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Author: Institution One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308570  
Subject: Re: CC+Student Loans=$150K: Help! Date: 5/24/2001 10:02 AM
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I have about $150K total debt (not counting my car loan, which is still around $8K): $25,500 is credit cards, the rest (!) is student loans. My loans were not originally that large, but I've never been able to afford to start payments (I graduated 4 years ago with my PhD), so even though I get forebearances, the interest capitalizes and the principal continues to grow (I should mention they're already consolidated with a 30 year payment).

Okay, I am going to make an assumption here from what I read in this paragraph: whatever else you are doing to handle your credit cards, car loan, and spending, you are not paying anything toward the student loans at the moment, and the balance continues to compound daily. If I'm understanding this correctly, let me just say now: Danger, Will Robinson!

I have acquaintances who have tried the long-term forbearance plan, and they are the kind of people who end up living in their mom's basement at 50 years old, wondering what happened. I don't mean to say that that's going to happen to you, but it is possible, and I know that when it does happen, people end up very, very bitter. Student loans don't ever go away; it is nearly impossible to discharge them in bankruptcy, even if you are disabled or impoverished. In my opinion, you need to start taking some action on the student loans.

I realize that after 14 years of not having a life, it probably doesn't seem fair that you don't yet have the chances to take nice vacations or own a house, but ah well. This is higher education in the liberal arts, unless you're careful. What's done is done. And because people like you ended up in so much trouble borrowing amounts that simply can't be managed, the US Department of Education has proposed a solution. For most people, this isn't a great option, but you are probably an exception. The last time I checked, people were still able to consolidate student loans of any total balance with them on an Income Contingent loan for 25 years. You pay a percentage of your income to them for 25 years, and after 25 years, whatever you have paid, you are done. If a balance remains, you have to pay taxes on the amount forgiven, but the debt is gone. I think for you, given that you are currently unable to make any payments, it is probably the only way to escape a lifetime of constantly compounding debt.

If you consolidate this way and get lucky sometime in the next 25 years, you have the option, of course, of paying off the balance early. If I were you, watching my student loan balance grow unchecked, I would sign on now to pay something, anything, just to start to get it under control. Even simple interest student loans grow uncontrollably if you're not making any payments.

Obviously, this requires finding some money from somewhere. I recommend, like the other posters, that you stop going out to lunch every day, whatever the social atmosphere. I worked in an office like that, and no one held not going out every day against me when I told them I was doing it to pay off my student loans early. Instead people started staying in with me occasionally and confessing to how much trouble they'd gotten into with buying that new car, and how they kept stealing from their kids' college accounts to pay the utility bills. This was depressing, frankly, but I stopped feeling alone.

I was also an inveterate book buyer, but now I love me some library books. Give the library a try, instead of Half-Price Books. It saves more than you'd think. Last year, when my husband and I needed to pay off all our interest bearing loans because we were taking pay cuts to move overseas, we saved 40% of our gross income by being careful and living cheaply. When we look back on that year now, we don't remember feeling deprived, we remember how much fun we had and how confident we feel now being free from so much of our debt.

You can also gain enormously by trading down your car, getting rid of those payments -- that alone would probably be enough to fund income contingent student loan payments. You may be able to find someplace cheaper to live, which would be very useful. I have a couple of friends who live rent-free in an in-law apartment doing small household tasks for a woman who is disabled. This saves them massive amounts of money, they love the apartment, and they really like the woman who hired them as well. There are many options.

My husband and I had six-figures in student loans as well, which seemed just impossible, unfathomable. We've whacked off more than 2/3s of the total now (and are saving to finish off the rest, but we're not too concerned right now because they're not accumulating interest), but the only reason it happened is because we started doing something other than coasting along hoping they'd go away someday, which we both did for way too long. We kept the cheap apartment in the bad neighborhood, we stopped going out to eat for months on end, we stopped buying books and toys and concert tickets and whatever. And it still felt like lving, and man, do we feel like we have our act together now. Now the life we want is possible, instead of a pipe dream, and that, it turned out, was worth a lot of ultimately forgettable sacrifice up-front.

Institution
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