Question:
Dear Steve,
Hi, I’m currently in bankruptcy which will be done in a couple of months for my $20k in credit card debt. However, my next battle is to figure out how I will pay for my $190k in student loan debt. These are both federal and private loans. Private loans from Sallie Mae. And they’re not offering me an affordable repayment plan at the moment due to the bankruptcy. But I know I cannot afford the interest-only, which is over $1k a month.
Also, I have a toddler at home and another one on the way and studying for my nursing boards, but I won’t be working for another 5 to 8 months, if not more. So I’m thinking about going in default, but I also have cosigners, and one of them is my ex-husband, who is very adamant about trying to get him off my loans, and IDK how I will do that due to having a bad credit score. So I’m stuck and need some advice.
What should I do about my student loan debt if I can’t afford it? And with a cosigner on my private loans, I don’t want to default with them on my student loans.
Nahyun
Answer:
Dear Nahyun,
For the federal loans, I would ask you to consider consolidating those into a new Direct Loan and then electing one of the Income-Driven Repayment plans to give you the lowest monthly payment possible. The payment can be as low as zero dollars a month, dependent on your income.
Income-Driven Repayment plans are good and bad. On the one hand, they give you a payment based on your income. On the other hand, they can increase the amount you will owe. You should read Why Income Based Student Loan Payments Can Be a Terrible Trap.
Private loans are a different issue. Depending on the school you went to, and how you used the loans, there is a slight chance the loans might be discharged in bankruptcy. However, this is a very technical issue that requires a consultation by an experienced student loan attorney or someone like a debt coach similar to Damon Day.
Intentionally defaulting on private student loans can be a strategy as long as you understand the consequences to your credit and the fact that the creditor could sue you. This type of planned defaulting is called strategic default.
A strategic default is a strategy some use when they have run out of options with the creditor. It might seem a bit crazy, but the purpose is to get your account moved into a different status where other payment options might be available.
In the case of private student loans, this can include settling the loan for less than you owe with payments over some years. Again, I would urge you to discuss your situation with Damon Day who can guide you through the process with his years of experience helping others.
However
The big issue here is the cosigner. When someone co-signs for a loan, they agree to be 100 percent responsible for the loan repayment. That is what they signed up for.
When you strategically default on the loan, I would expect Sallie Mae to go after the cosigner. But there are some strategies for dealing with this, such as a cosigner release. Even though something like that exists and your ex-husband may want to invest some money into getting released, there is a correct and incorrect time to do that.
Conclusion
There is a solution. There is no perfect solution. Seek competent and experienced professional advice to guide you through your specific situation.
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