I am having difficulty with a student loan decision and am wondering if I could get some input from people with experience in the same boat.
I incurred my loan in 1991, when I was in my early 20s. my father asked me to take out student loans, but that he would pay them off later. I was able to get them without a co-signer. It was for a degree i didn’t want (JD), and when I held up my end of the bargain – finished school; passed the bar – and he didn’t, I was bitter and angry and miserable.
I have lived my life being that way because I never wanted to be an attorney. stupid me, I thought I was somehow getting back at him, so I made no real attempt to make any significant dent in paying them back. I then suffered anxiety; depression; the whole ball of wax. I have never really practiced a day in my life and have regretted my decision to go to law school.
Cut to 2008. I took advantage of IBR and on my loan amount of $95,000, I only paid $200/month. did it alleviate the anxiety and depression? nope. Today, my loan is $160,981.07. My estimated pay out date is 2032. i don’t make much money and truly need a program like IBR to survive. but then…
An older relative (on a fixed income) was a beneficiary to a life insurance policy. she has seen me struggle with this loan, and wants to help. she offered to pay off the entire amount, I called my student loan company to see if they would agree to a settlement but they won’t because i am on IBR and in good standing. the representative suggested that I stay on IBR until 2032.
I then called a student loan attorney who said that he wouldn’t even try to settle my debt and instead offered this advice: to NOT pay off my loan; stay on IBR and just change my attitude. He told me to never get married; never be more than marginally employed (meaning: make no more than $65,000 a year) and never show any assets that can be traced to me. when I told him that the anxiety of having this loan was getting to me, he told me to just see a shrink but that I would be stupid to pay off anything and that my concerns about the tax consequences once my loan balance is forgiven are “unfounded.” In his opinion, he doesn’t think the government will force any person receiving loan forgiveness to actually have to pay a huge tax bill.
My gut tells me that he is wrong; that by 2032, my loan will be triple what it is today and that I will then be in my 60s and really screwed. I also feel like the right thing to do is to pay off my loan; and long for a day without this hanging over my head. BUT… borrowing $160,981.07 from an 83 year old woman on a fixed income is also weighing on me. I will make her the beneficiary of my life insurance policy in case I pre-decease her and also pay her $ every month.
I would like to know your thoughts on what you would do if faced with the decision of borrowing money from an elderly relative to pay off a huge student loan on the IBR plan
Thank you so much for writing to me for help.
I can relate to the difficult position you find yourself in. And the emotional feelings can certainly drive the way we all think about our debt and finances.
The big issue here is not necessarily the math, but the perception that something must be done about the debt and that in turn will make you emotionally feel better.
Just from a pure logic point of view I would not drag in an outside party. Especially not someone on a fixed income.
If your loan will be forgiven in 2032 that indicates to me you’ve been on the IBR for a while now. And I’m glad you sought some advice from a student loan attorney. But I think I will have to respectfully disagree with the opinion you received.
There is no reason not to get married. If you did decide to get married just file your tax returns as married but separate. That way you can still just rely on your income alone to qualify for the IBR.
And I would disagree with the opinion that there is no way Congress would allow people to be taxed. I just don’t think there is any evidence to support a position one way or another. As it stands now it is a potential tax liability but only up to the point where you are insolvent. So even if you did get a big tax bill in 2032, you would be able to avoid all or nearly all of it. So I would not worry about that bit.
That brings us down to if you can settle the federal student loan debt. If the student loan payments pose an undue hardship then you have a good story to support a consumer bankruptcy with a secondary Adversary Proceeding suit. I’m not a lawyer and you need to discuss this with a bankruptcy attorney who is licensed in your state.
But one surefire way to deal with this would be to find some sort of employment that would qualify under the Public Service Loan Forgiveness (PSLF) program.
In that program, if you make 120 on-time payments the balance of your debt would be eliminated tax-free. It sounds like your skill set could be good for someone in the non-profit world.
See this link for more details.
In the non-profit world you might not make a lot, but that would keep your payment low. This approach would also let you get have your student loans forgiven in 10 years and avoid any tax liability at all. The tax free forgiveness is already baked into the program.