Question:
Dear Steve,
Great credit and can afford student loan payment, but I can only afford the interest only payment. Any options for a guy who wants to pay his student loans off, but hates how Sallie Mae, Navient, etc work?
Essentially I need a 0 percent 30 year loan and I could pay these things off.
I know I know I am the crazy guy that wants to pay my debt. I have an 800+ credit score that I am extremely proud of, a wife, 2 little girls and a new house that we built. I make roughly 6 figures but at the end of the day I cant really afford to pay more on my student loans and the first 5 years I have been paying interest only. (This makes me insane). Child care costs me $2500 per month, mortgage is $1400, and Student loans are $600 ($96,000 debt for undergrad and post grad combined). That leaves about $1000 left for all the other expenses, etc.
I have scoured the earth to find an option that will allow me to secure a loan in order to pay these loans off. Im at the point of looking for some sort of charity that loans money and allows you to pay back when you can or maybe an angel?
I find myself struggling to try to do a second mortgage to pay these off, because in some small space in my brain I think the government will figure out a way to correct it. BUT THERE IS JUST NOTHING OUT THERE FOR RESPONSIBLE PEOPLE! Everything is geared to the person not making enough money… I am not paying the loan down because I cant afford it, but I make too much money for them to do anything for me…
PLEASE HELP…
Nick
Answer:
Dear Nick,
This is a hot topic for sure. If you read what some people say in response to questions like this they will say you should downsize everything and repay all the loans as you agreed to. Check the comments from this post to see how some people feel.
So is your request unreasonable? I’m not sure about unreasonable, but it might be unrealistic.
It’s not clear if you have private or federal student loans. If you have private student loans and you can’t find anyone to give you an interest free loan as you desire, then your logical choices are to increase your income and/or reduce your expenses to all you to make the full student loan payment due.
Paying interest only is just going to drain money from your pocket without ever reducing your debt. That’s not a sound longterm strategy.
Government programs are available for federal student loan holders and can be found here. But even those income based student loan programs come with consequences and can be a terrible trap. Don’t believe me? Read this.
Ultimately, having a great credit score is not the ultimate goal in your situation. While you have a great score, you are apparently slowly drowning in your obligations and unable to dig yourself out. You are also unable to find any lender who will give you an interest free loan for 30 years.
What you are in search for sounds a lot like the Muslim approach of zakat to help those in need, interest free. Outside of that, I have never heard of any private student loan program that would fit what you are looking for.
But when it comes to federal loans, the Public Service Loan Forgiveness program comes very close to what you are looking for. Under that program, your federal student loans would be completely forgiven after ten years. You’d be halfway through.
I’m not sure if I can stand to look at what people are going to say about this in the comments below.
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Hey Hey Hey… Its the crazy leper that asked the original question.
For clarity for all the intelligent people out there. I AM TRYING TO FIND A BETTER LOAN OPTION TO PAY THE DEBT! I CAN afford the payment, I am just irritated by the fact that my payment was interest only up front, my payments now only about $50 goes toward the principle balance and when I chose to pay more on the loan, Sallie Mae just paid that toward the following months interest. My wife works, daycare expense is virtually the same everywhere in the area I live, believe me I have looked and had many a fight with my wife about it. Yes, I could give up some things in order to make a little more of a payment, but it is not going to fix the fact that I have paid over $5000 per year in interest and about $600 in principal. Below are my bills, which are actually pretty reasonable ( I have several friends with much less of a house and are paying way more per month)
Rent/mortgage $1,400.00
Electric $165.00
Gas $85.00
Cell phone $138.00 (for 2 phone lines)
Groceries $600.00
Car payment (N) $290.00
Student loans (N) $600.00
Credit cards $0.00
Auto Insurance $113.00
Home Insurance: $95.00
Personal care $100.00
Entertainment $100.00
Kid diapers, Cat food (1) $300.00
Car payment (S) $260.00
MSD $40.00
Trash $80.00
Water $80.00
Student loans (wife) $150.00
Cable, internet $88.00
Child Care $2,440.00
Life Lock $10.00
Gym $0.00
Alarm system $40.00
Gas for Cars $300.00
Dance Class/ other $80.00
Prob a few other auto payments I may be missing…
As I said, there is not a reward for being responsible… there is only a reward for being a degenerate. Silver Lining- all those forgiven loans are going to get hit with a huge tax bill once they are forgiven because the govt is looking at that as income. Guess I will miss that bullet.
Also for the record, my wife works, she makes a little more than what covers child care. Our total monthly income is $8962 and our total Expenses are $8465 (roughly). That leaves about $497 for any other expenses (my daughter was in the hospital over Christmas, $4000 medical bill on top of Christmas presents for everyone ($800 for 2 large families) BOOM no extra money… introduce credit card debt… (Yes I use them when absolutely necessary.)
Im not dumb with money, I want to live as a modest, middle class person, I just want to pay the loans off with a loan that is reasonable.
Nick
Hi Nick–
Under the regular loan forgiveness program (25 years of payments before forgiveness), it’s true that the forgiven amount is taxed as income. However, under the public service floan orgiveness program (loan forgiveness in 10 years), taxes are NOT assessed.
I was not able to locate the specific website where I found this quote, but while I was researching the public service loan forgiveness program a while back, I had emailed this quote to a colleague who was also interested in the program:
“The 10-year public service loan forgiveness is not taxable under section 108(f) of the Internal Revenue Code because the forgiveness is restricted to borrowers who work in specific occupations. However, the 25-year forgiveness for borrowers who don’t work in public service careers will represent taxable income to the borrower under current law.”
That is correct.
Yeah… I actually took a second job teaching Marketing for the University of Phoenix at a physical campus where I live. Unfortunately, I have to travel for my job and I was unable to continue teaching. : ( So the 10 years didnt make sense.
Sorry to hear that!
I hope you will be able to find a solution for yourself.
You dont have to defend yourself. Dance class, cable, children. You say you live modestly, but for a lot of people thats extravagant. Most likely you have fallen into the same trap, many have. You care too much about impressing people. Reminds me of fight club. I live in a shitty apartment in a shitty neighborhood. Im not afraid to die. MUCH BETTER PEOPLE than i have died for stupid things like race or sexual orientation. I am free, because i dont care what people think. Oh, you dont like my hair or teeth. HAHAH i dont give a fawk, cus eventually i will die and none of this will matter.
Although I agree with these other commenters about cutting back, it isn’t so that you can sink that money straight into the interest on these student loans, oh no. Instead continue the path you are on for paying back the loans (aka NEVER) and instead use the budget cuts you are making to build up a nice cushion of money – NOT in a bank account in your name, perhaps in a trust or other situation that will preserve the funds for your family.
Then once you have some nice cushioning (multiple cushions preferably) so that you wont have to worry about your or your families well being, look at a lifestyle overhaul, including perhaps, a change of positions, residences, or careers.
Your job will NOT be around for ever, even if you merely retire at 75, you will have to adjust to a lower income – now is the time to prepare for that adjustment.
If keeping your credit score high is one of your life’s goals, you need to understand that having those loans hanging overhead like a Sword of Damocles is the cost to having your current lifestyle and credit score.
Your other option is either a huge hit to the credit score or a huge hit to your lifestyle. Or, if the creditors have anything to say about it, both.
Personally, if I were in your situation, I would both cut way back on expenses in any way I could, and find additional income, and sell as many assets as I could bear to part with, build the cushions I talk about above as quickly as possible, then hold back on paying them for 3-4 months, once they start getting pushy to get their money, call them up, tell them that you cant keep making even the interest only payments but do have a lump sum (a reasonable chunk of the cushion you saved, probably at least 30% of the loan principle) and if they are willing to let you pay a settlement of that amount to declare the loan closed and settled (make certain you have this agreement in writing of course) and get out from under the debts. It will be a hit to your credit score but nothing you wont be able to recover from fairly quickly as long as you still have your current job.
When we had kids, I quit working to stay home. Made more sense than paying daycare. I took care of other kids. Our girls are now 14 and 16 and I am still home, taking care of them and my parents live with us. Get strict with your budget and get out of the students loan debt and then get your life back. Spend 10 yr in serious payoff mode and then you have the rest of your life to enjoy the big house, etc.
I totally agree. So you have a great credit score. So? Are you currently in need of buying something on credit? I was big on keeping our credit scores high, and then it hit me: High credit scores for who?
Did it matter since we could buy what we needed without resorting to buying on credit? What exactly best served US? High credit scores, or less existing debt? Even if, until we got rid of our debt according to OUR terms; not some glorified, but nonsensical credit score, and unshackled ourselves from debt that creditors LOVE to keep you in.
We may be a capitalist nation, something we’ve been since the inception of our nation, but it has only been within the last 100 years or so, that we became a CREDIT BASED capitalist nation.
You may know that Islamic nations feel that charging interest on any loans is sinful. All the same, you won’t hear of economic ups and downs (including recessions and depressions) occurring in nations that are opposed to the notion of “buying on credit.” In the past, even the Pope and the Roman Catholic Church felt interest bearing loans were taboo.
And indeed, any good economist in America will tell you that fluctuating economies with their ups and downs are just a factor that will repeat and repeat in any credit based economy.
My grandfather, a Rhodes Scholar and long time editor in chief of a major U.S. newspaper for decades before his death, along with my grandmother, never took out a mortgage. They started with a small house, and were ready for something more accommodating after five children came along.
They paid off their little house, and paid cash for the house they had I most remember. It was 3 stories, plus attic and basement, had separate stairways for the live-in help who slept on the third floor, with the grand Victorian era sweeping front staircase predominating the front hallway, with its cut glass lamps topping all of the staircase’s knewel posts, bottom to top, which I loved to play around with until the grownups got tired of me and I was confined to only using the servants’ staircase at the rear of the home until I learned not to mess around with the cut glass kennel post lamps on the grand front staircase.
I’m not trying to brag about “family,” I only use this example to say that before mortgages became the standard, my grandparents purchased this large home for $7,000 in total, up front.
Now imagine what the true cost of goods might be in the America of today if buying on credit simply didn’t exist. It’s said t the mrket will charge what the market can bear.
In this age, what the market can really bear is artificially inflated due to buying on credit. That concept first became popular at the turn to the 20th century…And what happened soon thereafter? The Great Depression, made all the worse because many more things (washing machines, refrigerators, etc,) had been purchased “on credit” and merchants had just begun to get used to the benefits obtained through consumer credit-based purchases and how lucrative credit based sales were for merchants.
Whereas before, merchants made money off of the sales of goods, with their inception of buying on credit, the sale of goods became more like “the gift that keeps on giving,” when the interest on the credit purchase might even double or triple the true price of the goods formerly only sold on a cash and carry basis.
Credit based capitalism helped create Wall Street, with all of its position especially and negatives affecting all of us to fair extent, whether we played the market or not
Me? I do not like credit based capitalism, and avoid credit and buying on credit as much as possible because credit based purchases enrich the seller and steal from the buyer. Even if it is convenient, do you really like it that much when you realize you are paying for something purchased on credit several times over before you truly own it?
Now, about your stated $2,500 monthly childcare expenses. Gracious me! What kind of childcare costs that much?
You may want to keep in mind that there is a good way to leverage credit and a bad way to do so. I can use credit cards for an extra level of protection plus get rewards for doing what I actually do on a regular basis. If you spend a large portion of your paycheck on transportation find a way to at least get something back for it without changing your spending habits to benefit the credit card companies. Doing just that has helped me recover money on what would have just been spent and lost. Getting cash back for groceries? What about travel for hotels or airlines?
When I go travel to job interviews I can get free nights at hotels, I can get cash back for buying gas, etc. The reason credit is so easy is because people feel they can just spend and they get into the trap of spending more, thinking it’s some kind of investment. I always try to utilize my cards (three max) to exploit money/benefits for what I already do and not spend a penny more than I have to. I got back nearly $500 last year alone because I had to spend outrageous sums on transportation and now I can use that money and the benefits from another card I utilized to severely cut costs on travel to other areas for job interviews.
You can try hacking credit card benefits if you like and it’s a good way to get your credit score up (or keep it from taking too severe a hit) while earning benefits/cash for what you already do. I budget what I can do anyway but it may be something to think about.
Smart.
Ironically I started doing this and then got laid off. Regardless of your financial situation saving more money is something that benefits anyone no matter who you are or what you make. I’ve never made “into the six figures” but I didn’t live beyond my means. While I hope to make six figures or more I can’t stop saving money no matter what I make because of the excuses that guy made. They’re weak excuses anyway. You don’t owe anyone to spend every penny you make so the poster needs to stop spending so much.
Your advice about the shifting job market is dead on and a lot of companies just churn people out without regard to what is happening in the job market. It’s getting to the point that I might as well start my own freaking company because of the ridiculous nomadic lifestyle many people have to lead just to stay employed.
Ummm, yeah, I absolutely agree with jtpayback . . . pay your damn debt, man! You have the ability to cut your expenses — you just don’t want to.
You apparently need to hear this more than once, so I’ll repeat:
1. you are living beyond your means
2. it’s time to go into cutback mode
2. you want to have your cake and eat it too
2500.00/month for childcare? what’s the mrs. doing? pay your damn debt man – rent the house out and move to a smaller place or get a 2nd job or ask the wife to pay $600 of the childcare each month so you can pay your lpans – you are living beyond your means and it’s time to go into cutback mode – glad you want to honor your obligation, but it seems you want to “have your cake and eat it too”. just default and let uncle sam take it out of your tax refund if the math gets too confusing for you.