Dear Steve,
Both my husband and I have student loan debt from earning our Masters degrees. We consolidated our loans in the late 90s and proceeded to defer them up until now due to the births of our three children and our income. I am a teacher and my husband was an actor at the time. The loan has been accruing interest at about 8% and now the income contingent payment of $800 (still to much for us - $500 would be ideal) does not meet the monthly interest, which is around $1200. I asked the Direct Loan (Mohela) customer service agent why I would make a payment that does not even cover the monthly interest - that would be like pissing in the wind - and he responded, "I don't know."
My husband and I want to pay this loan back. The original amount was around $90,000 and is now over $200,000. Is there any way to reset the loan and create a payment plan that would put us in the $500 per month range? We are in our late 40's now, and are finally making an income that can sustain our family. Paying the current $1300 per month payment is not at all possible for us though. We live in the area of NYC and the cost of living is quite high here. What are our options? I had hoped that I could get some of the loan forgiven since I am a teacher in a Title 1 inner city district, but was told that is not possible since the loan was consolidated. Please help!
Chris
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Dear Chris,
Thank you for reaching out to me for help. I'd like to tackle your questions backwards.
Regarding being told you are not eligible for the Public Service Loan Forgiveness (PSLF) program because you consolidated your loans, that's odd.
The PSLF program specifically encourages people to consolidate their loans under a Direct Loan with the Department of Education. Unless you had some really weird consolidation loan before I'm not sure how you would be excluded.
The following loans are eligible for total forgiveness under the PSLF:
- Federal Direct Stafford/Ford Loans (Direct Subsidized Loans)
- Federal Direct Unsubsidized Stafford/Ford Loans (Direct Unsubsidized Loans)
- Federal Direct PLUS Loans (Direct PLUS Loans)--for parents and graduate or professional students
- Federal Direct Consolidation Loans (Direct Consolidation Loans)
In fact you can make the following loans eligible for the PSLF program by consolidating them into a Direct Loan.
- Federal Family Education Loan (FFEL) Program loans, which include:
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
- Federal PLUS Loans--for parents and graduate or professional students
- FFEL Consolidation Loans (excluding joint spousal consolidation loans)
- Federal Perkins Loans
- Certain Health Professions and Nursing Loans
The PSLF program will forgive 100% of the federal loans included in the program after 120 full on-time payments. A point most people get wrong is the payments do not need to be consecutive.
A full payment might be a $0 payment if that's what you qualify for under the Income Based Repayment option. Only payments made after October 1, 2007, count.
Now back to your first question. I'm not convinced your current reduced payment is the minimum payment under the Income Based Repayment program. You would really need to recalculate it. You can use the calculator on the bottom of this page to get you in the ballpark. Since I don't know your income I just have to trust my gut feeling on this.
If you take a look at all of this and want to get a second opinion, click here.
Your story is a tangled mess and it sure seems the servicer may have given you some bad advice along the way. Unfortunately that would not be the first time that's happened. And I can tell you one thing for certain, letting unsubsidized loans sit on deferment or forbearance is a waste of time and money.
Just be very aware of the student loan assistance scammers that are out there waiting to prey upon you. Read this guide to know what to watch for so you can stay safe.
Steve
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