Question:
Dear Steve,
Public school teacher with public and private loans. My federal loans are now on the 10 year loan forgiveness plan after I consolidated all of my federal loans with the government and away from Sallie Mae. Unfortunately, none of the Sallie Mae payments counted toward the 120 consecutive payments, but I’m also on the income contingent plan.
My question is regarding the Sallie Mae/Navient private loans. A while back I called to ask how long I’d been paying and how many payments I’d made and was told that my loans were set to expire in three years and they were supposed to send me information by mail, which, of course, they never did. It seems that any time I’ve called or friends have called, we’ve been given erroneous information. It seems no one ever knows what is going on at Navient.
Now, I am a single mother with a mortgage and trying to put away a small amount for a 401K and my son’s college fund. I have no emergency savings because I am paying Navient $300.00 every month in addition to what I pay the government for my federal loans.
I have great credit and it makes me nervous to just stop paying but at the same time, I’m so fed up with the balance NEVER going down because I’m only paying interest! I am also frustrated that people with credit card debt can travel the world or charge up their cards with needless items and they can declare bankruptcy, but I, a responsible public servant, can’t do anything about this private loan!
I’m wondering what you think my best options are. I want out of this debt!
Thank you so much and I pray I hear from you!
Sandra
Answer:
Dear Sandra,
I guess prayer works because I found your question!
Let me start with some clarification at the start. Sallie Mae serviced loans on behalf of the government. Your loan was always with the government. And it’s not that payments made to Sallie Mae did not count. It’s that the Public Service Loan Forgiveness Program (PSLF) only counts payments under a qualifying payment plan. This includes both the ten-year standard repayment plan and an income driven plan like the one you are now on.
However, even though the 10-year Standard Repayment Plan is a qualifying repayment plan for PSLF, you will not receive the tax-free loan forgiveness unless you make the majority of your 120 qualifying monthly payments under an income-driven repayment plan
One big gotcha with the PSLF program is people think the loan payments only count if they are made consecutively. That’s not true. Loan payments will count as long as you were not in an in-school status, grace period, deferment, forbearance, or default.
So, even though you made some payments through Sallie Mae in the past, they may count towards your eventual tax-free loan forgiveness.
I’m not quite certain what “set to expire” means. But you are entitled to an accurate accounting of your loan balance.
I understand the conundrum you are facing. On one hand you don’t want to do anything that will hurt your credit. But on the other hand the current path is neither sustainable nor financially safe.
Do You Have a Question You'd Like Help With? Contact Debt Coach Damon Day. Click here to reach Damon.
Nobody can make that decision for you. Some feel the short term credit report hit is worth being able to settle the private student loans for less than is owed. Others are afraid to take the chance. In both cases people have their own emotional reasons for making those choices. They rarely look at the math, but almost always decide based on emotion. I know you say you want out but we have to figure out first what makes the best “cents.”
What I can tell you is it is possible to settle private student loans managed by Navient. In fact, you might want to read This is How You Can Settle Your Navient Student Loan.
Defaulting on your private student loan would have no impact on your PSLF efforts. But defaulting on your private student loans to settle would impact your credit report for a while and open you to collection efforts, or more.
However, it would also allow you to start to save to build that financial emergency fund. See what I mean about it not being clear cut?
And I must tell you, many private student loans can be fully or partially discharged in bankruptcy. You should read this.
I’d love to tell you there was a clear answer but every situation is different. The best advice I can give you is you might want to discuss this with my friend, Damon Day. Damon is a talented and expert debt coach who I’ve mentored for years. I no longer do personal consultations, but he does. By talking through your specific situation with some expert in this field, you can come up with a game plan that makes sense for you before you just leap.
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