Help! I Owe $90K on an $18K Student Loan — & I've Paid $30K Already

Perhaps the only thing more exasperating than paying for a college degree that proved useless is to then find yourself owing for the equivalent of five degrees — and making payments for more than 45 years. That’s the situation one of our readers, Kerri, finds herself in. When she was 19 and a single mom, she signed up for a two-year program to train as a graphic designer. At the time, she saw it as a relatively quick way to prepare for a decent-paying career that would support her and her son. And now, after making $30,000 in payments over the past 30 years, she owes about $90,000 and has no idea how she can ever repay it. Here’s what she told us in a comment:

I made income-based repayments for a few years and watched the loan get bigger and bigger. It was up in the $50s when I read about an income based payment where your interest was paid for you for 3 years. I read this on Sallie Mae’s website. I guess I read wrong, because after signing up for the program and paying for a year, the loan was up to $62K.

It broke my heart. I cannot tell you the huge burden I feel with these loans. I have paid over $30K on loans that were originally less than $18K and that were consolidated at $26K. I have worked in my field, but not using the very expensive education I received ….

How did it happen? Shortly after she finished school, she went to work as a waitress, not a graphic designer. She did land a job as a graphic designer a few years later, but the company that hired her trained her. Hers was the last class that didn’t train on computers.

Struggling to make ends meet, she started off with relatively low payments, but she also deferred payment several times and asked for and received forbearance. (With both deferment and forbearance, you don’t have to make payments, but interest may continue to accrue, depending on the program and the type of loan). She wanted to repay the loans, and she sought the advice of others trained to help with finances, but they would “shake their heads and say ‘I don’t know how you live,'” she recalls.

She says now that when she took out the student loans, she didn’t understand the potential consequences. Nor did she understand how deferment and forbearance could increase her debt. Even now, though, she isn’t sure how she would handle that part differently. “If I couldn’t pay, I couldn’t pay.” She was already stretching dollars more than friends and neighbors thought possible.

Options After a Default

Kerri tried income-based repayment, which allowed her to make smaller monthly payments based on her income, but she became discouraged as she watched her balance grow. And in her despair, she stopped paying, feeling it was getting her nowhere. “I just shut down,” she said. She also did some research and learned that some student loans can be dismissed in bankruptcy. She knew it wouldn’t be easy, but she had already paid $30,000, so she thought maybe in her case, it would work. It didn’t.

She didn’t realize (or had not been told) that after 25 years of on-time payments, the remainder of her loan would have been forgiven. We asked Joshua Cohen, aka “The Student Loan Lawyer” what her options are now. Here’s what he told us:

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Most people don’t realize that the IBR payment is less than monthly accrued interest, but who cares?! It will be forgiven after 25 years. (She) gave up on a program that she shouldn’t have. Of course she’ll never pay the loan off — many of my clients won’t either. She needs to get out of default and back on to IBR so she can rack up her 25 years and get forgiveness. Unfortunately, she’ll have to restart her 25 years because in order to get out of default, she needs to consolidate again or rehabilitate — either will result in a new loan. She never understood IBR. If she did, she wouldn’t have given up.

When she stopped paying, she wiped out the years of conscientious repayment. “I made a huge mistake,” she says. She still qualifies for income-based repayment, but it will take 25 more years for the balance of her loan to be forgiven. And under current law, she could owe income taxes on the amount forgiven, unless she qualifies for an exclusion or Congress changes the law as it has with homeowners with canceled debt.

As it is, about nine months of on-time payments will “rehabilitate” her loan (changing its status from “in default”), and she can begin her 25 years of payments again. And that is her plan. Her advice to those who find themselves in a similar situation? “Stay with it (repayment). You have to re-apply for IBR every year, but you should do it until the loan is gone.”

Nikki A. Lavoie, a spokesperson for Navient, which now handles Sallie Mae’s student loan servicing, didn’t comment specifically on Kerri’s case. She did, however, have this to say to borrowers who are having trouble making their payments:

Federal loans have different payments plans to extend the loan term, make graduated payments or pay as a percentage of income. An income-driven repayment plan can help borrowers manage their federal student loan payments by linking the amount they pay each month to their income and providing more time to repay their loans. Eligibility for income-driven plans is based on a formula set by the federal government. As borrowers review repayment options, they should keep in mind that the longer they take to pay back their loans, the more interest they will likely pay overall.

While she can’t change her own student loan history, our reader was careful to make sure her son did not retrace her path. “I said, ‘Whatever we have to do (to avoid loans) would be worth it.'” Her son received a small inheritance from an uncle, her parents helped with a prepaid tuition plan, and he finished debt-free — with an undergraduate degree in business and a job. He is now married to a woman whose father was similarly debt-averse, and the couple’s only debt is a mortgage.

Falling behind on your student loan payments can seriously damage your credit, which will affect your interest rates on other types of credit — like credit cards, mortgage auto loans. This can affect your lifetime cost of debt (which you can estimate using this calculator). To see how your student loans are affecting your credit, check your credit reports and credit scores. You can get a free credit report summary, updated every 14 days, on Credit.com.