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Home > Ask The Get Out of Debt Experts > The Student Loan Death Trap: Private Student Loans Drive the Future into Poverty. – Rachel

The Student Loan Death Trap: Private Student Loans Drive the Future into Poverty. – Rachel

My situation is so horrible and massively complex it’s difficult to explain in a way without running off on other subjects, but mainly my problem is I can’t seem to find out how to survive with a life worth living while having my student loans on my shoulders.

If it were just the federal loans..I wouldn’t care…I could do income based repayment plans and after 25 years your remaining debt is discharged.

The real pit is the private student loans. I got private student loans with both Sallie Mae, PNC Bank’s American Education Services, and Wells Fargo.

Sallie Mae 59,000$ (father cosigned on one loan for 19,000$, the rest all my own..amazingly)
PNC Bank about 15,000$ (all on my own…somehow…incredibly)
Wells Fargo about 15,000$ (grandparents cosigned)

Now I can put my federal loans into unemployment forbearance to try to make room for the other loans..but here’s the kicker…they can get everything no lower than 350$ a month for the rest of however long I can pay doing INTEREST ONLY! They won’t do interest only forever…just for a while…the real payment amount is around 500$ a month…JUST for Sallie Mae’s private loans…not counting my other ones…Wells Fargo can do 77$ interest only…and PNC bank won’t do ANYTHING for me whatsoever..even though their contract stated they could do 50$ a month…ON THE PRIVATE LOAN CONTRACT…they told me only for federal…WTF? And finally I can lower my dad’s cosigned loan with Sallie Mae for 78$ a month with variable interest….great…

I make…1400$ a month gross income working part time at a call center..and my boyfriend gets SSI for 674$ a month…

Here’s what sucks…I calculated total living expenses and bills…

Internet-paid for by my employer
Cell Phone-my dad pays
Cable-don’t have any cable service
148$ in food stamps..we spend near 200$ a month for both of us..and it’s really hard to keep it that way

all rent associated fees, about 710$ a month
car-173.33$
car insurance 167$
electricity-100-150$ (possibly 200$…) a month depending if it’s summer or winter (it gets HOT in phoenix!)
gas/transportation- 150$ monthly just to go to to work..not counting drive ANYWHERE else..

Now…lets add that up…

Total income for both me and my boyfriend minus taxes: 1,974$

Total expenses estimated to be as close as possible minus change: 1,402$

572$ left over

Now that sounds like a lot…right? Well…consider this next:

PNC bank wants me to pay 157$ and they WONT budge at all to help me
Wells Fargo interest only: 77$
Sallie Mae Private: 350$ lowest for all 3 loans with them…interest only again..
Sallie Mae Federal: while working part time 0$ for a few years..

Now…let’s see…subract that from my excess income… -12$

Remember..this does NOT include basic hygenic items and other personal care products or household necessities like soap, shampoo cost for pets, even if I only spend 10$ a month on them…This ALSO does NOT cover emergency costs or medical costs related to my health or car maintenance…

Really? Really US GOVERNMENT? REALLY?!!!! Does our government WANT to send us all to the toilet?

I call attorneys for help, and they for the most part give me an answer with a resounding, “No, sorry can’t help you, you’re screwed.”

They said my best hope is to be dead, move out of the country with a different name, or to be so horribly disabled that death would be preferable…in order to discharge loans…

If I do bankruptcy…I’m still screwed because I don’t think my life is “Horrible” enough for them to consider my loans or some of them to be discharged..if I fail to get rid of them or work out a reasonable payment plan..they could garnish my wages, either if I don’t do bankruptcy or once I’m out of bankruptcy..either way…they’ll devour my soul.

If I do have to go bankruptcy…the loans my cosigners have for me would go back to them and the interest only plan may or may not be available and certainly not for the same price I got, because it’s on THEIR income…so once again..the amount owed would SOAR above my means and then they would have to pay it and I SWORE I wouldn’t let that happen…Dad’s got so much credit card debt he cant get out..and bankruptcy would disqualify him for his retirement plan…all his life would go down the crapper..and my grandparents are just too old and have their own financial problems too…

In other words…I better hope I get sick really fast and can’t work and still live a crappy life…or I can PRAY someone will understand the situation and give me the time I need to pay off my freaking car and lower my insurance on it…then i MAY be able to afford the interest only payments…god help me when that option is exaughsted…WAGE GARNISHMENT OF NO LESS THAN 15% HERE I COME!!! 200$ BUCKAROOS ON TOP OF YOUR COSIGNER’S LOANS…WOOOOT!

Anyone else see how messed up this is….?

I’m so sorry Steve, that this one had to come to you. I suppose I’m asking if there is anything else I haven’t tried in my months of online legal and loan research, and attorney phone calls that I have missed…I hoped maybe I could get some discharged based on what loans were certified and those that maybe weren’t and using my school’s COA (cost of attendance)…but the laws on that are so confusing…I just want to cry and slit wrists already…..

Any answer, even if it’s a sad one, would be appreciated…

Thank you,

Rachael

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The Answer

Dear Rachel,

Here is the bottom line when it comes to private student loans, it sucks and their are no good options.

You said one thing, “bankruptcy would disqualify him for his retirement plan” which made me go huh? Why would he be disqualified for his retirement plan? But that’s another issue.

The problem here is that the cosigners are 100% responsible for the debt. Have you discussed your situation openly with them? It might just be your cosigners will have to clear their decks of their debt with something like bankruptcy and prepare to make the payments on the debts they cosigned. And your cosigners were adults and agreed to be liable for the debt when they signed on as cosigners.

I completely agree that private student loans were and are a trap but it is what it is unless we can get Congress to change the law. A few students loans are cleared with a Chapter 11 bankruptcy but it is an expensive and problematic process that has little guarantee of success.

Keep in mind this is not a government punishment. Private student loans are a loan just like any other. But it just so happens that the issuers of private student loans successfully lobbied the legislature and got a law passed by Congress that prohibits private student loan debt from being discharged in bankruptcy. As you’ve acknowledged, if you had government backed student loans you’d have some great options.

In 2011 new legislation was proposed, Fairness for Struggling Students Act of 2011, to “restore the bankruptcy law, as it pertains to private student loans, to the language that was in place before 2005, so that privately issued student loans will once again be dischargeable in bankruptcy.” – Source

Private student loans are one of the riskiest, most expensive ways to pay for college. Like credit cards, they typically have variable interest rates that are higher for those who can least afford them. However, private student loans are treated much more harshly in bankruptcy than credit cards and other comparable types of debt.

Private student loan borrowers also lack access to the important deferment, income-based repayment, or loan forgiveness options that come with federal student loans. This leaves most private loan borrowers at the mercy of the lender if they face financial distress due to unemployment, disability, illness or military deployment, or when a school shuts down before they can finish their certificate or degree.

With recent reports that student loan debt has outpaced credit card debt, the Fairness for Struggling Students Act of 2011 is needed now more than ever. It is inappropriate and unfair to distressed borrowers to treat private student loans more harshly than comparable types of debt. Your bill would indeed restore fairness for struggling Americans who pursued the American dream by going to college, only to find themselves in financial distress. – Source

Because of your question I just started a petition to get this bill in Congress moving again. Please sign the petition to Pass the Fairness for Struggling Student Act of 2011. Please pass on the link to your question to other and help draw attention to the bottomless pit private student loan borrowers face so we can get this much needed bill moving again.

Please post your responses and follow-up messages to me on this in the comments section below.

Big Hug!

The Student Loan Death Trap: Private Student Loans Drive the Future into Poverty.   Rachel
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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • http://GetOutOfDebt.org Steve Rhode

    New data shows 40% able to discharge student loans in bankruptcy. A shocker of a result. See http://getoutofdebt.org/48336/how-to-really-discharge-your-student-loans-in-bankruptcy

  • Bubblestrubbles

    I let my loans go into default three years ago.  Yes I have creditors harassing me, but the loans went into default which stopped everything.  I had not job for them to garnish and it took about two years for it to truly default but, it stopped the fees, interest, and over-all growth of my loans.  I was paying $1600 a month on my loans and the number kept growing so I just gave up.  Now the collectors are calling me with deals.  I think if everyone just stopped paying, well, I think the system will just come to a screeeeetching hault.

    Next time you report your job, make sure it is a petty job that barely pays anything and keep the real one to yourself.

  • Sssplish

    I would like to see student debt back on the negotiating bankruptcy table, but not to be discharged.  One reason the rule was changed was because people in the past would go to school, file bankruptcy immediately upon graduation and then live the life of a king at the tax payers expense.  For this reason I would like to see an alternative to bankruptcy. 

    Bankruptcy should be more flexible and creative in managing a persons student loan debt.  For instance, if someone has payed for their loans more than twice they are paid in full, lower the interest and payments and take it out of the colleges hide.  After all, Schools are part of the problem preying on young inexperienced adults so they can build million dollar football stadiums to get more students to no end. 

    Students are adults and should not borrow money for something they can’t surely manage in the long run.  I paid most of my way through my undergrad and worked three jobs at a time.  I took the bus, lived with lots of undesireable people or at home, dressed like crap, bought used books and didn’t take trips or go shopping.  I took my time getting my degree and did half of it at a community college where it was cheaper and transfered to a four year school half way through.

    I know this doesn’t help those already struggling, but if you could pay your loans off quickly by living poorly intensly for a few years, work a couple of jobs and refrain from spending, they may be in a better position sooner.  And last but not least, don’t start anything that costs anything, learn the fine art of waiting to have babies, houses, toys and trips.  And most of all do not delay your education by getting more education!  It is the stupidest plan I have ever heard.

    • Sssplish

      I mean don’t delay paying for your undergrad by getting a masters.  Wait until you climb the ladder and have proven yourself so that a reputable corporation will pay for your masters.

  • Res

    I also learned today that these lenders don’t need a court order to garnish wages and they will garnish for the rest of your life. The garnishment wont ever apply to either the interest or the principle balance. So basically, they make MORE money off students who default, because they will drain you for the remainder of your life. Lenders like Sallie Mae are, even the private loans, backed by the government. The government, and Sallie Mae both make a massive profit on defaulted loans. Alot of people in the government taking the court cases are on the payroll for such defaults and so it’s no wonder they won’t discharge any loans despite many people with serious health conditions who can’t afford it. Short of being DEAD or a parapalegic, you have almost 0% chance of getting ANY of your loans discharged. I even read somewhere that Sallie Mae one year was the one company who made the most money, as #1, and microsoft being #18. My boyfriend is reading a book about this student loan crisis and it details the history of Sallie Mae and it’s relationship with the government and all the new bankruptcy laws.

    In short, our government is on the payroll to benefit from our misery. They live rich, lavish surplus profits that are far above necessity while the rest of us squirm below trying to get a breath of air in between relentless financial beatings.

    The United States no longer is an honest and truthful representative of the ever cherished, American Dream.

    Goodbye land of the free and home of the brave, as our government ushers in a new age of tyranny and poverty, all so they can have their toilet seats plated in gold.

  • Res

    Thank you for creating that petition, and for your answer. I guess I’m just so desperate at this point it’s like when you are hungry and find nothing in the fridge..but keep looking in there as if something’s changed from before…hehe…

    I figure my best hope is to just simply pay the cosigner’s loans, keep federal loans in unemployment and then for the rest…have sallie mae buy them from my other lender and then do a 200$ forbearance every 6 months…(7 months it goes to a collection agency)..and see if that at least buys me enough time to have a change in finances or for that law to get passed…it’s my only hope I think…

    Anyways I’ve signed the petition and I signed a petition for this same law introduced about a month or so ago. HR 2028 it’s called I think…It was introduced may 2011 I think…just wish it would get passed already. LETS HOPE!

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