Student Loans - Refinance? Student loan forgiveness? Help!

[Anonymous]

Hi All,

I currently have 11 student loans via Navient (formerly Sallie Mae). The interest rates vary but the range is from 3.28-6.8% and are all federal loans totalling $84,732. It seems as if the balance continues to increase even with my $330/month payments. I am truly starting to get discouraged because I feel like I am never going to pay it off.

I am considering refinancing my loans but am not sure if this is the way to go. I did enter a student forgiveness program a few years back under Obama but I don't want to rely on this and in the end, somehow get stuck paying these off down the road with a bigger balance, vs just taking initiative now. 

Any advice is greatly appreciated!! Thank you in advnace!

[LindysMom]

It sounds like you are in the interest-only repayment plan.  Under that plan, you pay a fixed amount to go towards your interest payments.  So, for example, if you have $100,000 in loans @ 6.5% interest, you will pay a total of $6,500 in interest that year.  However, if you are making a $400 a month payment you will have only paid $5,000 which leaves a balance of $1,500.  That then is wrapped back into the principal balance which then you owe $101,500 beginning the nex year.  And so on, and so on.  The lower payment sounds great, until 2-3 years a BILLION people are in your same shoes.  I did that for 18 months after grad school because I had to, then I moved to full ammorization.  

I would call your student loan servicer and ask for full amorization.  See what that payment is--if you are serious about getting that debt down--you will be able to squeeze your budget.  It may mean less happy hours or new seasonal clothing so you may need to make a decision.

Regarding loan forgiveness--you will need to research how the program works entirely but something like 10 years of working in public service (or 20 without) you will get to have your loans forgiven.  Don't forget though, the IRS considers that taxable income and my understanding is they require a lump sum payment.  So, if you make $50,000 a year and get $20,000 in forgiveness, you will be taxed at $70,000.  So, the best advice that I can gather in this scenario is the year that you plan  to get forgiven, calculate the taxable rate of that $20,000 and ensure it comes out of your paycheck the entire year.  Unless you can cough up whatever amount the $20,000 rate ends up being.

[Anonymous]

Thanks so much for your input!

I am currently on an income based plan but don’t recall being on an interest based plan. Do you think that’s better than what I am currently on?

It’s frustrating because the monthly payment isn’t covering the interest that I am getting charged a month. $300 monthly payment vs ~$400 monthly interest. This is why I am considering refinancing to avoid the interest rates but also wondering if that’s my best bet.

I did some research and unfortunately, I don’t think my job is covered under the forgiveness plan as it’s a for profit organization.

Decisions, decisions! Sigh.

[LindysMom]

Refinancing is an option assuming your income & credit can qualify for it.  However, you may find that the payments on a refinance are going to be very similar to your full repayment now.  Plus, these refi companies do NOT have to extend IBR plans to the borrowers.   And they are "private lenders".  Do as much research as possible to really, really determine if the benefit is there.  Look into default, job loss, etc.  All things that could happen that you have no control over (trust me on the job loss thing lol)

Income-based plans still fuction the same way as interest only plans.  The loans still acrue interest and it is still unpaid--it wraps itself back into the loan.  The "positive" of the IBR/IOR are the lower payments.  The "negative" is that the prinicipal balance has a hard time going down.  The "positive" to a full repayment is that the interest & principal go down.  The "negative" is that the payments are higher.  Higher can be very subjective though--sometimes only $100.  I can tell you already what I've wasted $100 on this month--an extra sweatshirt at Costco ($18), a new eyeliner at Sephora that I already have and didn't need yet ($25), wrapping paper that I don't need ($12).

You get my gist.  I'm in a position now where I have discretionary income but there was a point in time that I didn't, due to job loss.  I have all of my loans at full amoritization and while it sometimes stinks to see that money go out of my budget, I will never be caught in a situation where the student loan lender calls because my "alternative" repayment plan has expired.

You will qualify after 20 years, instead of 10, if you are in a sector that is for-profit.  

I go back to my origional response--I think it's time to call your servicer and find out what is going on, and what alternative payment options are with them first. 

[Anonymous]

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@LindysMom wrote:

@Anonymous sounds like you are in the interest-only repayment plan.  Under that plan, you pay a fixed amount to go towards your interest payments.  So, for example, if you have $100,000 in loans @ 6.5% interest, you will pay a total of $6,500 in interest that year.  However, if you are making a $400 a month payment you will have only paid $5,000 which leaves a balance of $1,500.  That then is wrapped back into the principal balance which then you owe $101,500 beginning the nex year.  And so on, and so on.  The lower payment sounds great, until 2-3 years a BILLION people are in your same shoes.  I did that for 18 months after grad school because I had to, then I moved to full ammorization.  

I would call your student loan servicer and ask for full amorization.  See what that payment is--if you are serious about getting that debt down--you will be able to squeeze your budget.  It may mean less happy hours or new seasonal clothing so you may need to make a decision.

Regarding loan forgiveness--you will need to research how the program works entirely but something like 10 years of working in public service (or 20 without) you will get to have your loans forgiven.  Don't forget though, the IRS considers that taxable income and my understanding is they require a lump sum payment.  So, if you make $50,000 a year and get $20,000 in forgiveness, you will be taxed at $70,000.  So, the best advice that I can gather in this scenario is the year that you plan  to get forgiven, calculate the taxable rate of that $20,000 and ensure it comes out of your paycheck the entire year.  Unless you can cough up whatever amount the $20,000 rate ends up being.

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Another point on Loan Forgiveness....depending on what forgiveness program you are looking at, may not be subject to tax. I'm a teacher looking at forgiveness under Public Service Forgiveness. Under that particular program, loans forgiven under PSLF are NOT considered taxable income according to the IRS.

https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service