Tiffany is Behind in Student Loans, Late On Other Payments, And Looking For Hope


“Dear Steve,

I’m a 23 year old college student and I owe around $40,000 in student loans, as well as having $8,000 in credit card debt. I was laid off for two years and just going to school (the debt obviously accumulated) and I just started working again for less money. I have been late on all my payments and I’m worried about what I’ve gotten into.

I am supposed to get married in 2 years and I don’t know how to get out of this mess. I have always paid my bills on time until now. I had to take this semester off of school because I couldn’t pay for it, and now the student loan company wants more then my salary each month in payments! I’m drowning and ignoring 20-30 calls a day from collectors. Is there any hope for my situation?



Dear Tiffany,

If your student loans are government backed, there are repayment opportunities that you can take advantage off that are reasonable, affordable and contingent on your income. What you need to ask for is an income contingent repayment plan (ICRP)

You can find out a lot more information about U.S. Department of Education collection options by reading the Department of Education publication “Options for Financially-Challenged Borrowers in Default”.

The Direct Loan Program offers loan repayment plans designed to meet the needs of almost every borrower. Direct Loans are funded by the U.S. Department of Education through your school and are managed by the Direct Loan Servicing Center, under the supervision of the Department. The Direct Loan Program allows you to choose your repayment plan and to switch your plan if your needs change.

To find out more about repayment options before receiving a Direct Loan, borrowers may contact their school’s financial aid office or the Federal Student Aid Information Center at 1-800-4-FED-AID (1-800-433-3243). If you currently have a Direct Loan and would like the exact payment amount on your loan, you can find it out online at the website for the Direct Loan Servicing Center or you can call the center at 1-888-447-4460.

Direct PLUS Loan borrowers may only choose from the standard, extended, or graduated options.

Standard Repayment

With the standard plan, you’ll pay a fixed amount each month until your loans are paid in full. Your monthly payments will be at least $50, and you’ll have up to 10 years to repay your loans.

The standard plan is good for you if you can handle higher monthly payments because you’ll repay your loans more quickly. Your monthly payment under the standard plan may be higher than it would be under the other plans because your loans will be repaid in the shortest time. For the same reason – the 10-year limit on repayment – you may pay the least interest.

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Extended Repayment

To be eligible for the extended plan, you must have more than $30,000 in Direct Loan debt, but you have 25 years to repay it. Under the extended plan you have two options: for fixed or graduated payments. Fixed payments are the same amount each month you are in repayment, as with the standard plan, while graduated payments start low and increase every two years, as with the graduated plan below.

This is a good plan if you will need to make smaller monthly payments. Because the repayment period will be 25 years, your monthly payments will be less than with the standard plan. However, you may pay more in interest because you’re taking longer to repay the loans. Remember that the longer your loans are in repayment, the more interest you will pay.

Graduated Repayment

With this plan your payments start out low and increase every two years. The length of your repayment period will be up to ten years. If you expect your income to increase steadily over time, this plan may be right for you. Your monthly payment will never be less than the amount of interest that accrues between payments. Although your monthly payment will gradually increase, no single payment under this plan will be more than three times greater than any other payment.

Income Contingent Repayment

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:

  1. 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
  2. 20% of your monthly discretionary income.

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.

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The maximum repayment period is 25 years. If you haven’t fully repaid your loans after 25 years (time spent in deferment or forbearance does not count) under this plan, the unpaid portion will be discharged. You may, however, have to pay taxes on the amount that is discharged.

Do You Have a Question You'd Like Help With? Contact Debt Coach Damon Day. Click here to reach Damon.

If Your Loans Are Not Government Backed

Options for repayment of private lender student loans are limited and few. Unless the lender has some provision for modifying the loan to fit within your income, you may be stuck.

Your situation clearly demonstrates the underlying issue that for many, student loans taken on with the assumption that they will lead to a better future, don’t always work out that way.

You can see an extended discussion of this in the article Lauren is in a Fabulous Foreign Country and Can’t Afford Her Student Loans.

I just hope that your loans are government backed so that you have some actual options to address this situation.

If the collection calls are getting to be too much, consider the solution I lay out in How to Hide From Debt Collection, the Debt Collector, and Creditors.


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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.
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