going to go out of their way to delve into the problems that surround the need for deferment or forbearance, Oliver said. “At some point, consumers run out of these options and then never have the deferment or forbearance to turn to if their economic situation changes for the worse or key circumstances change.”
And on the subject of changing circumstances, Oliver said the repayment plan that works best for an individual can change with changes in economic status. While balances on student loans cannot typically be negotiated down (though it does sometimes happen), like some other forms of consumer debt, they can often be managed. But the choices can be confusing, and so can knowing which one is best for you at any given time.
Do I Have Other Options?
Of course, you want to eventually make some progress paying down the principal balance. But if the monthly payment is temporarily unmanageable, it may be wise to take advantage of breathing room. Deferment or forbearance can give you that breathing room.
So can income-based repayment, but that program carries an added benefit. If you stick with that program, balances left at the end of 10, 20 or 25 years (depending on your eligibility) will be forgiven. The kinds of loans eligible for IBR and its newer cousin, Pay As You Earn (PAYE), include Stafford loans, Perkins loans, Graduate PLUS loans, Supplemental Loans for Undergraduate Students and federal consolidation loans. (But, as Oliver points out, there is a downside: income-based repayment can actually allow your balance to grow, and you have to re-qualify every year.) Loans that are not eligible include Parent PLUS loans; loans in default, garnishment or judgment; alternative education loans; consolidated loans that include a Parent PLUS loan; and private loans.
In Julie’s case, Oliver would recommend that she talk with a student debt counselor, especially because she is considering selling a major asset (her home) to solve the problem. He said Julie should know what all her options are before she decides.
Student loan counseling through credit counseling agencies is relatively new, and credit counselors have only recently begun to specialize and to seek accreditation in that area. Oliver says it’s helpful to seek out a nonprofit agency whose counselors have been certified through a student loan course through the Financial Counseling Association of America. Debt can be overwhelming, and if you decide to go the route of getting assistance, do your research (here are some questions you can ask to help you choose) so you go with a source that is knowledgeable and reputable, and can properly address your individual needs.
More on Managing Debt:
- Understanding Your Debt Collection Rights
- The Best Way to Loan Money to Friends & Family
- Top 10 Debt Collection Rights