Why Do I Have to Keep Paying on My Student Loan When I Paid It All Back?


Dear Steve,

I had a $9,000 student federal loan outstanding when I graduated in 1990. I got my first job shortly after graduation and was earning only 16K. Shortly after I took this job I had received notification that my monthly payments on my loan would be $150 per month. I had already started paying rent at that time and told them that $150 was too high based on my expenses but that I could pay $50 per month. They were unwilling to work with me, and told me that even if I paid $50 per month I would still be in default.

So being young and unaware of the impact of credit etc. I said well then I just won’t pay at all then. In 1992 I moved to Europe for 12 years and ignored the loan. When I moved back to the US in 2004 and started working again they caught up with me, seized my tax return and that is when I got into a repayment plan with the debt consolidator who bought my loan which coincidentally was now for 22K (I originally only owed 9K!). I have mad e regular payments since 2004 and I realize it is my fault for not paying it for all those years but somehow the fact that I will now be paying 158 per month for an unlimited period of time due to the interest accrued on a loan for $9K which is now 26 years old just doesn’t seem right. Is there anyway I can ever discharge this loan. I have already repaid the $9K and then some! I am a single mother and desperately could use the $158 per month for expenses.



Dear Alicia,

Something doesn’t quite add up. If this was a federal student loan it would not be sold to a new debt owner. Are you sure this isn’t just a new servicer of your federal loan?

But you mentioned a tax refund intercept that is a hallmark of a federal loan. Private student loans can’t do that. Of course the best way to avoid a tax refund intercept is to not overwithhold taxes so you get a refund.

See also  I Heard All My Student Loans Are Forgiven When I Reach 50. Is That True?

I’m so sorry it doesn’t seem fair to have to repay the interest that built up during your many years of no or low payments. The accumulation of interest do to a low or no payment, and collection fees, is actually something laid out in the typical loan terms and conditions the borrower agrees to.

If this was a private loan and you were in default, there may be an opportunity to settle the loan. If this truly is a federal loan, which it looks like it is, the chance of a settlement unless you were sued by the Department of Justice, filed for an Adversary Proceeding in a consumer bankruptcy, or had another legal basis for disputing the loan, would be slim.

If you are struggling to make ends meet and just need some additional breathing room in your budget, you could opt for a lower payment using a federal income driven repayment program. However, you need to be aware that while the balance of the loan will be forgiven in 20-25 more years, in the meantime the balance will continue to build. You can read Why Income Based Student Loan Payments Can Be a Terrible Trap for more information.

Alternatively, if you wanted to pay down the balance quickly and stop treading water then you would need to pay more than the minimum and get more money flowing towards paying down the principal balance owed. But I get it, if you could have afforded to do that, you would have.


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Damon Day - Pro Debt Coach

Steve Rhode

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