What Direction Should I Take to Deal With My Student Loans?

Question:

Dear Steve,

I recently graduated from veterinary school in 2011. Since then I have been trying to pay back my student loans. I was advised to consolidate my loans in 2012 because if I did this I would only have to pay for 25 years and then whatever debt was left would be forgiven.

When advised what the standard payment on the graduated payment would be I was unable to afford such a high payment being a recent graduate. I was then guided to the income based repayment option and I was given a total I was to pay back every month based on my income.

When I signed up for the income based repayment I was not advised that I could only stay on this repayment plan for 3 years to still be eligible for the 25 years repayment and forgiveness. Also at this time I thought when I did the consolidation all of my loans had been consolidated.

When I called this year to check on my income based application to see if it had been approved I asked how much the payment would be to keep the interest at bay a month. I was advised I would have to pay $1915 dollars a month to keep the interest at bay. I have no way to make that payment a month I advised them and live financially, hence the reason I am on the income based repayment plan.

I then asked them if I payed for the 25 years would my debt that was remaining be forgiven and she said yes but I would pay taxes on the remaining amount at the end of that 25 years because I was not making a standard payment a month. I advised the agent on the phone I was never made aware that I would have to pay taxes on the remaining amount or that I could only be on the repayment plan for 3 years before I would have to make a standard payment to not pay taxes on the remaining balance at the end of 25 years. I also was then advised that only 5 of my 21 loans were consolidated.

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So my question is that I will never be able to make the payment that just keep the interest at bay on my loans and live financially. I can and would like to keep paying on my student loans but I am not even touching the interest and now I have loans that consolidated and in 25 years and I will have to pay a huge sum of money for the taxes on the remaining balance. I will not. Be able to save for retirement or have a family if I have to give my entire paycheck to paying my student loans. I need help into which direction I should go to get help for this situation.

Lesley

Answer:

Dear Lesley,

Wow. None of this makes sense. I have no idea what people may have told you.

Income based repayment programs, of which there are more than one. See The Ultimate Guide to Dealing With Student Loans You Can’t Afford.

The other issue you need to be aware of can be found in Why Income Based Student Loan Payments Can Be a Terrible Trap.

But it sounds like you were signing up for a forbearance or deferment program. These just inflate the balance you owe because interest builds as the payments are avoided. But this is a different program than an income based repayment approach.

In an income based or income contingent program you would recertify each year and your payment would be calculated based on your income. As long as you remain eligible you could last through the entire 20-25 year forgiveness program.

As you noted, at this time the forgiven federal student loan debt would be taxable if you are not insolvent.

Based on the complexity of your situation and the multiple loans it sounds like you could use some handholding to get this all resolved. I no longer work with individuals but my friend, Damon Day, does. Please consider asking him to help you deal with this once and for all.

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Outside of that, it sounds like a number of people have given you partial or inaccurate information and the danger is that kind of bad advice can really make your debt explode.

Sincerly,
Steve

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.


Damon Day - Pro Debt Coach

3 thoughts on “What Direction Should I Take to Deal With My Student Loans?”

  1. I have an upcoming hearing with MI Guaranty Agency. I do not dispute most of debt but they are attempting to collect on some 1995 debt with no promissary note and i never went to school in this time. In your opinion, should I retain counsel for this. I need to avoid garnishment as well due to causing hardship, I really do not want to be placed in a situation where i can not pay for my home and other bills. Finally, what have been other outcomes to these hearings, do a fair payment vs garnishment happen frequently than not?

    Reply

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