Question:
Dear Steve,
At the age of 45, my life in shambles after a divorce, I went back to graduate school to put my life back on track. I spent 10 years in graduate school to earn my doctorate degree in clinical psychology.
For the past 8 years I have been working to meet my monthly student loan overhead. I have about $415,000 in outstanding student loan debt costing me just shy of $2500.00 a month.
What I have experienced is that I am falling deeper and deeper into debt and I’m not spending any money on things outside of essentials like rent and food. In a nutshell, I am falling further and further behind and losing hope that things can change.
I just got off the phone with an attorney who specializes in student loans and was informed that I would not be successful in getting my federal and private student loans discharged in court as I wouldn’t meet the tests for hardship or the Bruner test. She suggested I take out a Chapter 13 which I’m not interested in doing as it puts a band aid on the problem and doesn’t resolve it.
One of my private student loans taken out near the end of my program is co-signed by my sister. Can I get her removed as a co-signer on that loan? If so, how do I do that? Thank you (and bless your work with dogs)!
Michael
Answer:
Dear Michael,
Thank you for contacting me.
Debt can be the byproduct of underlying emotional issues that cause us to spiral down. Just from what you shared I think you might agree with me you may be feeling a little depressed and hopeless. The depression issue is very important and an integral part of your emergence from this pit.
Now, you might think I’m way off base on my depression talk but depression leads to the inability to see forward, see a way out, develop a plan, execute a plan of action, or move forward in somewhat of a straight line. There is a lot of running in circles.
Right now it sounds as if you are spiraling down. That is completely understandable given the financial pressure you’ve been living under for so long. People can only scrape by for so long before they give up the effort. That doesn’t make you broken, just human.
Debt problems are math problems. Once you tackle what might be the underlying depression and get back in the game for the fight then we either need to increase income, reduce expenses, or a bit of both.
The first step would be to make sure your federal student loans have been consolidated and see if you are eligible for an income driven repayment plan.
At the very least your employment may qualify for the Public Service Loan Forgiveness program. Your loans may now or would qualify for forgiveness after ten-years of even reduced payments. The balance of the federal loans would be completely forgiven tax-free.
You can see this page for more information. Based on what type of work you do in your field, you might be able to make the argument you are a healthcare professional and thus qualified for forgiveness.
If you have not consolidated your federal student loans, you might want to look at that, even if just for the potential monthly payment savings. For information on Income Driven Repayment Plans, see this. You can use this calculator to see what your payment options would be.
And as I proceed in answering your question, please feel free to ask me anything I might not have made clear by posting your question in the comments.
I understand where the attorney was coming from about the private student loans but depending on who the lender was and what the loan was used for, it would be hard to just dismiss there are not options. See this and this.
The bigger issue with dealing with the elimination of private student loans is not that there are no avenues worth exploring but that those who owe a lot are often the least able to afford easy justice.
For example, arbitration has been effective in dealing with the reduction or elimination of some student loans.
Sadly the cosigner is a risk. You’ll have to contact the private lender sh is on and inquire if they have a cosigner release process your loan would qualify for. The Consumer Financial Protection Bureau found that most cosigner release options really don’t exist. See 90 Percent of Private Student Loan Borrowers Who Applied for Co-Signer Release Were Rejected. But just because it might not be easy to get the release, that does not mean it is impossible.
As long as your dear sister is on the loan as a cosigner, she is 100 percent responsible for the loan should you default on it. My rule on cosigners is to never do it if anyone asks you to.
So what I think you have here is a bit of a hybrid situation where there may be some payment reduction opportunities with your federal student loan but that more needs to be done on the private student loans.
On the more drastic side of what to do about your private student loans, read Top 10 Reasons You Should Stop Paying Your Unaffordable Private Student Loan. There is some validity to strategic default on private student loans which are not cosigned.
But that is a strategy that is best executed once you feel your mental health is back to a healthy point and in conjunction to having an expert hold your hand through the process.
If you feel the least bit depressed or hopeless and embark on a default strategy, you will be an easy target for the collectors to emotionally manipulate you and without someone who is experienced in this process, you won’t know a good offer from a bad one.
If you do decide to pursue the strategic default strategy and you live in California, you might want to contact the Law Office Fitzgerald & Campbell or you could contact my friend Damon Day for more hand holding.
If my gut is right and you are feeling a bit blue and depressed, you would be less likely to be up for this fight without someone to shore you up. That’s why I circle back around to repair your foundation and then let’s tackle this.
Does that strategy seems to make sense from your point of view?
