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Will We Ever Get Out of Sallie Mae Loan Hell? – Chris

“Dear Steve,

I’m a mechanical engineer of 8yrs, went to private engineering school, had to borrow full tuition/room/board for 4yrs. Racked up about $160k in PRIVATE loans (dad made too much to qualify for any federal $).

Married my wife and fellow classmate in 2010. She also racked up about $140k, *mostly* private, but some federal loans.

Predatory lending was in full swing when we started school in 2003 and 2004. Tuition went up about 10% per year, and (thank gosh!) lenders were quick to assure students we could borrow however much we needed. What was I going to do, uproot my entire education for a 10% tuition hike? That old adage of “just borrow whatever you need to get a good education, and you’ll just pay it off for a while but you’ll be fine!” rang out, from loan officers to financial aid consultants at the school, to our parents and even guidance counselors.

Together, we have well over $200k in student debt, the vast majority of which is private. I make about $80k/yr, and she is finishing grad school.

We have been living hand-to-mouth for 8yrs, since we first met, and there is no end in sight unless our income triples. I got a good job right after graduation, and (despite what the loan officers and “guidance counselors” told us), I’ve been one paycheck from being homeless since my first paycheck. We make our loan payments on time, but the sheer volume of principle is overwhelming.

What can I do to stop living paycheck to paycheck, when my wife and I owe over $200k in low-interest private student loans?

Consolidating our loans would raise my interest rates, so it’s not worth consolidating mine with hers. I can’t consolidate any of mine among themselves, because they’re all private from three different lenders. We don’t qualify for any of the federal relief programs, because our loans are private. I’ve been paying interest-only for years on my Sallie loan…principle amount borrowed in 2006: ~$75k. Current payoff amount: $71k. 7yrs of bank-breaking payments, and $4000 principle paid off. We are being bled dry, and the only relief they offer is “interest only” which, as you know better than I, is a losing, uphill battle.

We are so sick and tired of living paycheck to paycheck for 8yrs now, as two well-educated young adults making good money. We’ve been renting (of course), because our debt:income makes qualifying for a decent home loan laughably out of the question.

Should we just stop hoping for some relief, and accept that we will be relegated to living paycheck to paycheck until we retire in 30yrs, not being able to own a home, not being able to adopt a child, etc?

Thank you.

Chris”

The Answer

Dear Chris,

I hear you loud and clear. As you’ve observed there was a giant disconnect between the promise of easy money to go to college and the reality of paying it back. A more painful fact is the vast majority of people that owe student loans never got the benefit of the degree as you have.

Currently there are no good options for dealing with private student loans. You’ve already looked into consolidating and as you found out the interest rate is higher than what you are currently paying so that’s out of the question.

The Consumer Financial Protection Bureau (CFPB) has been looking into the troubles with private student loans but I have not seen anything on the horizon that would indicate new repayment plans are coming.

Hands down if student loans are owed the best ones to owe are federal government backed loans. At least there you have some income based options on repaying your debt.

One of the stranger things I’ve seen are loans serviced by Sallie Mae which are really eligible for federal relief programs. The best way I’ve found to tell if any of your Sallie Mae loans may be eligible is to see if they are listed in the National Student Loan Data System (NSLDS). You can find information here on that database and other options.

Some people have received offers to settle their Sallie Mae student loan debt for less than they owe. From what I’ve observed Sallie Mae sends out these offers when loans meet some internal configuration and there does not appear to be much someone can do proactively ask for a settlement. But in your case $100,000 settlement might be out of the question as well since you could not afford that.

So now we are down to the logical solutions. The first would be to increase income if possible. I know it’s obvious but I had to say it.

The second would be to make room in your budget if possible by eliminating your other debt to make the student loans payments easier. You can click here to find a local bankruptcy attorney to discuss this with.

A much more controversial approach is to default on the loans, wait to be sued and then attempt to negotiate a suitable repayment plan as part of the mediation with the suit. Or even to find a bankruptcy attorney that would include the student loans in an adversary proceeding with your bankruptcy. No matter what you’ve heard, even private student loans can be discharged sometimes in bankruptcy. Don’t believe me, read this.

The unlikely outlier solution in your case is that your school was not accredited at the time you attended. In that case the private loans would be almost instantly eliminated in bankruptcy.

Please post your responses and follow-up messages to me on this in the comments section below.


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About Steve Rhode

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.
  • Syntara Sarych

    I have a question. I am on disability and cannot afford my private student loan debt. My Federal student loans were all discharged in 2012 due to my disability. We filed for bankruptcy in 2010 because of the change in our income when I became totally and permanently disabled, but did not include the private student loan debt because the lawyer felt at that time that there was likely no cure for absolving that debt and if we really did want him to try, he was demanding we pay him an additional $2,500 in order to represent us in court regarding this remaining student loan debt. We didn’t have the available money to pay him to do that, so since the bankruptcy discharge, we have been limping along, trying to make payments, but when a disability health care cost comes up for me in a given month, it is either take care of my health needs or pay on the private student loans. Of course I choose to take care of my health needs, but this just gets us further behind in student loan debt payments. We try to get caught up again, and are able to make some payment toward the past due amount, but then SURPRISE! Another health care need arises and has to be paid for and once again we slip into arrears on the damned private student loan debt. Because of this, and by using all forbearance and reduced payment options these private student loan lenders offer, I am now some $6500 deeper in debt on these student loans than when I originally took them out. It has been the road to hell in dealing with these lenders who call every day, sometimes multiple times in a day and they keep calling even after I have set up an upcoming promise to pay and have given them my bank account numbers to allow them to make an ACH withdrawal from my account. They are relentless and I truly despise them. I have even called them seeking specific account information and had the customer service representatives refuse to give me the information I request and actually hang up on me. Even though I have not been in any way rude.Because I had a federal student loan with Sallie Mae discharged, they now won’t give me any access at all to my online private student loan accounts with them. I don’t know when, how, or even IF they are applying the payments I have made with them over the phone. I get a paper bill monthly in the mail from them, but it does not provide any account details so I have NO idea what they are really doing with the payments I send them. Both Sallie Mae and AES whom I have loans with, the law group I am working with say are two top worst private student loan lenders to deal with. I believe it. I have just begun to work with a legal group about this, but what about this possible other option for people who cannot afford or find a lawyer. Suppose they suddenly have the local Sheriff in their jurisdiction show up with law suit coming from the student loan lender and you are expected to go to civil court over your loans within say the next ten days? I know it is possible in most states to go to the Clerk of Court and file a Slow Pay Motion. In doing this, you list all of your expenses and what you know for fact that you can afford in monthly payments to the entity who is seeking to sue you? In my state of Tennessee, you have 10 days from the date the Sheriff hand delivered to you the notice of a pending law suit. When you file your slow pay motion, (with our without the help of a lawyer), you can let the courts know your circumstance and what you say you are willing and able to pay the suing creditor monthly to resolve the debt. Please be sure to ONLY state what you are SURE you can reasonably pay in monthly debt obligation to this creditor because if you miss just one payment, the balance you owe will become immediately due and payable in full. I know you can do this for other debts for which a law suit against you is pending, but what about student loan debts?

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