Old student loans - any options for forgiveness or deferral?
August 17, 2015 10:49 AM   Subscribe

I have significant student loans under Discover Loans and have already exhausted the standard deferral and forebearance options offered by Discover. Are there options to reduce my monthly or overall loan burden over the next several months?

Basically, I'm quitting my job this month and will have unsteady income for some indefinite period of time. I've budgeted my student loans into this period of low, intermittent income, but it sure would help if I could somehow not pay for these loans, or pay less, during this period.

The facts:

1) I have $27,000 in student loans, for which I pay $550 per month.

2) These loans are in two chunks:

*I have $16,000 in Discover Student Loans, going back years, for which I pay approximately $350 per month. These are at 3.6% interest. I have long since exhausted my forebearance and deferral options for these Discover Loans, which I took out over a decade ago in college.

*I have $11,000 in Navient Loans (formerly Sallie Mae). I've probably paid off $20,000 of the Navient loans since 2012, but have one left at 6.8% and one at 2.9%. I actually do have deferral available to me for the Navient loans, which total less than $200 per month.

3) For the last five years I have been working for a labor union. Not a non-profit, but also not a business.

4) My income has been about $65,000 to $70,000 during that time.

5) I will be quitting my job and making something between $0 and $5,000 per month for the foreseeable future.

So my concern is the Discover Loans for which Discover offers no options of deferral, forebearance, or reduced payment. I have heard a great deal about different payment plans or even forgiveness for people who work in certain industries or are a certain income level, but am skeptical that any such program applies to me.

Is there anything I should be looking into in order to reduce my monthly or overall loan burden over the next several months, even if Discover itself is not allowing for any such options? Can I negotiate with them, invoke some kind of magical Executive Order by Barack Obama, or any other thing?
posted by kensington314 to Work & Money (9 answers total) 4 users marked this as a favorite
You might find this new york times article from last month helpful: "Judges Rebuke Limits on Wiping Out Student Loan Debt." If you were to declare bankruptcy you would have to prove that your student loan debt is an “undue hardship.”
posted by crazy with stars at 11:34 AM on August 17, 2015 [2 favorites]

From what I understand, it's nearly impossible to get student loans discharged in bankrupcy. This makes companies not very willing to negotiate, and so you may not have very good options.

Keep in mind that you can always just not pay the bills during months when you cannot afford to do so. You should make sure that the loans don't default to a higher interest rate, and yes it will affect your credit score, but it is certainly an option.
posted by zug at 12:47 PM on August 17, 2015

Assuming these are private loans and you have no cosigners, is default an option for you? E.g., how screwed would you be if your credit took a hit? Many private lenders have "no options available" unless you're in default - once you're in default they provide you with a whole host of options to get current with lower monthly payments. Call Discover and Navient and tell them you're unemployed, tell them you're about to default, ask if there are any alternatives; ask if any additional plans are available once you're in default. Check your state's rules for garnishment and other collection procedures; you may not have any garnishable income/assets or the maximum garnishable amount may be below what your current payments are. Consider discussing these issues with an attorney in your jurisdiction.
posted by melissasaurus at 1:11 PM on August 17, 2015

You should call Navient and ask questions about consolidation. Often all outstanding government loans can be consolidated into a new loan, which means new deferment and forbearance. You'd get a new interest rate, however. You don't mention if the Discover loans are private (I'm guessing they are) and I don't know if private loans can be rolled in with federal ones in a consolidation. Hence my suggestion to call them and ask.

You can also possibly refinance them with Citizens Bank. There is an Education Loan Refinance option now. You don't get much by way of forbearance, however, only one six month period. But you could potentially get a longer repayment period, which would mean a smaller monthly amount owed. The program is credit based, so if you have terrible credit you'd get a higher interest rate and with a longer repayment period you'd pay back more in the long run.

You'll want to do any of this right away, before you leave your job, so you have proof of income.
posted by clone boulevard at 1:17 PM on August 17, 2015 [1 favorite]

There is very little that can be done with private loans. I also have Discover as a lender. Every year or so, I call and see what options might be available, and they are always polite, and I am polite and ask hard questions, and they answer hard questions with, "I'm sorry. That's not possible." It kinda stinks, but it is what it is.

Your federal loans through Navient, however, you may be able to do something about. If you have a 10 year plan, make it a 20 year plan if you can (this is what I did). It cut my monthly payment in half, and my interest rate is ridiculously low that the interest is negligible in my case. You could also look into, after you quit your job, what you would need to do for Income Based Repayment, which means you pay less when you make less and you pay more when you make more.

And other than that, that's about it. It sounds like that $11,000 would be paid off before you would qualify for any other forgiveness that it's not even worth looking into forgiveness.
posted by zizzle at 1:24 PM on August 17, 2015

If you do get a job for a non-profit and your income is under a certain threshold (which varies by state, I think, and filing status), you can file for loan forgiveness. If you continue to meet those qualifications for 10 years, your loans will be forgiven entirely.

The catch? The forgiven loan amount is counted as income, which means you will have to pay taxes on the amount that was not paid by you. Better than paying it all back, but can come as a nasty surprise if you weren't expecting it.
posted by ananci at 2:54 PM on August 17, 2015

The U.S. Department of Education offers income-based repayment plans for federal loans. There is also a public service loan forgiveness program, and a variety of options for getting out of default.

Also, your options may depend on the school you attended. For example, if you went to Corinthian, you may be eligible for loan forgiveness:
Mr. Duncan also said the department planned to develop a process to allow any student — whether from Corinthian or elsewhere — to be forgiven their loans if they had been defrauded by their colleges. A special master would be appointed within three weeks, department officials said, to create procedures to apply for relief that are “durable, not just for Corinthian but beyond.”
posted by Little Dawn at 6:18 PM on August 17, 2015

The catch? The forgiven loan amount is counted as income, which means you will have to pay taxes on the amount that was not paid by you. Better than paying it all back, but can come as a nasty surprise if you weren't expecting it.

FYI, this isn't true. The Public Service Loan Forgiveness is not counted as taxable income. The loan forgiveness that is available to all income-based borrowers after 20 years regardless of what industry they work in does come with a tax bomb.

But all of that is likely irrelevant to OP, because it appears that all of her loans are private. Private loans are not covered by any of the government programs like income-based repayment or loan forgiveness. Private loans, you just have to keep paying them until they're gone, in the amount the lender demands, or else you ruin your credit.

OP, I think your best bet is to consolidate and refinance now, while you have a stable and relatively high income. Do this before you quit your job, as soon as possible, because you won't be eligible if you're unemployed. Pick a fixed interest rate and the longest possible payoff time, which will keep your payments low. But when your income rises, or when you have a really good month, or when you get a bonus, pay the loans off faster. As fast as you can. Because that's really the only way to get out from under this.
posted by decathecting at 8:07 PM on August 17, 2015

Sorry, I misread that. If you have Navient loans, they are likely federal, which means that you might qualify for income based repayment or for forgiveness after 10/20/25 years depending on what plan you qualify for. However, if I were you, I probably wouldn't do it. $200 a month isn't much, and with income-based plans, you often end up actually losing money in the long-term because your payments don't cover the interest. And as for your private loans, that interest rate (assuming it's fixed) is about as low as anything you could get now. So you're probably better off not refinancing. You can afford to pay these loans, and with your income level and loan balances, the cheapest and easiest way out of this for you is likely going to be simply to pay these down as fast as you can afford to.

(I have a lot of graduate school debt. I've looked into this in depth, a lot. Feel free to message me if you want to chat.)
posted by decathecting at 8:13 PM on August 17, 2015

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