THE BLOG
06/10/2013 11:34 am ET Updated Aug 10, 2013

My Private Student Loan Debt is Out of Control

Huffington Post Reader Question

Hi Steve,

Like many others who have written you, I come with a question regarding private student loans.

Between my wife and I we have about $150,000 in private student loan debt through Sallie Mae.

For the past four years, we have made our payments on time, paying interest only payments. Soon, our payments will go out of interest only and they are going to be hard to make the payments on.

We have good jobs, and make good money. However, we still dont make enough to pay these loans, and we are into them now for the next 20 years.

We will be paying $1450 a month when the interest only payments are over. We bring in an average of $4500 a month after taxes, but our expenses are about $4800; this is all our bills, federal student loans, credit cards, insurance payments, groceries, utilities, etc.

Since this loan situation will persist very far into the future, is there any chance we would ever be able to file chapter 13 and get this debt discharged?

I have had people suggest still filing just to get rid of our other debt and then pay the loans after we come out, but that debt is minuscule compared to the loans.

If we didnt pay our Sallie Mae payments for about six months, we could pay off all our other debts. I look forward to any advice you could provide. Thanks!

Bryan

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Hi Bryan,

There are changes and glimmers of hope on the horizon for dealing with discharging student loans in bankruptcy. There is evidence today it is happening in a limited number of cases.

I'm even seeing more proactive offers from Sallie Mae to settle student loan debt for less than is owed but how these offers get triggered is still a mystery. They seem to be proactively sent by Sallie Mae when something internally triggers them.

Whoever gave you the advice to file bankruptcy to discharge your other debt was thinking the right way. The most logical way to handle student loan debt today is to discharge other debt and get back to making the full regular payments on the student loans.

If that is not going to free up enough cash to make your student loan payments you can see if you qualify for one of the income based repayment programs for your federal loans and that might make some room to pay the private student loan payment. If you don't qualify or it does not leave you with enough room then you might have to talk to a local bankruptcy attorney about a chapter 13 bankruptcy to deal with the private student loans.

You can click here to find a local bankruptcy attorney and talk to them for free about your specific situation. Get the facts and then you can make an informed and educated decision if bankruptcy is right for you.

The chapter 13 bankruptcy will not lead to the discharge of the loans but it will buy you five years of manageable payments and no collection pressure and avoid potentially added fees and penalties.

It certainly seems we are on path of consumer debt that can't be sustained with explosive student loan debt. Private student loan debt was dischargeable in bankruptcy until 2005 when Congress changed it. Congress can change it back. The chapter 13 would be a gamble Congress would change the law in the next five years and if they don't then you can file another chapter 13 bankruptcy when the first one ends.

What you absolutely can't do is get so fixated on the student loans that you overlook building an emergency savings account and you begin to participate in your employer sponsored retirement plan program up to the maximum matching level.

You can find more details on dealing with your student loan debt in my free guide about dealing with student loans you can't afford.

But the math tells us generally what must be done. There is no way around the fact we have to adjust your life to fit within your income and obligations. When it comes to those obligations we can deal with them by increasing income, reducing expenses, or a combination of the both. One way to reduce expenses is by eliminating debt with bankruptcy.

Bottom line though, with $4,800 a month in obligations and $4,500 in income, the path you are on is not sustainable without making some adjustments, tough choices and sacrifices. It might be prudent to read my 8 Easy Steps to Eliminate Your Debt Checklist to get the need clarity you will need to make the necessary changes and get ready for a better financial future.

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