Question:
Dear Steve,
I owe 58,000 in school loans and do not have a degree. I’m a single mom making 30,000 a year plus child support. I cannot buy a house bc of my debt to income ratio. I’m on an income based repayment plan now which with a dependent I pay nothing, but interest still acrues. I can’t afford to pay anything substantial where my debt would go down I would basically be paying interest forever. I don’t know what to do. I want to buy a home but guessing that won’t happen. I don’t want to pay these loans. In another year from now I will owe even more.
Should I go into default with my loans. Can I get rid of this debt? Is there a way I can pay with no interest. That would be the only way I would consider paying something. Other than that I want to save 150 a month instead of giving it to my loan company. The most I can afford per month would be 200 and that would be struggling.
Jill
Answer:
Dear Jill,
The reality is your smaller income-driven repayment is paying some interest, and not all. Your balance will continue to grow. See Why Income-Based Student Loan Payments Can Be a Terrible Trap.
However, in a situation where you have few good options to avoid default, the program you are in is at least keeping you out of collections, wage garnishment, and being sued.
As the program stands today, after 20-25 years the big balance you will owe at that time will be forgiven. But Congress has left that forgiveness amount as a taxable event and if you are not insolvent in a couple of decades you will wind up with a huge tax bill due for the forgiven debt.
These sound like federal student loans so a strategic default is not an option. The government has wide powers to garnish your wages without taking you to court, intercepting your tax refund, and adding a massive collection fee to your balance.
Members of Congress keep trying to fix the issue but these changes to allow people out of student loan debt slavery, never pass.
I think the most you can hope for right now is to stay out of default on the income-based payment plan you are on and make sure you vote for future members of Congress and President who will actaully enact fixes for the massively broken system. The current Trump administration has marched back protections and wants to reduce repayment options.
The power to enact change is truly in the hands of the voting public.
