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My husband has a student loan that we will never be able to pay back, and each year it gets bigger and bigger. Our strategy so far has been to pay the smallest amount we can negotiate with the US Dept of EDU. In reality, we can't even afford to pay the interest on the loan to prevent it from growing each year. Is there any negotiating with these folks, like one does in bankruptsy? Like getting the loan down to it's original amount? I know, spit in one hand and wish in another....

Are there any other strategies to deal with this sort of debt? We are in our late 30's, my husband's philosophy on his debt is he doesn't need to pay it back, that he has accepted the fact that he will have to pay the minimum on the loan for the rest of his life.


Sarah
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I would try to work with them as best you can. Apparently it looks like if you take 25 years to repay the loan, then after 25 years, the unpaid portion will be dismissed but you'll have to pay taxes on the dismissed portion:

This is from:
http://www.ed.gov/offices/OSFAP/DirectLoan/RepayCalc/dlindex2.html

Income Contingent Repayment

This plan gives you the flexibility to meet your Direct Loan obligations without causing undue financial hardship. Each year, your monthly payments will be calculated on the basis of your adjusted gross income (AGI, plus your spouse's income if you're married), family size, and the total amount of your Direct Loans. Under the ICR plan you will pay each month the lesser of:

1. the amount you would pay if you repaid your loan in 12 years multiplied by an income percentage factor that varies with your annual income, or
2. your monthly discretionary income* multiplied by 20%.

If your payments are not large enough to cover the interest that has accumulated on your loans, the unpaid amount will be capitalized once each year. However, capitalization will not exceed 10 percent of the original amount you owed when you entered repayment. Interest will continue to accumulate but will no longer be capitalized.

The maximum repayment period is 25 years. If you make payments under the standard or 12-year extended plan and then switch to the ICR plan, time under the former plan counts toward your 25-year repayment period. Time spent in other plans or in deferment or forbearance does not count toward the 25 years. If you haven't fully repaid your loans after 25 years under this plan, the unpaid portion will be discharged. You will, however, have to pay taxes on the amount that is discharged.
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"The maximum repayment period is 25 years. If you make payments under the standard or 12-year extended plan and then switch to the ICR plan, time under the former plan counts toward your 25-year repayment period. Time spent in other plans or in deferment or forbearance does not count toward the 25 years. If you haven't fully repaid your loans after 25 years under this plan, the unpaid portion will be discharged. You will, however, have to pay taxes on the amount that is discharged. "

I am pretty sure he has been on the ICR payment plan from the beginning, does that count? What sort of tax rate apllies to the discharged amount? I am guessing that if being on the ICR plan counts (as opposed to a standard plan) then he still have 15 years to go.

The amount he pays is not enough to cover the interest, not by a long shot.

Thanks a ton, by the way!

Sarah

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Necessary disclaimer: I am not a tax expert. This is what I believe to be the case, but I COULD BE WRONG. (Amazing, but it has happened before. It was a Thursday, if I recall).

Anyway, I believe you'll get a 1099 form the year the rest of the loan is "forgiven", showing the forgiven amount as income. I believe you then include it in your income on you 1040, and figure your tax liability accordingly.

We're in a similar situation - DH's student loan is so big it's a joke. Minumum monthly payment more than he even earns (on standard repayment), the whole tragedy. So, he's on the ICR plan.

I honestly think the tax laws will have changed by then (if the Fair Tax ever happens, for example, or any of the other major tax overhaul proposals) and there won't be any income tax due by then. We'll see.

Something else to consider, their ICR program uses total household income (not just the borrower's income) to determine payment - so if you also have student loans, it MAY be best to consolidate with your spouse. If you each have separate loans, the other loan obligation is not considered in determining your monthly payment.

Kind of annoying to me - my income is counted to determine his payment. The government is requiring me to pay his loans.

Of course, there are downsides to consolidating with spouse, so read, learn and decide what's right for your guys.

-a-
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Wow, sounds like we are in the same boat. I don't have a student loan, and my hubby's payment on the standard plan is more than he makes per month. I guess we'll just keep on with the ICR plan and hope for the best. We've even wondered if getting married was such a good idea financially, as my income is used to determine his payments. We worry that the student loan people will come after me someday when they find out I have assets. They can't take your house, right?

Sarah
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We worry that the student loan people will come after me someday when they find out I have assets. They can't take your house, right?


It's been my understanding that they generally can't take ANYTHING that's in your name if the student loan remains in his name... I wouldn't worry about that, though maybe you want to be careful about whose name is on what property just so he doesn't look like he has assets.
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Hey...lets have a contest on who has the biggest loan. Okay...maybe not.


Maybe we should start our own board: How to owe the government more money than you'll ever make in 3 lifetimes.

I've seriously considered calling a bankruptcy lawyer about my student loan. As I understand it under certain circumstances you can have it discharged under bankruptcy. I looked it up at some point but I've forgotten what it was.

I am currently on the "wait 25 years and hope you die before the taxes are due" plan.

I'm starting to wonder if this is a "Decade" thing. As in those who went to school is this particular decade are not ever going to be able to pay off thier student loan. Which presidential plan should we blame it on?

(I'm not even sure I remember my college years let alone who was president.)

Maybe we should take a poll of all those people on the ICR plan and have loan payments that are more than they make a month. (or would have if they weren't on the plan.)

hmm...there's an idea. Anyone know where I can get a government grant to study this?? (or would that be redundant and audacious?)



Lady Ianna, is in a highly sarcastic and ignoble mood.



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From what I can tell, discharging the loan through bankruptcy is basically the same requirements as the ICR plan. Basically have to prove that paying back the loan would cause an undue hardship. Although that may only get part of the loan discharged not all of it.

I count myself lucky in that I didn't have too much student loans, mostly because my parents told me I had to pay for school myself and they weren't helping. As a result, I had to look for various options on paying for school and living as cheaply as possible. Unfortunately, I didn't carry that lifestyle after graduating, but figured I could spend more, which ended up in credit card debt.
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Lady I-

Ok, I have to admit to another secret fantasy (the first being that in 25 years the tax laws will have changed so that no tax will be due) - I keep hoping that there will be enough of us in this boat (you know, rocking and beginning to sink) that our old friend the government will do something to help.

Maybe expand opportunities for loan forgiveness, something. As it is, we should finish off the student loans (on ICR) jut in time to collect social security.

Remember a few yeas back all the press about the "sandwich generation" - middle age adults rasining their children and having to care for their elderly parents? We're gonna be in that situation, but with such student loans that we won't have the resources to pay for our parent's care.

-a-
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I guess I should count myself lucky that my hubby only has the student loan debt, he never got into credit card debt, or have any other debts.

If we are talking fantasy here (ha ha) I personally feel education should be free, or very low cost. But I guess then we'd be like those other countries who have mandatory military service.

S
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our old friend the government

uh-oh...

:)
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How much student loan debt are we talking about here?

DW had about $75k worth, and we have it on a 30 year payback plan at what I consider to be a very manageable $350/month.
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My charming DH, through actual loans, deferments (think perpetual student) and forebearances has a total of $188K to pay back. My doctoral degree adds another $130k to the mix.

I think my education was worth it, and will continue to be worth it, but I'm NOT AT ALL sure his was.

Most days, I try not to think about it. On the 25-year ICR, we pay a combined total of $1000 per month.
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My charming DH, through actual loans, deferments (think perpetual student) and forebearances has a total of $188K to pay back. My doctoral degree adds another $130k to the mix.

Egads!

jmc
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My charming DH, through actual loans, deferments (think perpetual student) and forebearances has a total of $188K to pay back. My doctoral degree adds another $130k to the mix.

Just out of perverse curiosity... what are these degrees in, if you don't mind my asking? (I have a graduate degree in literature, which put me in a certain amount of hock, so no need to worry about sounding frivolous to me...)
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He holds a B.A. in political science/english lit (double major; paid for by a presidential scholarship); a M.A. in English Lit (so useful!); and a M.A. in T.E.S.O.L. (Teaching English to Speakers of Other Languages). He completed 2.5 years of law school before deciding he did NOT want to be a lawyer.

He'll complete his MBA next spring (no loans involved in this degree) and a BA in computer science the following spring (no loans involved here, either).

We are paying on the loans even while he is in school.

We got married after his degrees were earned, except for the MBA and comp. science, of course.

Mine are all in clinical psy. I did not have a presidential scholarship for my undergrad.
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I am curious about the income contigent payments--are private loans eligible for such things as well? How do they decide what is "affordable?"
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