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I’m Paying My Credit Card Debt But Stopped Paying My Navient Private Student Loan

By on October 24, 2017

Question:

Dear Steve,

I took out a Private student loan with Navient of $5000 in 2007 with my grandmother as the co-signer. Since graduating in 2014 the student loan as doubled with interest and fees to $10000.

When I graduated, I struggled financially so I placed the loan in forbearance. A few years later, I began making payments because I was advised to ‘just send them something.’ The calls began and continued to come as I wasn’t making full payments. I agreed to participate in the rate reduction program paying $78 a month for a year. After that year, the the rate increased to 4% (up from 3%) and the bill increased to $80. I slowly released that this bill would continue to increase and the interest would continue to increase as well, at no benefit to me, only to benefit Navient. So I stopped making payments.

I requested a fixed rate and fixed interest so that I could pay off the loan and so that the rates wouldn’t continue to jump. They have to date refused. Right now, I am 90 days past due. I do not have a rainy day fund, but with the money I have been saving from not paying the bill, I have been paying off medical/credit card debt. I have also spoken with my grandmother who is now 70–she is okay with me not making payments at this time. I’m hoping that I’d be able to come to an agreement with Navient OR get a judgement from the court that will be fair. I think it should also be noted that I have a Federal Student Loan as well, but I do currently work for the Federal Government.

My question: is the hit my credit score will get from me not paying payments be worth it? I’ve read that I can take a direct hit immediately, which I have seen already, and then a hit as it continues to be reports. I’d like to buy a house in a few years and I don’t want this to be a hindrance to my goals.

Marie

Answer:

Dear Marie,

First off, make sure your federal student loans are consolidated into a Direct Loan and you have opted to pay it off under the IBR program if you think you may be married. This assumes you will work for the federal government for at least the next 120 months. If so, then the balance of your federal loan may be forgiven under the Public Service Loan Forgiveness program.

On the private student loan, since your Grandmother is a cosigner she is 100% responsible for the debt and your default may lead to her being sued and collection calls. It will also hit her credit report, like it will yours.

How much credit card debt and medical debt do you have? Please post your update in the comments section below.

Since this is a Navient private student loan, they will settle the account for less than you owe. Even if you are sued over the debt they will still settle.

The biggest issue you want to avoid is not approaching the debt without some strategy. The worst thing you can do is just ignoring the debt when the collectors start to call.

To get ready for your future home purchase we need to address the debts as quickly as possible, rebuild your credit, and come up with some solution and strategy to put this behind you.

If you are going to insist on just defaulting on the Navient debt you should think about contacting an attorney who specializes in dealing with student loan debt or a knowledge professional like Damon Day who can coach you through this issue.

The amount of credit card and medical debt is the most important question here. I need to understand the size of the debt and how long it is going to take you to repay it all. It’s possible bankruptcy might be an appropriate solution to put that behind you, focus on settling the Navient private student loan, and get straight back to rebuilding your credit.

I look forward to your update in the comments.

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About 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.

6 Comments

  1. Marie

    October 25, 2017 at 12:48 pm

    Thank you for your advice!

  2. Marie

    October 25, 2017 at 8:06 am

    Sorry Steve, I meant to say $8500 in ‘unsecure debt.’ That includes my credit cards and unpaid medical bills. The only other loan I have is my car loan. No home mortgage.

    • Steve Rhode

      October 25, 2017 at 9:33 am

      I think it would be a mistake to divert any money towards the unsecured debt in light of the fact you have no emergency fund or saving account. Without that in place all it will take is one unexpected situation to land way back in credit card debt again. The defaulted student loan is going to land you in collections and your balance on that debt will exponentially skyrocket with collection fees and penalties.

      You need to look at the total situation and sending any money towards the unsecured debt or entering a debt management plan on that debt would be a decision I would urge you to get a second opinion on.

      I need for you to have an overall game plan and not a reactionary plan. Logically, it would be cheaper to file bankruptcy to discharge $8,500 to avoid an additional $3,000 penalty on your private student loan. I gave you some resource links but I can’t stress enough how much you need an overall strategy to deal with your current situation and future and not just a debt management plan to deal with only one aspect of your situation.

  3. Marie

    October 24, 2017 at 3:17 pm

    Hi, I’m Marie. I currently have about $8500 in student loan debt. Since posting this question, I have since contacted a debt management company that will be assisting me with closing some of these accounts and paying off the debts in 4 years.

    • Steve Rhode

      October 24, 2017 at 4:24 pm

      But how much unsecured debt do you have?

  4. Marie

    October 24, 2017 at 2:57 pm

    Navient private student loan default question asked.

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