I'm stumped and I hope some of you folks can help me.

I recently finished rehabbing my student loans. I am now under a "hardship forbearance" where I make small payments. (What they calculated for ICR for me was even higher than the amount on the Graduated plan! Both are about twice what I can pay.)

Here's my problem: The payments don't even come close to covering the interest. I knew this was the case when I was in rehab, but thought that this would change afterwards. Based on some misunderstandings I had, the total I owe is substantially higher than I thought it would be (even after the "collection costs" were removed) and the current interest rate and higher total are making payments out of my reach. Any interest that I don't pay in the coming year will again be capitalized. So I will owe more this time next year than I do now.

This is not a temporary situation. I do not expect any dramatic change in my salary or employment. I already work a second job.

I do not believe I am eligible for any of the "administrative discharges" (fraud on the part of the school, etc.), nor am I dead or a teacher. I am not totally and permanently disabled, though an unidentified cognitive disability which worsened substantially was the reason for the original default and therefore a substantial amount of the currently capitalized interest.

I was quite specifically told by the CA managing my loans that I could not consolidate while I was in rehab (Yes, LIE). For this reason (and another that is one of my own misunderstandings), I did not lock in the 4% interest rate earlier this year.

Unless I find some way to a) lower my interest rate (currently 6.1%) or b ) get a partial cancellation, I will literally never pay these loans off. I must find a way to make payments that at least cover the interest. Otherwise, I can't see any reason to make any payment whatsoever since the total will just increase.

Do I have any options? What can I try?

No, I haven't consolidated. Will it make any difference if I'm already paying the same interest rate on everything I have? They're all Direct Loans that were either Stafford sub or unsub. I checked one of the charts on the DOE site and they're all in the same category except a couple for the 94-95 year which apparently have slightly different rules, but the interest is the same. They're all at 6.1%

I know that you're stressed over this. I am essentially in the same place; I really can't afford my loan payments. I stuggled with consolidating or rehabbing before last July 1 and decided to stay in rehab (ends Feb). I'm thinking of trying to hold on until the rate announcement next June and then choosing whether to consoldiate my loans. I'm hoping I can pay partial payments for a few months.

Do you get a interest rate reduction after you consolidate? I've heard some people get a 1% reduction after a year or so and then another reduction with direct debit. That might help some.

Yes, you can make "partial payments." That's what I'm doing. It's called a hardship forbearance. It's not really the same problem if you just do it for a few months and then start making larger payments. My problem is I can't see any way that I'll ever be able to make payments that large.

I'd definitely check all the repayment options to see if you can get in a regular plan. The graduated plan will at least get you paying the interest at the start.

If you're on a regular plan then you get a .25% reduction for direct debit. I heard the same thing about the 1% reduction after a year of on time payments, but I don't think that Dept. of Ed offers that -- just some of the private lenders like Citibank.

As for the rate reduction after you consolidate -- it depends on what your current rate is and what the consolidation offer is as to whether the rate is lower. Currently the Dept. of Ed is offering 6.1% on consolidation and what I have right now on all my separate loans is 6.1%. If I had some that were higher, it would be worth consolidating, but I don't see the point otherwise.

I really believe that the majoriy of people want to pay off there loans, but just can not afford. This is evident here with Citygirl as well. You can look and look for options, but the bottom line is there is little flexibility here.


I am now at a point where AES is asking me what I can afford. They have all my paper work (incl expenses and py stubs). I have a lot of expenses and according to my pay stub, I am in the red every month. But I make a few dollars off the books.

Interest on my student loans are $500+. My interest rate is 8.25%.

Would it be unreasonable to come in at $300 per month for a rehab payment ? AES said that after rehab, I can re-consolidate for another 300 months....but i am not sure of the interest rate i will have to pay. Do you think I will still be obligated to the 8.25% ?


Thanks in advance.

That's not unreasonable...the ombudsman told me not to be noble. Tell AES what you really can afford. If $300 a month is going to make things really tight, see if they will accept less.

I'm thinking of consolidating after rehab also (I can't imagine how I could afford the payments otherwise)...but I was hoping to hold off until I see what the new rates are going to be next year. This year was the largest rate hike in student loan history. I'm hoping things jump back a bit. I know I won't get the lowest rate, but I figure it's got to be better than 6.1%.

Why can't AES allow a rate reduction like the other companies do? If they did, then I would consolidate and then get another 1% drop after a year or so. I know a lot of people are stuck at larger interest rates, but many of them borrowed a lot less money. Tuition in the early 90's was a lot less than late 90's and now.

I'm continuing to do research and will keep people posted. What I'm hoping to do is find a way to get my interest rate decreased so that the payments I make now will cover at least the interest and so my loans will at least remain static instead of increasing.

From some preliminary leads, it looks like people who have attempted to discharge their loans in bankruptcy sometimes reach a compromise or write-off with DOE out of court. I think this is the route I'll take -- but since it's the only large debt I have and I'm not attempting to discharge the entire loan, I'm hoping that I won't have to actually file bankruptcy, but just negotiate directly with DOE.

I don't know much about this yet, since I'm still researching. I'd still have to prove some element of "undue hardship", but it looks like there may be some middle ground between "pay every last penny" and "total discharge." I may take some approach like "income contingent payment less unusual medical expenses due to disability = ability to pay X; if interest rate were lowered to Y, then X would meet interest only threshold".

Just hypothesizing here for now, but would love feedback from anyone that's entered their SL's on a bankruptcy.

You may have already explained this elsewhere, so forgive me if I'm being dense, but if you're about to enter repayment with DOE, can't you just choose the income contingent program? They use your tax statements to figure out your payments and then after 25 years, if there's anything left over that you haven't paid off, the remainder will be written off. Yes, you'll owe taxes on the forgiven amount, but that's still WAY less than the total -- and it's 25 years from now, so you'd have time to prepare for it. DOE is the only one that offers actual "income contingent" (as opposed to "income sensitive" from the FFEL lenders, which, at the end of the day, still make you pay it all off). You can get that through DOE consolidation loans, too (which do at least offer the .25% interest rate reduction for doing auto debit).

Is that an option for you? Just a thought. Sorry, I don't know anything about BK, so I've got nothing for you there.

Good luck!!! Hope this helps!!

That's what I thought. It turns out that income contingent is exactly that; no less and no more. It is based solely on your income. Your expenses are irrelevant to their calculations. From www.ed.gov:

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 (your AGI minus the poverty level for your family size, divided by 12) multiplied by 20%.

For me it won't be #1, since they're already talking about 30 years (my loans are about $88k after the collection costs were removed after rehab). And the second calculation doesn't take into consideration that you might live in a big expensive city or have large on-going medical bills or anything else. So their estimate of what my discretionary income should be is several times more than the actual.

Interestingly, if you file an adversary petition under bankruptcy they consider your actual expenses within reason for your particular state with possibly some extra allowance for certain metro areas. Based on the current standards, even my rent & "non-mortgage" expenses in one of the more costly U.S. cities is at about 70% of what's allowable. So clearly I'm not living in any lavish way. But the federal poverty level is less than my rent alone, so that's a useless figure for my reality.

Also under the bankrupty laws "reasonable expenses" include things like protecting yourself against future financial ruin - so you're allowed to save money in an IRA or to establish an emergency fund and to pay for insurance, etc. Clearly, the ~$9500 federal poverty level that the Dept. of Ed uses to calculate reasonable basic expenses doesn't cover any of this -- it would all be considered discretionary.

So: I can't afford the calculated ICR amount. Not even close. So I'd have to have the same hardship forbearance that I have now. And time in deferment or forebearance doesn't count towards the 25 years.

It's like living in a damn Kurt Vonnegut novel, really.

Even if you cannot afford the ICR payment, the DOE will still work with you and they will argue that in their defence. Many people cannot afford the ICR payments based on the current formula. On a case by case basis they will look at your actual expenses and they will offer a payment plan based yourI know actual costs. My sister in law is on such a plan right now with Direct Loans. Her actual ICR payment is around $400 per month but in her case, due to medical expenses and high daycare costs, she pays $175.00 The daycare costs will go away with time but the medical expenses will go up. She has been doing this now for about 4 years and yearly she submits a financial statement.

It is unlikely in an advisarial situation you will get much relief. The DOE will argue that that the future is unknown and that your situation could change. There are too many variables.

Lynn that's what's happening now. It's called a partial forbearance where I make payments, but they aren't as much as any of the other plans.

I'm still faced with the same fundamental problem: I cannot afford to make payments that cover the interest. Thus the loan amount only will ever get bigger.

Unlike your SIL, I do not have expenses that will go away with time. I have a permanent medical condition that incurs costs not covered by insurance. I live in the same one-room rent controlled apartment that I've lived in for 10 years. If I were to move, my rent would only go up (I've already explored that as a way to reduce expenses). I cannot afford a car. My current gross salary has finally returned to the level it was at 10 years ago. I've been in this job for four years. During that time my net salary has decreased (our portion of insurance premiums has increased more than that two small cost-of-living adjustments they have given out). This job was supposed to be temporary, and I have been looking for a job since I started this one and I have had maybe three interviews. My medical condition is a disability that inhibits my work options (ie, I can and do work full time, but the possibility of me getting a better job is slim). I will be 40 in about six months, and the suggested repayment plans -- even if I were able to fully meet them NOW -- extend well into a normal retirement age. I am single, and statistically unlikely to ever marry, so it's not likely that I would improve my circumstances that way.

Even the best analysis of my future is bleak.

I think DOE would rather give me some negotiated relief than heading to bankruptcy court. Of course we all know that they usually fail to use any logic.

You are no different to my sister-in-law who is 36. She is a parapalegic and owes $65k from an uninsured accident just after graduation. Due to a head injury during the accident, she has vision problems but she copes with working a 40 hour week. She graduated 1st in her class from a paralegal course and had job offers starting at $40k with several big firms. Yet due to the accident, she is now working at a small practice in North Dakota that accomodates her disabilities earning around $25k. Plus 4 kids. She gets $1000/month child support which she will loose when the kids turn 18. The kid expenses will eventually decrease but she is underinsured with high medical co-pays. She knows she will never pay off her direct loan, she simply has resigned herself to that. But that it the benefit of consolidating.

Lynn, just wanted to say your sil sounds amazing! Given all her challenges, she doesn't use them as an excuse to not work!