Question:
Dear Steve,
I applied to The Savannah College of Art and Design in 2007. When I found out I got accepted, the first thing I did was start to figure out how I was going to be able to pay for it. It is a private university, and very pricey.
I was young and naive and I thought to myself “I am not going to let money hold me back from getting an education.” Well, hindsight is 20/20 and if I knew then what I know now, I never in a million years would have gotten myself into this mess. It is not worth it.
My dad knew nothing about the process of financial aid, or taking out student loans, and obviously at 17, I didn’t either. We just kind of figured it out as we went. I applied for the financial aid through the school, and somehow didn’t get much. I think we must have done it wrong, because I had no money, and my parents made very very little. To this day, I have no idea how we didn’t get more, because my parents had no money saved, didn’t make any money, and were not going to help me financially.
The scholarship I got was only $12,000 a year, and not even a quarter of the cost of tuition for the year. So, after the scholarship and the financial aid, I was left with a huge chunk of money that I still needed to pay the yearly tuition. So, we just picked a bank and applied for a private student loan.
I did that every year, (sometimes twice in a year to cover costs), and ended up with 5 private loans. (This is in addition to taking out $25,000 in federal loans over the years.) It only took me 3 years to graduate with my B.F.A., but I was left with well over $100,000 in debt, most of it being in private loans.
I put off the federal loans for as long as I could. After a couple years of paying my private loans, I learned about consolidation. I consolidated the 5 loans into one, which hardly reduced my monthly payment. As of now, I am left with 12 years on this consolidated loan, and I still have around $90,000 left to pay (on the private loan). With private and federal combined, I pay a monthly total of $1,100/MONTH. I have tried literally everything to get this payment lower. I’ve talked to financial counselors, I’ve talked to lawyers, I’ve tried to sell my debt again and refinance it. No one can help me, and no company will take on my debt. I am almost out of forbearance time, since I have gone through a few rough patches financially and had to use forbearance time (in which I wasn’t paying the interest either).
At this point, I don’t know what to do. The biggest problem is that my father is still on as a co-signer. I was told I could have him released from the loan after paying for 12 months straight. But, I have come to find out that my request to have him released will be denied because I do not have enough lines of credit.
I wanted to just default, but I can’t because it will ruin my dad’s credit as well, and I can’t do that to him. The lawyer I talked to said I cannot file for bankruptcy because the judge will say that I have the potential to make more money in the future and pay the debt (I won’t. I have a degree in Printmaking. Little did I know while I was in school- there is no lucrative career path for printmakers).
I live in New York City, where rent is out of control, and it is literally impossible to save money. With a $1,100/month loan payment, I can barely afford to pay that + my rent, and still have money for food. I have been struggling for 5+ years now, and I just can’t take it anymore. It seems illegal to have a loan payment that high. I cannot believe that there is no way to get it lower. I am out of options. I don’t know what to do anymore.
What are my options? What really happens when you default on private loans? What is the process of them suing me and taking me to court? How much would that cost me? Is it really worth it? I need to release my co-signer first before I do anything, but how can I do that? Should I talk to someone about filing bankruptcy again?
No one ever takes into account all of my other bills and debt when they look at my loan debt situation. Who else can I talk to? Are there any other free resources for people to go and talk to a debt counselor? I am at my wit’s end. I can’t keep paying $1,100/month for the next 15 years if I want to have any kind of normal life. At almost 30, I should have some kind of savings account by now, but it’s impossible. What else can I do?
Hollie
Answer:
Dear Hollie,
Since you live in New York City you have access to the excellent New York City Department of Consumer Affairs that provides free counseling services for financial troubles.
I’m surprised that following the consolidation of your federal loans that it didn’t lower the payment much. Did you place the consolidated loans in an income driven repayment program to lower them as much as possible based on your income? It doesn’t sound like you did because otherwise your low payment would be up 25-years. The programs have the pro of lowering your payment and leading to possible loan forgiveness. But they also have these cons.
You can certainly apply for a cosigner loan release on the private loans. The banks have fluid criteria to determine if the release will actually be granted. The Consumer Financial Protection Bureau (CFPB) found that most requests were denied.
As long as your father remains a cosigner he remains 100 percent responsible for the private loans if you do not make at least the mutually agreeable loan payment with the lender.
The issue of private loan affordability is an interesting one. While we’d like to have lenders be responsible for determining if the loans they are willing to offer are affordable, they have no such obligation. Any lender can approve any loan they are willing to take the risk on, without consideration of your ability to afford it. If they are willing to take the risk and you and a cosigner are willing to accept the risk, then the loan can be granted.
There are possible options if you default. Lenders have negotiated better repayment plans or have reduced the total balance due. However, if you are unwilling to have your father dragged in then you should stop reading now. As long as he is a cosigner, any actions you take, other than a mutually agreeable payment, on your loans will impact him and his credit score.
Even if you filed bankruptcy, which there is an argument for under the Totality of Circumstances test, the lender will go after him for the balance due.
The least impactful way to deal with the private student loans is going to be for your father to help you make a monthly regular payment that is not on a forbearance plan. Those interest only plans just inflate or maintain the balance, not reduce it.
If you do decide there is no other option but to pursue a private student loan default or you would like to talk to an attorney in NYC about the bankruptcy option, then I would suggest you talk to attorney Jay Fleischman.
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I’m on IBR, as well. I’ve read that Trump is planning on undoing Obama’s changes to this program which will increase the payments from 10% of income to 15% and increase the time payments need to be made, before forgiveness.
Will people already on IBR be grandfathered in and left on the lower payments or should we all expect to have payment increases soon?
Excellent question. Right now all we have is a best guess on what will happen. The reality is some of the options for federal student loan debtors was created by executive orders that can be rolled back. You should read https://getoutofdebt.org//100293/need-know-trump-student-loan-forgiveness-program and https://getoutofdebt.org//100302/trump-prospects-rolling-back-student-loan-repayment-programs
Question asked.
Question answered.
Well, I have already had many appointments with the Dept. of Consumer Affairs. They were really nice and tried really hard to help me, but in the end, nothing could be done.
Speaking of consolidation, I did consolidate my federal loans, and it saved me about $70 a month, which is great. But consolidating my private loans didn’t lower it much at all, and that’s what I was referring to. And now that I’ve already consolidated both private and federal, there’s not much else I can do.
Also, surprisingly enough, I don’t qualify for income-based repayments. It wouldn’t lower my payments at all, I’ve already tried looking into it. It seems unfair that they don’t consider your other debts/living expenses when taking this into consideration. I’ve asked a million times.
And finally, my father will not help me with my payments. I’ve sucked it up and asked him, and he says no. So, that is not an option.
As you can see, I am pretty much stuck in this hole of not being able to afford to pay the monthly payments, and not being able to do anything about it without ruining my father’s credit.
It seems like there is no one out there who can help me.
The big issue is private student loans are much like just a regular loan. Federal loans have payment options because Congress and presidential administrations have put options in place. Private lenders simply have no obligation to offer any such related option. Although bills have been proposed in Congress I see no evidence that Congress is going to force these private corporations to alter the legal terms of the loans they issued. It would be unprecedented as far as I’m aware.
Based on the limitations you’ve defined of not impacting the credit of your cosigner, you are limited. But you do have options that have benefits and consequences. Other people have said to their cosigners, unless you can help me out to protect your credit, this is what I’m going to have to do. Other people with unsecured consumer debt that is coming out of their budget have filed bankruptcy to discharge that debt and make more income available for loan payments.
Income driven federal programs are based on the definition of discretionary income. “For Income-Based Repayment, Pay As You Earn, and loan rehabilitation, discretionary income is the difference between your income and 150 percent of the poverty guideline for your family size and state of residence. The poverty guidelines are maintained by the U.S. Department of Health and Human Services and are available at http://www.aspe.hhs.gov/poverty.” And this formula does not take into account the expenses people have opted for. But this formula is similar to other federal government debt repayment formulas. The IRS can provide even less consideration for expenses.