Case in point: (As an aside, this client found me by googling “student loan nightmare”. Sad, but true.)
One client I met with this week received a statement from her FedLoan servicer that the amount due was now $542.88. On an income of $35,000 with a husband unable to work, our client simply could not afford that. When she called her servicer, she was informed that she did not qualify for income based repayment and her only option once she came off forbearance was to pay $542.88. But we can lower her payment by more than 50%! And once she retires, her payment can likely go to zero.
How can we do this? Her loans are eligible for a lower payment option if she changes her loan type to qualify. The repayment is estimated at $296 – but usually comes in $50 or even more dollars less. So her new payment can be more than 50% less – probably around 45%. And this plan will have debt forgiveness after 25 years of any unpaid principal or interest. If she were to pass away during that time, the loan would die with her. Finally, as she is now 55 years of age, once she retires, her likely payment will go to zero or close to it.
I have run into many people who are told by their servicers that there are no options to lower their payment which is simply incorrect. People unfortunately believe their servicers and think that they are representing their best interest. I’d like to reiterate that Navient, America’s largest servicer, who was sued by the CFPB earlier this year, released a statement in response to the lawsuit. Navient announced that there was “no expectation that the servicer will act in the interest of the borrower”. But yet their own website says otherwise.
Don’t run the risk of defaulting on federal student loans and incurring the 25% collection fee upon default. Contact a student loan attorney to see what options may really exist.
An unusually high number of people are close to defaulting or are already in default. In all but five states, the proportion of older borrowers in delinquency has increased from 2012 to 2017 according to a new report “Older Consumers and Student Loan Debt by State“. A high number of complaints to the CFPB show that older borrowers who are repaying loans for their own education, co-signing loans for someone else’s education, or borrowing on their children’s behalf, may struggle to repay these loans while living on fixed incomes during retirement.
There are a number of income based programs and they are confusing as to which one applies in to a borrower’s circumstances. We have written about this previously in our blog and published article “Could Student Loan Debt Derail Your Retirement?” Please consult with someone knowledgeable to represent your interests to minimize the payments on student loan debt so you can afford to retire someday.
Christie Arkovich