I need to figure out my options:
On my undergraduate private student loan with Discover, its about $91,000 owed with an interest rate of 10.1% and current monthly payment is about $820. This doesn’t count the other 4 small loans (2 with Discover, 1 with Firstmark, and 1 from AES).
The main loan originated with Citi, and was consolidated with them, until they were purchased by Discover a few years ago.
I also have about $10,000 in federal loans (serviced by Granite State Management).
I also have $10,000 in credit card debit that (of course) isn’t getting paid off.
Months ago I discussed this with a lawyer, and she recommended to stop paying on the loans because the worse they can do is garnish my wages which under NYS law is 10% of the gross pay ($222 a month) for at least 10 years. Yet doing this increases collection fees and other detrements.
Granted I realize that it would destroy my credit but my score is at, as of this writing, a 564. My wife had to get the mortgage under her name only because no one would accept me plus I could barely finance a car without her co-signing it.
What I would is the best solution possible that protects my wife completely plus the house. I realize Discover could put a second lien on my car yet the house is the most important thing. Her credit is good (low 700’s) and I don’t want to drag her down in this.
I understand the near impossibility of discharging the student loan through bankruptcy, yet paying this one loan per month constitutes at least 55% of my net pay. I also wish Discover would listen to me and just settle or refinance my loan but I realize they don’t need to since they have nearly all the leverage.
Should I file for bankruptcy and hope for the best?
Should I stop paying this loan in the hopes to draw a hard line in the sand so that Discover realizes that settling would be prudent and I can get better terms?
How would any of this affect my wife since there is no co-signer to the student loans?
Your debts are your debts. From what you’ve said it does not sound like you are on the deed or the mortgage for the house. That would be a good thing right now.
The lawyer you met with gave you some good advice. Faced with a situation where there is no way to force private student loan lenders to do much in the way of adjusting a payment to fit your capabilities, strategically defaulting is an option.
In fact you may want to read Top 10 Reasons You Should Stop Paying Your Unaffordable Private Student Loan to understand what the pros and cons are of defaulting.
Intentionally defaulting with the representation of a lawyer in your state is a legitimate approach to take in the face of no other good option. If you understand what the risks are and you are prepared for them then the lender and collector will be less likely to manipulate you.
Can your interest rate go up and can collection fees be added to your debt – they can. But isn’t the real issue here that the current approach is actually unsustainable for you.
Some private student loans are better candidates for discharge in bankruptcy. Read These Private Student Loans Can Be Easily Discharged in Bankruptcy to learn more.
It sounds like you’ve already talked to a knowledgeable attorney but here is My List of Student Loan Attorneys You Should Consider for Assistance that I tell people about when they are looking for an attorney.
In a difficult situation like yours there are no easy solutions but that doesn’t mean there are no solutions.
You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
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