I filed bankruptcy but still owe my student loans. What should I do?

Posts Tagged ‘loan forgiveness’

I filed bankruptcy but still owe my student loans. What should I do?

|

Question: I Went to Culinary School Not Realizing My Student Loans Would Cost Me Around $1,000 a Month. We Had to File a Chapter 13 Bankruptcy to Hold Them Off for 5 years, But I Will Still Be Hurting When It Is Over and Sallie Mae Will Not Even Consolidate the Loans Anymore. I am Now a Police Officer Because Cooking Jobs in Alabama Will Not Support My Family, Much Less Pay My Loans. Any Tips?

Answer: Since you are now working as a police officer, your best option may be to investigate whether you will qualify for student loan forgiveness. This is granted to certain individuals who work in public service fields. To be specific, look into the debt-forgiveness provisions of the College Cost Reduction and Access Act, which became effective July 1, 2008. Its purpose is to help eliminate the student loan burden of public services employees, ranging from school teachers and social workers to fire fighters and police officers like yourself.

I don’t know many key facts about your situation, like whether or not you had federal loans or private loans, the exact total of all your college loans, and how long you may have been paying on them in the past. Nor do I have any idea about your income and expenses, or how long ago it was that you filed for bankruptcy protection. So it’s hard for me to give you more individualized guidance. In any event, you can get additional information and advice about your
loans online from the federal government at: http://www.studentaid.ed.gov. Also, even though Sallie Mae appears to have told you that you can’t consolidate, I wouldn’t rely solely on their word. To find out if you are eligible for a federal direct consolidation loan (which would also help you qualify for loan forgiveness) call the Department of Education at 800-557-7392 or visit their loan consolidation page.

How Does the Government Pay Off Student Loans?

|

Author: The Money Coach

The government doesn’t automatically pay off student loans. However, there is a Federal Student Loan Repayment Program, administered via the Office of Personnel Management (http://www.OPM.gov) that can pay off up to $60,000 worth of federal student loans for people who work for various federal agencies. To learn more about this program, read these two posts:

http://askthemoneycoach.com/2009/04/tip-3-seven-smart-ways-to-pay-off-student-loans-fast-%E2%80%94-get-uncle-sam-to-pay-it/

http://askthemoneycoach.com/2010/02/where-do-i-find-the-government-agencies-that-pay-your-student-loans-i-read-your-article-about-this-but-do-i-have-to-literally-job-hunt-and-ask-if-a-government-agency-participates-in-this-program/

You may also qualify for loan forgiveness, or loan cancellation, based on working in a service industry, teaching or performing community service. See all the qualifying reasons you can get a student loan cancellation, and the reasons you can’t, by reading this post: http://askthemoneycoach.com/2009/09/school-loan-cancellation/

Can I refinance my student loan debt?

|

Author: The Money Coach

Q:I am a Medical Student With Four Years of Tuition at Around $50,000 a Year for Four Years Plus $20,000 of Living Expenses. I Have a Total of Around $300,000 in Student Loan Debt Taken Out in Both Stafford and Grad PLUS Loans at Around 6.5 and 7.5 Percent Respectively. I Now Have to Complete a Residency. Is Consolidation My Best Option? Also, Where Might I Be Able to Refinance at a Lower Rate?

A: Consolidating your loans likely will be your best short-term option — at least once you start out working, because your initial student loan repayments are going to be gigantic. I’ll tell you exactly how much in just a moment. But you have an enormous amount of student loan debt, and unfortunately it sounds like you’ll have to borrow more (or are contemplating doing so) while you complete your residency. Although you will likely earn a good salary once you are done with your residency, I would caution you against getting even more indebted. The reason is simple: You are already facing massive student loan repayments. I ran some numbers for you, using the calculators at www.finaid.org. Based on the information you gave me, I took an average of your interest rates and plugged in a 7% rate for all your loans. Here’s what I found:

* The 10-Year Standard Loan Repayment Program
If you stick to this program, you will be required to repayment $3,483.25 a month for 120 months, or 10 years. You will pay an additional $117,990.76 in interest charges for a cumulative total of $417,990.76 in student loan payments. According to FinAid’s estimates, you will need an annual salary of at least $417,990 to be able to repay this loan. This corresponds to a debt-to-income ratio of 0.7. Also, this estimate assumes that 10% of your gross monthly income will be devoted to repayment of your college debts. Using 15% of your gross monthly income to repay your student loans means you will need an annual salary of $278,660; that works out to a debt to income ratio of 1.1.

* The Extended Loan Repayment Program
If you consolidate your loans and stretch them out over 30 years, you will have to pay $1,995.91 a month for 360 months, or 30 years. While the monthly cash outlay is less in the extended repayment option, recognize that you will pay far more money overall. Under this program, your total interest paid will be $418,524.53, according to FinAid, bringing your total amount of loan repayments to a whopping $718,524.53. FinAid’s calculators also stated that you need a yearly salary of at least $239,509.20 to afford to repay this loan using 10% of your gross sslary, with a debt to income ratio of 1.3. If you use 15% of your gross monthly pay, you’ll need a salary of $159,672.80, which corresponds to a debt to income ratio of 1.9.

As you can see, unless you’re completely rolling in the dough as soon as you begin working full-time, you will likely have no option but to stretch out your payments, just so that they will be remotely affordable. One other benefit of consolidation is that you will likely be able to get a lower rate than you are currently carrying on your loans. Therefore, to refinance and get the advantage of a lower rate via loan consolidation, visit the Department of Education. Visit the department at: http://loanconsolidation.ed.gov.

Lastly, there are a few other things you can do to make your student loans more affordable or to eliminate them more quickly. You can pay extra payments on consolidated loans. That will decrease the interest charges you pay over time. You can live modestly, so that you have more money to put toward your college debt. You can see if a potential or future employer might be willing to pay off some of your student loans. And you can investigate various student loan forgiveness programs that are offered to people in the medical or healthcare fields.

I give more tips on all these strategies in my book, Zero Debt for College Grads: From Student Loans to Financial Freedom.

Ask The Money Coach

Posts Tagged ‘loan forgiveness’