Question: “I am 35 years old, I have a child and another on the way. My partner is afraid to marry me because of my debts and I don’t have a stable income. I have two master’s degrees and owe $ 380,000 in student loans. I am already enrolled in the income program and am concerned about what will happen when payments resume in January. I can’t afford to cancel the loans because I think it’s a taxable event. Is there anything I can do to protect my family and lessen the blow for me? ”
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Responnse: While this problem probably seems overwhelming, and you’re worried about what will happen when your student loan payments can resume in January, don’t panic: there are some things you are already doing right, like signing up for the income-based repayment program. , which without a doubt, has already reduced your payments. Anna Helhoski, student loans expert at NerdWallet, advises you to “stay on it”, adding that “after 20 or 25 years, depending on your debt, your loans will be canceled.” (See below for the good news on the taxes related to this.) But beyond that, should you be looking for loan forgiveness, bankruptcy, refinancing – some student loan refinancing rates are starting now? less than 2% – or something else? Here’s what the pros told us.
Find out if you could get some of those loans canceled, says Scott Ward, certified financial planner and CFP Board ambassador. This is because Americans with direct loans who hold many nonprofit or government jobs may be able to get loan forgiveness after making about 10 years of payments; you can read all the details of the civil service loan forgiveness program here. And here are some other loan cancellation options – for teachers, healthcare professionals, and more – as well, which you can read here. In addition, a number of companies now offer to repay part of their employees’ student loans, so it may be worth looking for a position with one of these companies. Extra Bonus: If you can increase your income with a new job that also offers student loan assistance, it may be easier to pay your payments.
Bankruptcy could also be an option, “but this is potentially expensive and difficult to achieve for borrowers on federal student loans. If any of your debts are private, it might be worth considering, as the courts tend to write off private student loans in bankruptcy, ”says Helhoski. Here is a guide to what you need to show to get discharged from your student loans in bankruptcy.
There is good tax news when it comes to loan cancellations, says Michael Kitchen, higher education expert and editor of Student Loan Hero: “A relief measure adopted in response to the pandemic of Covid has frozen all taxes on student loan cancellations until 2026. This could give you time to save money for the tax bill. And if that bill turns out to be too high to handle, the IRS is usually willing to set up a repayment plan that will work with your current income. You can read more about the tax stay here.
In your case, you already have an income-based repayment plan, which has reduced your monthly payments. For this and other reasons, refinancing may not make sense to you. But for other borrowers, it could be, as some student loan refinance rates now start at less than 2%. It’s worth considering refinancing if it can save you money, either by lowering your interest rate or shortening the term of your loan. But those with federal loans should know that refinancing “would permanently take away from federal loans their potentially useful collateral, such as access to income-oriented repayment plans, deferral and forbearance programs, and programs. cancellation of current and potentially future loans, ”explains Andrew Pentis. , Certified Student Loan Advisor and Debt Expert at StudentLoanHero.
* Letters have been edited for brevity and clarity