They Told Me to Put My Student Loans in Forbearance and Now I’m Screwed

Question:

Dear Steve,

I took student loans out just over 20 years ago-earned little money since- I was always encouraged to go into forbearance instead of a contingent or IBR – on social security and so now only 856 monthly- my loans are 35000 versus 14000 borrowed-I am in IBR now for last couple years.

Would a contingent plan initially and later IBR as early as 2009 when available reduce my accrued debt significantly?

Thanks.

John

Answer:

Dear John,

Whoever gave you the forbearance advice didn’t know what they were talking about. Unfortunately, a number of federal loan servicers took the shortcut of advising people to use forbearance instead of an Income-Drive Repayment plan.

Let me be clear. It was bad advice and wrong.

While you don’t have to make payments in forbearance the balance continues to grow. All the unpaid interest gets added to what you owe. The problem gets kicked down the road without any resolution. In fact, the debt becomes worse, larger, and even more unmanageable.

It’s like someone saying if you pour more gasoline on an open wound it will feel better. It absolutely won’t.

Repayment programs that result in the loans being forgiven have been around for a long time. – Source

1995 – Income-Contingent Repayment (ICR) 25 years.
2007 – Income-Based Repayment (IBR) 25 years.
2010 – Pay As You Earn (PAYE) 20 years.
2014 – New IBR 20 years.
2015 – Revised PAYE 20 years for undergraduates and 25 years for graduate students.

If you had been properly advised to enroll in the ICR 20 years ago, your student loans could be eligible for elimination in five years.

But that ship sailed.

The reality is you are unlikely to ever repay your student loans but a ray of sunshine might be that based on your income, your monthly payment should be as little as $0 per month. That will keep you out of default and prevent your Social Security from being garnished. The balance will still grow but at this point, it doesn’t matter.

Sincerely,

You are not alone. I’m here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don’t give up.

Damon Day - Pro Debt Coach