Join 3,440 readers in helping fund MetaFilter (Hide)


Student loan forgiveness for people who actually have been paying their debt down?
October 10, 2012 2:25 PM   Subscribe

I feel like I've paid enough interest on my student loan. Do any student-loan forgiveness plans exist for middle-class people who actually pay their bills and are not in default?

Biggest financial mistake of my life - Consolidating $12,400 student loan at 8% back in about 2000. I was buying a house and extra money was tight. I opted for the extended repayment plan, set myself up on autopay, and pretty much forgot about it, letting my finances run on autopilot.

Now we're in 2012 and I review my statement with disgust: Out of $12k borrowed, I've already paid $18k:

- $9,146 in principal (out of 12.4k)
- $8,969 in interest

I still owe $5.4k in principal.

I now have enough money saved up to take the bitter pill and pay the $5.5k but I'd love to see what type of help options exist for people who actually pay. I'm not in default, I'm a middle-class working citizen who has never missed a payment. However, it's not easy to just cough up a check for the $5.5k. Don't options exist for people who are not in default, and who have already paid $18k on a $12k loan?

Yes, this was a mistake. Yes, I was foolish. Yes, I should have stayed on top of my finances - If my greatest financial mistake was paying too much interest on a student loan, I'll take the hit. Please don't preach to me about interest - my question is more about options to settle this debt without having to pay another $5.5k.

(edit: reviewing my statement more closely: if my original principal amount is $12,386 and my total principal paid is $9,146, how can I still have a current principal balance of $5,479? That doesn't make sense to me).
posted by anonymous to Work & Money (10 answers total) 4 users marked this as a favorite
 
First of all, you need to call the bank holding your loan and ask for a statement.

It seems as though you may have overpaid, and in fact, don't owe anything. Do you have access to the online statements? Did you keep your monthly paper statement?

Do an audit and see where you are.

As for settling, I don't think banks settle student loans because they don't have to. They aren't dischargable in bankruptcy. They can garnish wages and hound you forever.

I don't know this, I just suspect this.

Before you talk about sending them any more money, get an audit of your account.
posted by Ruthless Bunny at 2:29 PM on October 10, 2012


I take it you are in the U.S.

The good news: there is IBR, or "Income Based Repayment" which gives you loan forgiveness after 20 years of income-adjusted payments. The bad news: you've got to make those 20 years of repayment. There are not a lot of good options for someone in your shoes.

Your best option is probably going to be to make a painfully large payment every month with directions to apply the excess to your principal. This won't get rid of it right away, but it will get rid of it pretty quickly without disturbing your cash flow too much. If you can put an extra $500, for instance, into the loan every month, you'll be done by this time next year.
posted by gauche at 2:30 PM on October 10, 2012


As far as the amount you still owe, that might be with expected interest included at your current payment rate. Is there a link/button/number to call to get a "payoff amount"? That would tell you what you would need to pay if you wrote them a check today. It should be less than $5,500.
posted by donnagirl at 2:40 PM on October 10, 2012 [4 favorites]


AskHeatherJarvis is also an excellent resource for navigating all this crap.

IncomeBasedRepayment and loan forgiveness are not necessarily available for all government-backed student loans. I (who have been in IBR since it began and work for a qualifying organization) found this out recently when my (totally not required) loan forgiveness plan documentation paperwork was returned to me because I "had no qualifying loans".

However, I talked to the people at the Department of Education, Federal Student Aid Bureau and got it all straightened out. It was stressful and confusing but it worked out in the end. You can always call them and ask this question--it won't lead to anything bad with your current loan.

At any rate, there is no forgiveness available at 12 years. It's 10 years for qualifying public service (technically, 120 consecutive payments) and 25 years cancellation. In both cases, the loans must be qualified for IBR.
posted by crush-onastick at 2:43 PM on October 10, 2012 [5 favorites]


I worked for a student loan servicer a couple of years ago. It is pretty much impossible for someone to get student loans forgiven unless they are a teacher or nurse and meet other specific criteria. Your best bet is to call your loan servicer and ask them to review your account to make sure the interest amount is correct--mistakes do happen, but they're rare. We got this question a lot at my work and the answer nine times out of ten is yes, that's the correct amount of interest. Calling them is the easiest way to handle this.

Regarding asking them to apply the extra payment to principal as gauche suggested--no, that isn't going to happen. Interest is always paid off first, so if you pay extra and you still have interest, the extra payment will go towards interest.
posted by Lobster Garden at 2:48 PM on October 10, 2012 [1 favorite]


Regarding asking them to apply the extra payment to principal as gauche suggested--no, that isn't going to happen. Interest is always paid off first, so if you pay extra and you still have interest, the extra payment will go towards interest.

I think what Gauche is saying is that by paying more than the required amount per payment cycle, you can elect to accelerate your next payment, or apply the excess to principal. He's advising the latter, which is pretty standard operating procedure for aggressively paying off your loans--and what I myself did to pay off most of my private loans from law school. I consistently made my extra payments mid-cycle, and never did a cent of it go to accrued interest.

That said, OP, no lender is going to write off any portion of your loan just because you played by the rules. I was in the same boat when I realized that 5 years out of law school I had paid something like $2,000 out of $150,000 by paying only the minimum amount each month on a 30-year plan. Ugh, that was a waste.

(edit: reviewing my statement more closely: if my original principal amount is $12,386 and my total principal paid is $9,146, how can I still have a current principal balance of $5,479? That doesn't make sense to me).

I'll venture that the loan was accruing interest before it went into repayment, and the accrued interest was added to your principal. And then compounded. The $2239 "extra" principal is likely that deferred interest. But, by all means, confirm with your lender.
posted by Admiral Haddock at 3:16 PM on October 10, 2012 [2 favorites]


If you consistently paid your loans, and sometimes overpaid (but didn't deduct the overpayment from subsequent payments so as to "even out"), your "minimum payment" will have included interest that you didn't actually accrue. You can get that interest returned to you from your lender, but of course you'll have to do the legwork yourself. Same goes for if you pay your remaining $5k upfront, I believe.
posted by tapir-whorf at 3:29 PM on October 10, 2012


(edit: reviewing my statement more closely: if my original principal amount is $12,386 and my total principal paid is $9,146, how can I still have a current principal balance of $5,479? That doesn't make sense to me).

Was the loan ever in deferment (e.g., while you were in school)? Chances are that this money represents interest that accrued during that time that was capitalized.
posted by solotoro at 4:41 PM on October 10, 2012


I was buying a house and extra money was tight.

do you still have the home? equity somewhere? get a home equity loan
posted by cupcake1337 at 6:35 PM on October 10, 2012


It would help if you told us exactly what kind of loans these are. Are they federal student loans, and if so, are they Stafford loans or Perkins loans or...? Subsidized or unsubsidized? Or are they private, and if so, what company? Did you ever have a deferment, and if so, did interest capitalize during that time?

Others have covered the main options and I think you may have hit the hard truth of student loans in the US: no way out but repayment. That's how the system is designed. There are a few exceptions for federal loans (as noted by others--IBR and public service forgiveness) but these are very specific.

If you have private loans, you may be able to negotiate something, but I don't know if that actually works.
posted by epanalepsis at 12:47 PM on October 11, 2012


« Older Wordpress site crashing throug...   |  Gynecologist in NYC who takes ... Newer »
This thread is closed to new comments.