Dear Steve,My situation is similar to those asking about student loans and repayment. My Mom had to take out parent plus loans under her name to help me with school.
We both understand the responsibilities we have. However, she can barely afford to pay for her rent and food on the money she makes. Therefore, I'm the one making the payments. This has been a very stressful situation for me. I have been lucky enough (and I'm absolutely grateful) to find good jobs ever since I graduated from college and I make a decent amount. But most of my money goes straight to her loans and mine.
I spend $1000 a month on just loans. We have tried to lower the payments but the amount we owe is enormous and by lowering the payments the amount we owe never changes.
I'm basically giving away $700 dollars a month and not making any progress. At this point I'm just making my payments and trying not to let it get to me but it's hard. I feel like I'll never finish paying this off.
I'll never be able to own a house because of this as well. I've cut down on everything just to be able to afford food and gas.
What is the best approach to paying off student loans over 100K when the lenders are not giving us any more options on lowering payments?
Christinia
Dear Christinia,
There are a couple of realities here.
First, your Mom is on the hook for the loans so any solution is going to have to be based on her income and not your willing participation.
Second, the loans may never be repaid. It is quite possible the amount borrowed far exceeded the income benefit received by the education. I'm not being critical of your choices, just pointing out nothing in the education system ever tells a student to not take out loans because they will be unaffordable. The reality is students are encouraged to embark on any field of study for any amount because schools sell education.
Since these are federal Parent PLUS Loans they would be eligible to be consolidated and then placed into an Income Contingent Repayment (ICR) plan. While a Parent PLUS loan is not eligible for inclusion in an Income Contingent Repayment plan directly, they are eligible once they are consolidated into a new Direct Consolidation Loan. I know it sounds ass backwards but this is the way the rules work.
Income drive repayment plans offer the advantage of lowering the monthly payment but they have some pitfalls as well.
According to the Department of Education, "Income-driven repayment plans may lower your federal student loan payments. However, whenever you make lower payments or extend your repayment period, you will likely pay more in interest over time--sometimes significantly more. In addition, under current Internal Revenue Service (IRS) rules, you may be required to pay income tax on any amount that is forgiven if you still have a remaining balance at the end of your repayment period for an income-driven repayment plan."
But considering the larger issue here is the monthly payment is simply unaffordable, the ICR plan is a logical consideration since her monthly payment would be calculated as 20 percent of her discretionary income. Additionally it does not sound like her income is going to rise significantly.
Under this plan, after your mother made 25 years of payments, the remaining balance would be forgiven.
You can find out more about this and other lower payment loan options, here.
If you have a credit or debt question you'd like to ask, just click here and ask away.
This article by Steve Rhode first appeared on GetOutOfDebt.org and was distributed by the Personal Finance Syndication Network.