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I’m Graduating With a PhD and Student Loans I Can’t Afford

By on July 13, 2016

Question:

Dear Steve,

I’m currently a full-time PhD student at a very reputable university who is entering what is hopefully the final year of graduate school. While I’ve been fully funded all of my years here, the stipend has never been enough to help me pay down any of my loans from previous undergraduate and master’s work. This, as I’m sure you’re well aware, has caused a bigger headache by adding on to my original loan amounts. What I’m now seeing, as of today, is a student loan amount approaching six figures. Should I have chipped away at these loans? Sure, but there really was no way to do so on a graduate school stipend. Before I get to my question, I should first note what types of loans I have, then my background.

They are all some form of subsidized and unsubsidized federal loans through Dept. of Education/Great Lakes, Navient, and my master’s university. The loans range from several FFEL Plus, FFEL Stafford, Perkins, and Direct Subsidized loans. None of these involve my parents.

As for my background, my field of study is in the humanities, which has a very grim job market. Furthermore, I will be moving to a foreign country (with a weaker currency relative to the USD) to be with my soon-to-be-wife. She, who is also of meager means, will be entering a master’s program.

Needless to say, the likelihood of us living a glamorous life is slim to none, especially since I might initially find it difficult to find work. While I may very well land into something wonderful and decent-paying, there is a strong possibility that won’t be the case.

My question, then, is once the graduate school bubble bursts and I’m left to repay my astronomical student loan debt, what can I do?

I’ve already looked into the various repayment options for my loans. Unfortunately, my current loan types exclude me from enrolling in most income-driven repayment plans, save for maybe IBR for new borrowers (it’s still not entirely clear to me how this is different from regular IBR). It seems as though once I’m out of school I can apply for a federal loan consolidation, which will then open me to other repayment options like REPAYE.

I’ve used the payment estimator on studentloans.gov to see how my payments may look, and only the regular IBR opens me to a massive tax hit after 20+ years of continuous payments. I know all the specifics aren’t given, but on the face of it, is consolidating my loans (12 total) a smart move? Of course the estimate I’ve been given on the student loan website is no guarantee, but it’s encouraging.

READ  Why REPAYE Stinks as a New Student Loan Repayment Program

And I need all the encouragement. I’ve become very stressed about my finances, which is a problem because I’m prone to anxiety and depression. I’m determined to stay positive, to stay afloat.

My partner is very supportive and believes we can overcome my burden, but sometimes it’s hard to see it working out, try as I may. I’ve read many horror stories with regard to student loan debt – even when people have received income-driven plans (or have been rejected) – and I’ve also read some success stories.

I even talked to someone at Great Lakes (it’s impossible to speak to a human at Navient), who was kind and said it was good that I was thinking about my possible moves now instead of when the first payment came due. (Still, I can’t trust the people who are benefitting from my desire to get an education!)

My aim is for something in the middle: Not a horror story, but also not a seemingly too-good-to-be-true tale of paying off 100K+ loan in three years thanks to a host of extreme tactics and good luck. I grew up poor, and I’ve continued to live a basic life, so I know

I can live a hard-knock and/or bare-bones life. I’d prefer it to be a struggle with a positive end, but not a fight where I make no headway and am treated with no dignity. I don’t seek anything close to an extravagant life, but I do want one that’s not plagued by fear, sadness, hunger, and exhaustion. I’m not hiding, so all I ask from these folks is some decency.

Thanks for reading. In a way, this helped.

Once my graduate school bubble bursts and I’m left to repay my astronomical student loan debt, what can I do?

Al

Answer:

Dear Al,

The most important you mentioned were you are moving to a foreign country with a weaker economy, you have primarily federal student loan debt, and you need to see a way out.

READ  I Made a Mistake and Filed a Joint Tax Return and My IBR Payment is Going to Go Up

It appears all of your loans would be eligible to be included in a new Direct Loan. There is no charge to consolidation if you go through the process online with the Department of Education.

Once you complete the consolidation loan you will be asked for your repayment option. Based on your uncertain income, I would go with an income driven plan. If your income changes, you can ask to have the plan payment recalculated.

I would however stay away from REPAY. In my opinion, the downsides to REPAYE are huge. Click here and here to read more on REPAYE.

If your loans were taken out after July 1, 2014 then you would be eligible for the new IBR program with a lower payment. More on income driven plans can be found here.

I completely understand the risk of the income driven plans. They can increase balances and lead to a big future tax liability at this point. In fact my article Why Income Based Student Loan Payments Can Be a Terrible Trap really sums up the problems.

But in your situation you are moving to an area where you will make less so the most important factor for you is going to be monthly payment. And goodness knows what will happen on the tax liability problem on forgiveness is 25 years. All I can tell you is right now it is taxable, yet not all types of student loans forgiven are taxable. They are program dependent.

While not perfect I think this strategy helps you to stay current, stay positive, keeps you out of default, and helps to reduce your stress, anxiety, and depression.

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About 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.

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