How to Get Out of Debt With the Get Out of Debt Guy » forbearance

Alex Went to Law School, Business School and is Now Buried in Student Loans

Steve Rhode — Mon, 27 Sep 2010 10:50:03 +0000

“Dear Steve,

I went to both law school and business school. I dropped out of law school after a year and a half but borrowed a lot of money for that time since law school is quite expensive, especially for a private school. This pretty much set me back. Business school wasn’t as expensive. I now have over $108,000 dollars in school loans (over $20,000 in interest accrued).

I have requested forbearance again now that I no longer qualify for Deferment. I feel like I am drowning in student loan debt. I cannot afford the monthly payment at this time and wonder how I can manage this debt better because the longer I forbear the greater the interest. Please help and advise.

Alex”

The Answer:

Dear Alex,

Student loans are merciless and are the only type of legal loan that can add loan shark default rates of up to 40% of the value of the loan. They are difficult to discharge in bankruptcy and the government can even intercept tax refunds you might be due to pay for student loan obligations.

I suggest that you review this previous question for detailed information about options for repayment. See “Tiffany is Behind in Student Loans, Late On Other Payments, And Looking For Hope“.

Big Hug!

@GetOutOfDebtGuy

The Answer:

I Need to Get My Student Loans Out of Forbearance?

Steve Rhode — Wed, 12 May 2010 18:46:16 +0000

From How to Get Out of Debt

Quinton

“Dear Steve,

I need to get my student loans out of forberrence?

What is the best way to consolidate?

Quinton”

The Answer:

Dear Quinton

Forbearance and consolidation are two different things. If your student loans are in forbearance they are on hold, not requiring any payments from you right now. But while they are on hold, interest is still building up and increasing the amount you will have to repay.

Consolidation depends on if you have government back or private student loans. For government backed loans, contact the entity servicing your loans right now. For private student loans, see this previous post, “I’m Drowning in Private Student Loans. – Kathy“.

Big Hug!

@GetOutOfDebtGuy

“I Have Three Degrees But I’m Broke And Miserable”

Steve Rhode — Mon, 22 Feb 2010 22:32:18 +0000

From How to Get Out of Debt

Theresa

“Dear Steve,

I have $75,000 in school loans and I have one job bringing in $360 per week after taxes and another job where I make $150 per week after taxes. My car payment is $251, rent is $600, utilities are $130, Food is $80, and water is $45.

I have a 401(k) with $6,000.

Help me. I feel borderline and broke. I relocated ten months ago from New Jersey.

After acquiring three degrees I still can’t find a job to match my qualifications. I feel broke and miserable.

Help!

Theresa”

The Answer:

Dearest Theresa,

I certainly feel the pain and frustration that is coming through your electronic correspondence. Working hard to get three degrees and achieving great things in education always seems like it should pay off, but sadly it doesn’t always.

I recently wrote about this in “Is Going to College Really A Smart Financial Move?“.

I don’t know what your degrees are in and the student loans are not my first worry here since they are probably government backed student loans and you’ll have to pay them come hell or high water.

Let’s Look At Student Loan Options First

You did not mention what your student loan payments are and if your loans are on hold or in forbearance. If they are then they are just sitting there, ticking away, with the balances getting bigger due to growing interest being added to the amount of your loan.

The Department of Education offers a little known program called ICR (Income Contingent Repayment) that is worth investigating.

This plan gives you the flexibility to meet your Direct Loan obligations without causing undue financial hardship. Each year, your monthly payments will be calculated on the basis of your Adjusted Gross Income (AGI), family size, and the total amount of your Direct Loans. To participate in the ICR Plan, you must sign a form that permits the Internal Revenue Service to provide information about your income to the U.S. Department of Education.

This information will be used to recalculate your monthly payment, adjusted annually based on the updated information.

This plan gives you the flexibility to meet your Direct Loan obligations without causing undue financial hardship. Each year, your monthly payments will be calculated on the basis of your adjusted gross income (AGI, plus your spouse’s income if you’re married), family size, and the total amount of your Direct Loans. Under the ICR plan you will pay each month the lesser of:

the amount you would pay if you repaid your loan in 12 years multiplied by an income percentage factor that varies with your annual income, or
your monthly discretionary income* multiplied by 20%.

If your payments are not large enough to cover the interest that has accumulated on your loans, the unpaid amount will be capitalized once each year. However, capitalization will not exceed 10 percent of the original amount you owed when you entered repayment. Interest will continue to accumulate but will no longer be capitalized.

The maximum repayment period is 25 years. If you make payments under the standard or 12-year extended plan and then switch to the ICR plan, time under the former plan counts toward your 25-year repayment period.

Time spent in other plans or in deferment or forbearance does not count toward the 25 years. If you haven’t fully repaid your loans after 25 years under this plan, the unpaid portion will be discharged. You will, however, have to pay taxes on the amount that is discharged.

Let’s Look At Your Debt

The figures you gave me indicate that your problem isn’t the typical too much credit card debt. Your monthly obligations and payment amounts seem reasonable, except for your monthly food budget. Really, only $80 a month for food? There isn’t much to trim or cut in the expense category.

The Real Issue – Under Employment

Theresa, the critical issue of your “broke and miserable” situation is that you are underemployed rather than unemployed.

Now it is very easy for me to tell you to go out and get a better paying job, saying that does not make it happen automatically and there could certainly be some underlying issues that are holding you back from doing that.

Once case in particular stands out as an example. I once had a client that was working the night shift at Walmart for years. She was just barely getting by. As we talked about why she had not tried to look for a better job she finally let it slip, “I am ashamed of my feet”.

She felt her feet were too big and she did not want to go on an interview where she felt someone might make a comment or judge her by the size of her feet.

Once we talked through that issue she developed the confidence to at least go try an interview. She got the new job making 50% more and it solved her money troubles.

I’m wondering Theresa if you have an issue that is holding you back from looking for a new job?

Getting a new job is not fun or easy. It often involves a lot of rejection and when you are already feeling borderline, broke and miserable the last thing you want to pursue is rejection. But if you can face the process mentally prepared for rejection then it makes it a bit easier. In fact, I would adopt the approach that each ‘no’ that you get is a good thing because it means you are one rejection closer to getting to the ‘yes’.

To help I’ve put together this job bank page with links to help.

I have always found that the secret is to make a job of getting a job. What I mean is that you have to approach it like a project. You need to use your educational skills, project management abilities and communication skills to diligently hunt for more income.

Another issue that comes out in your email is one of self-worth or self-esteem. It sounds like you’ve been down for so long that up is impossible to set your aim on.

In your search for more income I don’t want you to find a third job, I want you to find a higher paying primary job. Even if you don’t think you deserve more than what you have right now, trust me, you do.

And I could tell you all sorts of mumbo jumbo that I believe in but let me distill it to say that as long as you feel you are not worthy to have a higher paying job, you’re not.

Theresa, bankruptcy, credit counseling, debt settlement and all the rest of the tools to use in problem debt situations will not help you, only increasing your income will.

And I did not forget about your $6,000 in 401(k) money. It’s just that unless we tackle those underlying issues that are holding you back, if you tap that cash, it will just be gone and the problem won’t be any more resolved than it is today. Don’t touch that 401(k).

Big Hug!

@GetOutOfDebtGuy

The Answer:

I Can’t Pay Sallie Mae – Carlos

Steve Rhode — Fri, 29 Jan 2010 20:24:38 +0000

From How to Get Out of Debt

Carlos

“Dear Steve,

Sallie Mae loaned me $10,537.50 on 08/31/1994. I started making payments on it in 2003. Have been in forbearance three times. I have already paid about $7,000 on this loan. he loan is on forbearance until 03/07/2009. Because of financial hardship I wanted to settle with Sallie Mae for $4,000. Total Principal to be paid $13,989.89, estimated interest to be paid during repayment $6,796.20. Estimated total I’ll be paying $20,786.09. PLEASE HELP!!!!

Here is the email I sent Sallie Mae on Monday:

To whom it may concern,
I have made my payments to date as best as I can. My loan is in forbearance until 03?07?2009. The company were I’m employed has had a 20? salary cut accross the board company wide. On top of that, it seems that the company might be closing real soon, it has already laid off 70? of the workforce. I feel that it’s just a matter of time before I’m let go. I would like to see if there is anyway possible for me settle on this loan for the amount of $4,000. This would be everything I have, but at least the debt will be paid off. Believe when I tell you, I have looked at every option to find the best way to settle this debt and not run the risk of defaulting on it in the future. I respectfully ask that you please consider my offer and let me know if this is feasible. Thank you in advance for your prompt attention to this matter – Best regards, Carlos

Here is their response which I received today:

DEAR CARLOS,

Thank you for your inquiry and for your business with Sallie Mae.

Sallie Mae does not negotiate reduced payment of your outstanding balance. If we may be of further assistance, please visit our Web site at www.salliemae.com.

Sincerely,
Customer Service

Is there any possible way to settle with Sallie Mae for less than the principal balance?

Carlos”

The Answer:

Dear Carlos,

Sallie Mae doesn’t need to settle on debt because they know that your obligation to them will survive even bankruptcy. Go bankrupt, they don’t care. They have all sorts of power. They can capture tax refunds, increase your balance by up to 40% as a penalty fee, and keep you treading water with no way to get out of debt.

Under § 523(a)(8) of the Bankruptcy Code, student loans are nondischargeable unless repayment of the loan would impose an undue hardship on the debtor. The burden of establishing undue hardship, by a preponderance of the evidence, is on the debtor. The Code contains no definition of the phrase “undue hardship” and interpretation of the concept has been left to the courts. In this Circuit, the applicable standard is the “totality of the circumstances” test as set forth in Andrews. In applying this approach, the courts are to consider: (1) the debtor’s past, current and reasonably reliable future financial resources; (2) the reasonable necessary living expenses of the debtor and the debtor’s dependents; and (3) and any other relevant facts and circumstances unique to the particular case.

The principal inquiry is to determine whether “the debtor’s reasonable future financial resources will sufficiently cover payment of the student loan debt – while still allowing for a minimal standard of living”; if so, the indebtedness should not be discharged. Bankruptcy courts are required to analyze a debtor’s student loans, and make a determination of nondischargeability of them, on a loan-by-loan basis. There is no authority in this Circuit for discharging only a portion of a particular loan. – Marie vs Citibank

I think the email response you got from them is fairly typical and I am sadly not surprised by it at all, even though Sallie Mae says they will work out individual repayment plans.

Sallie Mae does not offer an Income Contingent Repayment Plan (ICRP) that would allow you to repay your student loans based on what you can reasonable afford to pay. Just recently a judge ruled that because Sallie Mae failed to offer an ICRP option that a student would be unable to repay her student loans without undue hardship and allowed the student to discharge some of her student loan debts in a Chapter 11 bankruptcy which follwed a chapter 7 bankruptcy to discharge all other available debts first.

I’m afraid the news isn’t sunshine and lollipops when it comes to student loan repayment difficulties. I’d suggest that you talk to Sallie Mae about negotiating a monthly repayment that you can afford and if you can’t afford anything then go and talk to a bankruptcy attorney about a potential discharge of your student loans in a Chapter 11 bankruptcy because they pose an undue financial burden on you.

Big Hug!

@GetOutOfDebtGuy

I Found You Through Mary Hunt and Debt Proof Living. – Shelly

Steve Rhode — Wed, 29 Jul 2009 18:26:19 +0000

From How to Get Out of Debt

Shelly

“Dear Steve,

Thank you so much for this website and helping people like myself get out of debt. I was inspired by Mary Hunt and joined as a member on her website debtproofliving to work my way out of debt. I have over 36k of credit card debt and I am using Mary’s system to pay on this debt without using a debt program. So far so good but the interest is so high on the credit card debt. I did write my creditors to see if I could lower my rate but nothing happened, any suggestions?

Second my biggest problem is my student loan now close to $80k and has been in forbearance for several years because due to my credit card debt I can’t afford the $500 monthly payment. I hate that I am accumulating interest on these loans while in forbearance and I don’t qualify for the income plan because I make too much money.

I do have a good paying job the Lord has blessed me but I got myself into this debt and I want to try and do the right thing. I contacted direct loans but I was told it is nothing they can do for me except to keep the forberance going until I can pay the monthly payment. I did consolidate both my unsub and sub loans in a fixed rate at 5% which is good I think but again until I get my credit card debt paid off interest is increasing my loan amount.

Any suggestions with how I can work in paying off my credit card debt and working to get off of the forbearance on my student loan to avoid interest being added to the total amount of my loan soon to hit $90k all becuase of my loan in forbearance?

Shelly”

The Answer:

Dear Shelly,

I think I have a good idea what your initial reaction is going to be to my suggestion, but mull it over and think about it for a day or so.

Even in a credit counseling or debt management program you can’t get your interest rates to 0% anymore. So that approach is out. Besides, a debt management program is going to be about the same or higher than the minimums you are paying now.

So besides the IBR (Income Based Repayment) plan there is no way to get your student loans into an affordable program so you can repay them. Unless you do forbearance will only keep ratcheting up the balance. At this rate you owe more in total debt day-after-day than you are able to repay.

So where does that leave you, well, right where you are now and that’s not working for you.

The only way you can get all of your interest rates to 0% and/or be able to repay what you can afford based on your income, is going to be bankruptcy. Now, this is just about where I am convinced that I’ve lost you. But bear me out.

Many people think bankruptcy is for losers and cheats. That is just an urban myth that creditors want you to believe so you stay on the debt treadmill.

I’m not suggesting bankruptcy so you can walk away from your debt, not at all. If you want to repay all of your debt in full, you can, even with bankruptcy. Going bankrupt doesn’t mean you can’t repay your creditors because you feel it is the right thing to do. I’m suggesting bankruptcy because it is the only legal and binding solution you have to stop the credit card interest and let you focus on the student loan debt to stop it from climbing.

In bankruptcy you will either qualify for a complete discharge of your unsecured debt in a Chapter 7 or you will wind up in a Chapter 13 repayment plan that, guess what, is based on what you can actually afford after your student loan payment. And isn’t that the goal that you want to achieve?

Your student loans can’t be discharged in a Chapter 7 or Chapter 13 bankruptcy. And the student loan is your most troublesome debt. If you default on those loans you can have a collection penalty of up to 40% of the balance added to what you current owe, your wages can be garnished and tax returns intercepted. Basically, nothing good will happen.

Based on all the information above, your priority debt is the student loans. That’s the one that should be getting repaid first. Next, you should send what you can afford to the credit card companies, but that’s not going to make them happy. So you see, bankruptcy is the most logical approach to let you achieve your goal and prioritize your debts.

And if you don’t and you are not able to pay what you need to on the student loan then it will be $110,000 in four years years and you will just be deeper in debt.

The bankruptcy bottom line is that you can get the legal protection you need, the right priority to repay your debts, eliminate the credit card interest, and still repay your debts in full to honor your moral or religious commitments.

So what do you think. Does that approach make sense?

Big Hug!

@GetOutOfDebtGuy

Consumer Bankruptcy Attorneys Stand Behind Government Plan to Allow Bankruptcy Judges to Modify Mortgages

Steve Rhode — Thu, 19 Feb 2009 13:26:20 +0000

From How to Get Out of Debt

The following statement was issued today on behalf of the 3,500-member National Association of Consumer Bankruptcy Attorneys (NACBA) by bankruptcy attorney and NACBA president Carey Ebert of Fort Worth, TX:

“At a time when an estimated 6,600 American families are losing their homes to foreclosure every day, we welcome the Obama Administration’s support for changes to existing bankruptcy laws that will allow for judicial modification of home mortgages.The Obama Administration is the latest major player in this national debate to recognize the fact that judicial modification must be part of the solution to today’s worsening home mortgage foreclosure crisis.

It is painfully clear that the continuing, and indeed worsening, foreclosure crisis is perhaps the single largest impediment to this country’s economic recovery. We call on the banking industry to impose a moratorium on foreclosures until the Obama housing plan, including and in particular bankruptcy reform, has been fully implemented.

Just as important as forbearance by the banking industry is the need for action by Congress NOW. We agree with consumer advocates and others who say that Congress and the Administration should move with the same sense of urgency on curtailing this threat as they did with the economic recovery bill just signed into law.

Ever since the mortgage foreclosure crisis erupted into the public view in 2007, a broad array of consumer, civil rights, housing, community, labor and other organizations, as well as economists, have advocated judicial mortgage modification relief as an effective approach to stemming the growing tide of foreclosures – a solution that, unlike every other solution being considered in Washington, comes at absolutely no cost to U.S. taxpayers. This is one solution we know will work. The infrastructure already is in place. It is something the bankruptcy courts do every day with other assets. And, estimates are that this solution alone could cut foreclosures by at least 20 percent.

Data released by NACBA and others make it very clear that the foreclosure crisis will not be resolved through top-down voluntary efforts on the part of the financial services industry alone, no matter how many carrots or incentives are given. Judicial mortgage modification cuts through the impediments to sustainable mortgages. Courts must be empowered to implement economically rational loan modifications where the parties are unwilling or unable to do so on their own.”

ABOUT NACBA

The National Association of Consumer Bankruptcy Attorneys (http://www.nacba.org) is the only national organization dedicated to serving the needs of consumer bankruptcy attorneys and protecting the rights of consumer debtors in bankruptcy. Formed in 1992, NACBA now has more than 3,500 members located in all 50 states and Puerto Rico.

SOURCE National Association of Consumer Bankruptcy Attorneys, Washington, D.C.

I’m in a Debt Management Program and I Can’t Afford It. What Should I Do? – Anne

Steve Rhode — Mon, 02 Feb 2009 15:58:00 +0000

From How to Get Out of Debt

“Dear Steve,

I owe tons in credit cards and am in dept management. That payment takes half of my salery each month and now my student loans are out of forberance and i don’t qualify for financial hardship.

Is debt arbitration legitamite? They say they can cut my debt by 60% and my payments would be half of what I am paying in debt management which would free up money to pay student loans.

Thanks,

Anne”

The Answer:

Dear Anne,

A debt management program stops being helpful when the payment is not affordable. Once the debt management company that you are working with has trimmed your payment as much as it can, then that’s it. There is no “negotiation” involved here with your creditors. In any debt management program or credit counseling program the creditors call the shots and demand certain minimum payments.

Owing student loans is a serious issue. Defaulting on your student loans can result in a 40% collection charge on top of what you already owe, wage garnishment, tax refund interception, and even more bad stuff. Since your loans have been in forbearance (on hold) the balance that you owed continued to grow. Putting loans on hold as a way to deal with them might be good for the short-term but not a real way to deal with them for the long-term.

I think you need to stop fooling yourself with looking for some magic solution here for your debts. You tried debt management and it has not worked for you. Neither will debt arbitration, debt settlement or debt invalidation. None of these approaches deal with the true underlying issue that you need to focus on driving down your student loans now that you have exhausted your postponement and financial hardship periods.

I always encourage people to look into their options so they can be better informed and make better decisions. So click here for debt settlement information and see what they actually have to say about being able to reduce the amount you owe. Just keep in mind, if you are going to be paying money into a debt settlement fund, month-after-month, that is going to get you deep into collections with your creditors and possibly sued. You’ve stayed out of this queue by being in debt management.

I think you need to take a good hard look at bankruptcy here. If you are going into a monthly payment debt settlement program it will trash your credit, so will bankruptcy. but the irony here is that instead of spending years making payments hoping for a settlement, you can start a fresh new financial life within months through bankruptcy. Click here for a free bankruptcy consultation with a local bankruptcy attorney. I urge you to check it out as part of your research.

Big Hug!

@GetOutOfDebtGuy

Alex is Buried in Student Loan Payments

Steve Rhode — Thu, 04 Dec 2008 20:22:46 +0000

From How to Get Out of Debt

“Dear Steve,

I have Federal Student loans dating back to ’94/95. My situation was unusual. I first attended MBA school and left after a semester because I also got accepted to Law School at a different university. I went to Law School for a year and a half only to realize it wasn’t what I wanted to do so I left. I returned to MBA school and all the while I had been using student loans for both business school and my short term in Law school.

When I graduated from MBA school, I deferred my student loand until I could afford to make my monthly payments. I have deferred and used forbearance until today. I have no deferment elegibility left so I have to forbear. Unfortunately, the $680 monthly payment is too much for me to pay. I now owe approximately $108,000 in student loans. :-( I need help on how to takle this. I cannot afford that payment because I have a mortgage and other monthly bills. What can I do? I would greatly appreciate your insight and guidance.

Sinking deeper into student loan debts,

Alex”

The Answer:

Dear Alex,

I worry more and more about student loans as the years go by. It used to be that college was the preferred route to take to provide you with the skills necessary for a richer future, in many ways. But now, college loans are getting to be so expensive and such a noose around the neck of students, especially those like you that seek advanced degrees, that I’m no longer as supportive.

The graphic above is from a great New York Times article, “College May Become Unaffordable for Most in U.S.” that everyone should read. It challenges our old assumptions that college is within reach of young students now.

As I write this, your student loans are already 13 years old and you really have not even begun to start to repay them. This is a horrible problem. But your story is not unheard of. I’ve met many people that began law school, only to realize that it was not something that they wanted to do and so they quit or switched focus. Unfortunately that does not relieve you of your obligation to repay loans used for studies.

Since your student loans are not eligible for discharge in bankruptcy, you’ve really got one option, make suitable repayment arrangements. The ICRP (Income Contingent Repayment Plan) plan is probably going to be your best opportunity. See “Tiffany is Behind in Student Loans, Late On Other Payments, And Looking For Hope” for a more in-depth look at student loan repayment options.

Steve

How to Get Out of Debt With the Get Out of Debt Guy » forbearance

Alex Went to Law School, Business School and is Now Buried in Student Loans

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