What Happens If You Pay Less Than The Minimum Payment on Student Loans?

Question: I realize if you don’t make any student payments at all, your loan will go into delinquency and then default. At that point the government can garnish your wages and take any tax refunds you may have coming. MY question is: What if I’m making payments, but they aren’t the full payments that were set up under my income-based payment plan? For example:  My payments are to be around $490 a month, but what if I can only send in $250 a month? Will they still garnish wages and take my refunds?Sabrena in Pennslvania

Andrew Pentis, certified student loan counselor at Student Loan Hero, responds…

Sabrena, it sounds like you’re already aware of the severe consequences of not repaying student loans. To avoid delinquency and default, however, let’s review some of the details.

When making a payment is still a late payment

First of all, a partial payment is still a late payment. Submitting anything less than your income-based repayment (IBR) plan will trigger delinquency. So, if your minimum payment comes out to $490 per month, you’re going to have a problem.

Despite this, sending $250 to your servicer is still a good idea, since it will apply to your outstanding balance. However, it’s approximately a half payment – and won’t be enough to keep you in good standing.

After all, delinquency [1] starts the first day you miss a payment, and it’s followed by potential fees and dings to your credit report.

[For more information, read What Happens If I Can’t Pay My Student Loans?]

When your wages can be garnished

To your second question, yes, the Department of Education could also garnish your wages, withhold your tax refund, and even deduct funds from Social Security benefits. That’s only a possibility, however, after your loan enters default status. To avoid having your delinquency turn into default, you would need to repay your pending balance within 270 days.

To prevent default, it’s best to contact your loan servicer as soon as possible. Explain why you’re having trouble coming up with the $490 you need to keep pace with monthly payments.

You are able to pause your repayment plan via deferment or forbearance. You’ll need to have a great excuse, though, like a job loss or a stack of medical bills.

An Unemployment Deferment Request [2], if approved, could stall your dues for up to three years, for example. Just be aware that interest accrues during any delay in making payments, so you would return to repayment facing a larger balance.

What to do now

IBR plans make your monthly dues more affordable. So if your $490 payment isn’t feasible based on your wages and doesn’t fit within your budget, something’s amiss. Perhaps you didn’t recertify your income and family size with your servicer — that could have increased your monthly payment to what you would have paid on the standard, 10-year repayment plan.

Whatever the cause of your unwieldy payment amount, there are a few more solutions to consider…

  • Switch repayment plans. Even if you’re already using IBR, see if you can lower your monthly payments by switching to another plan. Use the Department of Education’s Repayment Estimator [3] to see which of their six repayment plans fits your finances best.
  • Try a consolidation loan. If you have multiple federal loans, you could reduce your payments by consolidating (or grouping) them into one new loan with the loan servicer of your choice. The consolidated loan would result in a single monthly payment and could help you qualify for other income-driven repayment plans if needed.
  • Look into student loan refinancing: With excellent credit and stable income (or a cosigner who has both), you could lower your federal loan payments through private refinancing. Like consolidating through the Department of Education, you’d be left with a single loan to repay.

Refinancing is unique because it could also reduce your interest rate. If you lengthen your loan term during refinancing, however, you’ll lose out on those reduced-rate savings. But before considering refinancing – which is irreversible – be absolutely sure you won’t miss federal loan protections like IBR, deferment and forbearance, and loan forgiveness options.

No matter what measure you take to manage your repayment, try carving out more room in your budget. By prioritizing student loan payments over less-necessary expenses, hopefully, you can make at least the minimum payment. Then you can avoid nightmarish scenarios like wage garnishment and draw closer to the dream of being debt-free.

Does Student Loan Consolidation Work With Personal Debt, Too?

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Question: Can I consolidate my student loan debt with personal debt such as credit cards and car loans?

Aaron in Virginia

Andrew Pentis, certified student loan counselor at Student Loan Hero, responds…

Since you have student loans, you’re probably already aware of the benefits of refinancing. You could lower your interest rate, switch lenders, and enjoy a simpler repayment.

Student loan refinancing also allows you to consolidate your debt — but only your student loan debt. On the other hand, there is a way to consolidate many different types of debt. Just like student loan refinancing, it requires creating a new loan in your debt’s place.

Pros of debt consolidation with a personal loan

You can use a personal loan. Apply the amount you borrow to student loans, credit cards, auto repayments, or other debt. Then you’d have the simplest possible repayment — just one loan with one creditor, instead of a handful of them.

You would shop for a personal loan the same way you’d compare other financial products, seeking the best terms from reputable lenders. A strong credit score and a stable income, either from you or a cosigner, can help you qualify for advertised rates.

But just because you can consolidate all your debt via a personal loan doesn’t mean you necessarily should. It could make for a significantly more expensive repayment. After all, student loan APRs usually beat those of personal loans.

Cons of debt consolidation with a personal loan

Say, for example, you have federal student loans with an average interest rate of about 6 percent and credit card debt with a summed interest rate of closer to 20 percent. Unless you qualify for a personal loan with a rate below 6 percent — perhaps with the help of a cosigner — you will end up paying more in student loan interest, even if you pay less on your plastic.

For the most potential savings, you’ll want to lower the rate of each of your debt types. In an ideal world, you would decrease your student loan debt cost by refinancing to a sub-6 percent rate. Then you’d shrink your credit card rates well below 20 percent, using a personal loan or a balance-transfer card with a zero-percent introductory rate (and no annual fee).

If you’re aiming to consolidate for the sake of simplicity but don’t have at least average credit, consider seeking debt relief assistance instead.

Keep your credit score in mind

If you elect to handle each of your loans separately and on your own, keep in mind the potential effects on your credit report. It’s best to apply for one loan at a time and to make those applications within 30 days of each other to minimize the effect on your credit score [1].

Alternatively, your score could increase if you first consolidate your credit card debt before applying to refinance your student loans. That’s because a lower monthly payment to your credit card issuer could improve your cash flow and lower your debt-to-income ratio [2] in the eyes of your potential student loan lender.

Dealing with more than one kind of debt is difficult. But before rushing to consolidate all your debt, ensure it will make your repayment easier — and more cost-effective. Otherwise, consolidation could be a step in the wrong direction.

What Are The State Tax Garnishment Rules for Married Couples Filing Jointly?

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Question: I have a percentage withheld from my wages for my student loans. Will all our taxes be withheld for my student loans if I file with my husband, too?

Shaena in Michigan

Andrew Pentis, certified student loan counselor at Student Loan Hero, responds…

Unfortunately, filing taxes jointly with your husband means that both your tax refunds could be garnished.

As you know, defaulting on federal student loans can lead to garnishment of your wages and tax refund. If your student loans are in default, the IRS could intercept your returns to collect.

That said, the IRS should inform you of its intent to garnish your tax refunds before scooping up your money. Hopefully, you’ll at least get advanced notice if you and your spouse’s tax refunds will be redirected toward your student loans.

Some good news (sort of)

Now that we’ve gotten the bad news out of the way, here’s a piece of good news: You can save your husband’s tax refund by filing taxes separately. If you don’t file together, your husband’s refund won’t be affected by your student loans.

However, filing separately could mean you lose out on the perks of joint filing. Married couples are able to snag a number of tax deductions and credits that single filers can’t. For example, joint filers are able to claim a much larger standard deduction than single filers. If filing separately would cause you to lose out on important benefits, it might not be worth the trouble.

Compare both options to see which would make more financial sense for your situation. You might use a free tax filing service such as TurboTax, or you could consult with a tax professional for their guidance.

Once you’ve figured out the best way to file your taxes this year, you might benefit from getting your student loans back into good standing.

Get out your W-2s! We reviewed the best online tax prep companies so you don’t have to. Get your taxes filed now!

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Try student loan rehabilitation

As you’ve experienced, student loan default comes with a number of nasty consequences. Not only can the government garnish your wages and tax refund, but it can also dip into your Social Security benefits [1]. Defaulting drags down your credit score, and you might have had debt collectors ringing your phone off the hook.

Luckily, there are a couple of ways you can get your student loans out of default. One is through applying for student loan rehabilitation.

With rehabilitation, you agree to make nine on-time payments, which typically amount to 15 percent of your monthly discretionary income. This process can take 10 months, but it could mean your default is removed from your credit report.

Or student loan debt consolidation

The faster way to resurrect your student loan status is through consolidation. All you have to do is apply for a Direct Consolidation Loan through the government and agree to pay your loan back on an income-driven repayment plan.

An income-driven plan will adjust your monthly payments in proportion to your income, so hopefully, they won’t be too burdensome. And if you keep up with payments each month, any remaining balance could be forgiven after 20 or 25 years.

Alternatively, you could agree to make three on-time monthly payments and then apply for consolidation. In this case, you wouldn’t have to choose an income-driven plan, but you could go with whatever repayment plan best fits your budget.

The consolidation process only takes 30 to 90 days, so you could be out of default within the next few months. But unlike with loan rehabilitation, your default will remain on your credit report. Not only could you save your wages from future garnishment, but you would no longer have to worry about an offset of your and your husband’s tax returns.

The bigger challenge would likely be keeping your student loans out of default. Hopefully, your monthly payment on an income-driven plan will be reasonable, and you’ll be able to afford it.

But if you do find yourself struggling, speak with your loan servicer about your options. Your servicer might be able to adjust your monthly bills again to make them more affordable. By finding a manageable student loan payment, you can avoid default, stop wage garnishment and save your future tax returns.

I hope this information helps you and your husband, and best of luck as you overcome the challenges of paying off your student debt.

Rebecca Safier contributed to this response.

What Is The Best Way to Pay Back Student Loans?

Question: I have $130,000 in private student loans with 6.65 percent interest. The minimum monthly payment (interest only) is $715. I am currently paying $750. I also have $35,000 in federal student loans with 4.63 percent interest. The minimum monthly payment is $103. I’m paying $105. This loan will be forgiven after 10 years if I don’t make additional payments. I currently make $2,320 monthly and have $2,500 in savings. How should I attack this debt? – Meisha in North Carolina

Steve Rhode, the Get Out of Debt Guy, responds…

Actually, Meisha, I think you are doing a great job already.

The 10-year repayment plan is the fastest way out of federal student loan debt, and you will wind up paying the least amount of total interest. While there are other options that may lower your payment, you will wind up paying substantially more overall.

Why? Because no one is going to give you something for nothing. If you want a lower payment now, then the holder of that loan will want their money back later. That means extending the length of the overall loan – which means you’ll pay much more in interest since you’re adding years to the loan.

It’s not clear what the length of your private student loan is. Paying more than the minimum each month will go directly toward lowering your balance.

If I had a magic wand, I would help you to find a higher-income job to ease the pressure you may be feeling. You could then stash a bit into your emergency savings account and participate in any employer matching retirement savings plan.

Overall, it seems like you are at the minimum income point to service your student loan debt. The three primary ways to deal with debt are to increase your income, reduce expenses, or a combination of both.

I would bet you’ve already trimmed your expenses. But here is the inside scoop that most “experts” won’t tell you about reducing monthly payments on student loans or any kind of debt…

If you don’t lower the interest rate, then the only way to lower the monthly payment is to extend out the length of the loan. And as I’ve already said, that only makes the loan more expensive in the long run.


Solutions for student loan debt

Before you do anything, I’d recommend you read the Debt.com report, How to Pay Off Student Loan Debt Fast. It will give you some more in-depth advice on the topics I raised here. You can also compare student loan debt solutions – because if you must extend your loan to get a lower monthly payment, you should try to get the best possible deal you can.

You may also want to explore private student loan settlement, which can be hit or miss and comes with several reservations and caveats. Click the link to see if it’s something worth exploring.

Finally, his situation is Exhibit A for why federal student loans are easier to renegotiate. The federal government has several programs that offer relief. I urge students to be careful about rushing into private student loans.

Can Student Loans Be Discharged if My School Closed Down?

Question: I have a student loan of about $50,000. It is in deferment. I was working with a company for a few years, trying to get the loan discharged based on the fact that my school closed and offered false certification. I had filled out a bunch of papers, and they kept deferring my loan while waiting for a response. When I went back to see what the status was, I learned they went out of business. I have all the paperwork of all the information on how I was misled by the school, but I have no way of going back to continue. I need to do that, or I can’t become certified in New Jersey so I can work full-time. Is there anyone who is knowledgeable on this topic that I may show my paperwork to and can assist me with this? 

– Denese in New Jersey

Steve Rhode, the Get Out of Debt Guy, responds…

Resolving this terrible situation depends on several factors. First, are your loans federal or private? For federal loans, the recommended way to deal with a closed school discharge is to work directly with your federal student loan servicer. Private student loans? Sadly, they’re not eligible for what’s known as a “closed school discharge.”

Another problem with pursuing these discharges is that the timing is very strict.

If your school closed after November 1, 2013, and you haven’t enrolled at another school, then your federal student loans should be automatically forgiven from the U.S. Department of Education. (Why that date? It’s not worth explaining. It’s just the way it is.)

If your school closed less than three years ago, you will need to contact the servicer and confirm you are even eligible for a closed school discharge.

To be eligible you must have one of these:

  • Direct Loan
  • FFEL federal student loan
  • Perkins loan

Student loan forgiveness

To be eligible for forgiveness, you must have been attending the school when it closed, or the school must have closed within 120 days after you withdrew.

If you elected to complete your coursework at another school – or you completed your coursework before the school closed – you are not eligible for a discharge of the federal student loans.

Even if you’re eligible, you’ll need to make sure you continue to make payments while your discharge application is being processed. This is important. Until your application is accepted, nothing has officially changed in your situation.

If your closed school discharge application is approved, the debt will be forgiven. You will receive reimbursement of payments made, and the history of the loan will be deleted from your credit report.

The key here is: You should work with your federal student loan servicer directly. If you want more details, the government has an FAQ that goes into all the details. It’s not light reading, but it’s crucial if you want to get this taken care of. Good luck, Denese.

If you need help navigating student loan discharge for a school closure, talk to a student loan resolution specialist for free

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What Is The Fastest Way Possible to Improve My Credit Score?

Question: Five years after college, I finally got a job with a decent salary. So now I’ve been able to handle my student loans and even pay down some of my credit card debt. I met a great woman, and we want to buy a house next year. Her credit score really stinks, though, so we need to use mine. (She has two collections on her credit report, one that’s paid off and the other she’s paying now.)

But I’m only at 692. I want to get it into the 700s or even 800s. I’m thinking of taking out some more loans and paying them back immediately, because I heard that can help. Or doing the same thing with credit cards. But what’s the fastest way to improve your credit score?

Kenny in Michigan

Howard Dvorkin, Debt.com Founder and CPA, responds…

I admire your focus and drive, Kenny. Even with unprecedented access to credit scores – something you couldn’t easily do even a few years ago – Americans tend to be apathetic about looking up their scores, much less improving them.

That said, your credit score of 690 isn’t bad. Literally, it’s considered “good.” Credit scores range from 300 to 850, and they traditionally break down like this…

  • 300-629: bad credit
  • 630-689: average credit
  • 690-719: good credit
  • 720 and up: excellent credit

So improving your credit score in a year is definitely attainable. First, however, you need to learn how that score is decided – because some of the ideas you floated above will actually hurt your score.

The five factors that impact your credit score

Your credit score is split into five sections, and not all of them are equal. In fact, two dwarf the others.

The biggest chunk (at 35 percent of your credit score) is your “payment history.” That simply means how often you pay your bills on time – and how often you’re late. Simply put, paying your bills before the due date will hike you score more than anything else.

Along those lines, the second-biggest chunk (at 30 percent) is “credit utilization.” That’s just the fancy way of saying: How much do you owe on the credit limits you have? If you max out your credit cards, your score will be lower.

Next up, at only 15 percent, is “length of credit history.” Lenders love to see that you’ve had loans and credit cards for a while, and that you’ve been paying them regularly and early. So if you’ve had a credit card for years, keep it.

There’s “new credit” and “credit mix,” each at 10 percent. You want to avoid opening many new lines of credit, because that looks like you’re in financial trouble. Credit mix is a much more vague category but usually means you have a credit card, an auto loan, and maybe a personal loan – because many lenders figure this shows you can deftly handle whatever payments you need to make.

The best way to raise your credit score

As you can see, taking out some loans and paying them back immediately won’t really make a dent in our score. First, you’ll be dinged for taking out a lot of “new credit,” and while you’ll earn a few points for paying them back – your “payment history” – it’s important to look at everything else going on in your financial life.

My suggestion? Pay off your credit cards but keep them open. Use them only in amounts you know you can pay off each month. Those are the two biggest steps. Then read the Debt.com report, How to Improve Your Credit Score Step-by-Step. That will get you where you want to go.

One note about your girlfriend: if her credit score is suffering under collections, please tell her she’s not doomed. In fact, a fellow Debt.com expert has helped a reader with five collections. She should read How Do You Beef Up A Credit Score When You’re Still Paying Down Debt?

Will I Qualify for a Mortgage if I Have Student Loan Debt

Question: My husband and I want to buy a home. I have over $100,000 in loans, but I’m on Income Based Repayment and pay $0. Do lenders accept that amount? How can I make my loans not hinder me from buying or building a home?

Jessica in Kentucky

Tendayi Kapfidze, LendingTree Mortgage Expert, responds…

Student loans can make buying a home more difficult – but it is possible, Jessica. There are multiple factors to consider here.

First, since you’re on an Income-Based Repayment plan with a $0 monthly payment, that suggests your discretionary income is relatively low. So you may have trouble qualifying for a home loan.

You must also consider what type of mortgage loan you are eligible for. There are several ways the different agencies calculate debt-to-income (DTI) ratio for student loan borrowers on Income Based Repayment plans.

Qualify for a mortgage with these programs

Buying a house with student loans is possible with the help from any of the below. See if you qualify for a mortgage and apply if you meet the requirements.

Fannie Mae (conventional) loans

In 2017, Fannie Mae changed their guidelines to allow mortgage lenders to use $0 as a monthly student loan payment when calculating DTI. There are slight differences based on how your payment appears on your credit report…

  • If the credit report shows a $0 monthly payment, then Fannie Mae will allow the $0 monthly payment to be used for qualifying purposes.
  • If the credit report does not show a $0 monthly payment, but you can provide documentation from the student loan servicer confirming the $0/month payment, then the $0 payment can be used.

You can learn about this, and Fannie Mae’s other student loan solutions, here.


FHA loans

It gets more complicated with loans from the Federal Housing Administration (FHA). They consider additional factors:

If the $0 monthly payment shows on your credit report, then $0 is the amount used in the DTI calculation. Otherwise, the monthly obligation is calculated by one of the following: The greater of 1 percent of the outstanding balance, or the monthly payment reported on a credit report, or the actual documented payment, assuming the loan balance will fully amortize over the term of the loan.

You can read the exact language from the U.S. Department of Housing and Urban Development here.

VA loans

The Department of Veterans Affairs (VA) has yet another calculation.

If you or your husband are active duty or veterans of the military, you may be eligible for VA financing. For student loans in repayment, or those scheduled to begin repayment within 12 months from the date of VA loan closing, the monthly payment must first be calculated by finding 5 percent of the total balance divided by 12 months. Then, there are two additional considerations…

  1. If the payment on the credit report is greater than the calculation above, the reported amount must be used.
  2. Or the payment on the credit report is less than the calculation above, documentation from the student loan servicer indicating the payment is lower and the terms of repayment is required.

If the veteran provides written evidence that the student loan debt will be deferred at least 12 months beyond the date of closing, a monthly payment does not need to be considered.

Learn more from the VA here.


Other ways to qualify for a mortgage

If your husband qualifies with just his income and he is taking out a conventional mortgage loan, your student loan debt (or any of your other debts) would not be counted against him.

Unfortunately, the same is not true if you are applying for an FHA or VA loan. Even if you don’t apply for the mortgage with your husband, these government loan programs require that your debt be counted against him since you are married.

Denny Ceizyk is a staff writer for LendingTree. He contributed to this report.




Should I Pay Off Debt or Invest in My IRA?

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Question: I’m trying to figure out what to do about paying off my student loans and investing in retirement. Should I pay off debt or invest in my IRA?

I just graduated college in May and began a full-time job in October making $36,000. I also do freelance work and receive anywhere from $500 to $1000 a month from that. I’m still living at home, and don’t have to pay rent or groceries, which really helps.

Currently, I have just over $18,800 in student loans at an average interest rate of 4.45 percent. I just started paying against them last month. And I have also opened a Roth IRA with just under $2,000 in there. My plan currently is to contribute $500 a month to my IRA. That way, I can max it out and pay $700 a month to my student loans.

My question is: Should I leave my IRA as it is and put that $500 a month toward my student loans in order to possibly get them done within a year?

The stock market has done nothing but fall since I opened my account. And I’ve read that could continue this year. But I’ve also read that it’s good to just keep contributing to an IRA when your debt isn’t high interest, in order to reap the rewards of compounding interest. I plan to move out of my parents’ house after a year. So, I think not having any debt would help with that a lot.

Would I be better off to stick with the course I’m on and knock out the debt in 2.5 years? Would not investing in my Roth IRA for a year or so make me miss out on potential compound interest, even if the market will likely go down stay the same? Or would it be too negligible to matter?

– Michael in Kentucky

Andrew Pentis, certified student loan counselor at Student Loan Hero, answers…

Michael, as with most questions in personal finance, the answer to yours is: It depends. The right path forward hinges on whether we’re focusing on the “finance” part of personal finance or the “personal” part…

The financial part

Financially, it seems like investing could earn you more money in the long run than paying off your loans early. Your student debt has a relatively low-interest rate of 4.45 percent. So, it’s not costing you a huge amount in interest over time. Depending on your credit, you could even consider refinancing for lower rates.

Your return from the IRA can, of course, vary depending on what sort of assets (stocks, bonds, etc.) you invest in and how the market performs. As personal finance expert Dave Ramsey notes, it’s not unreasonable to see the S&P 500 benchmark stock index earn investors in those shares 12 percent or more per year. In such a scenario, the gains from investing could outpace the interest you’re paying on your student loans.

Since you’re starting young, your money will have time to grow. And you’ll be able to weather any temporary dips in the market. The effects of compound interest grow more powerful over time. Putting that extra $500 into your IRA could result in greater savings in the future than waiting until you’re debt-free.

You can use a student loan payoff versus invest calculator to see exactly how much money you could make by investing your extra $500 per month instead of throwing it at your student loans.

Of course, a return of 12 percent isn’t guaranteed, and no one can predict what will happen in the future. We can only base our predictions off past economic behavior to guess what can occur in years to come.

The personal part

The financial answer to your question seems to come out in favor of investing. However, the “personal” answer might lead you to a different conclusion. If you’d rather be debt-free and have a low tolerance for investment risk, you should pay the loans back first.

By making extra payments, you’ll get out of debt faster and save money on interest in the short term. Although your savings might not match what you could earn over the long run through investing, you’ll experience their effects much quicker.

By saying goodbye to your student loan payments years early, you’ll also have more of your monthly income to keep for yourself. This could be helpful if you’re looking to rent an apartment, buy a car or make another big purchase for yourself.

All in all, you’ll probably reap the rewards of paying off your student loans earlier than you would enjoy the fruits of investing. But if you’re playing the long game, putting extra money into your IRA will likely earn you the most money overall — you’ll just have to wait a few decades to enjoy it.

One more financial priority

I would add that paying off student loans and saving for retirement aren’t your only financial priorities. It’s also important to put money aside as an emergency fund. You’ll be prepared for an unexpected expense if you have some liquid savings.

Most experts recommend putting aside between three and six months’ worth of living expenses in your emergency fund as a financial cushion. Once you have your savings set aside, then you can use the leftover monthly income to invest or prepay your loans.

In the end, the decision to pay off debt early versus invest comes down to two main factors: what the numbers say, and what your personal feelings are about debt. Investing could earn you more overall, but that doesn’t mean paying off your student loans faster is the wrong choice.

If getting out from under the shadow of debt is your priority, feel free to throw that extra $500 at your student loans until they disappear.

Reflect on your personal short- and long-term goals, and let those goals help you strike the right balance between paying off student debt and investing in your IRA.

Andrew Pentis is a student loan expert and a writer for Student Loan Hero.

Does debt follow you to other countries?

Question: I just read a news article in CNBC about people moving to foreign countries to stop paying their student loans. I was thinking about it, and I know from the news article I would be hit with garnishments of my salaries and Social Security. And I know I can’t work for a USA company because they would take money from my paycheck. But I have a question I didn’t see answered: 

What if I get adopted overseas, change my name, and then apply as an immigrant? Would they catch me?

This isn’t a hypothetical. I’m 27 but my mother who raised me died two years ago, with no relatives in this country. I have distant but friendly relatives in China. I also have $42,000 of student loans. If I go to China, get adopted by my well-to-do relatives, then return to this country as a Chinese national to pursue my doctorate, how would this country know who I was and what I owe?

– Kim in California

Andrew Pentis answers…

Fleeing the country to avoid student loan repayment rarely works out well for borrowers, and it would probably only succeed if they live the rest of their lives outside the United States. It’s not something I recommend.

What about fleeing and then returning under a different identity? With all due respect, Kim, that is a hypothetical, and a juicy one at that.

As one lawyer specializing in student loans, Simon Goldenberg, told me: “No one knows whether her lenders will eventually catch her.”

From a legal standpoint, Goldenberg says changing your name and citizenship status won’t affect your liabilities. You would still owe your creditors what you borrowed — plus interest.

We won’t pretend to know whether the Department of Education or your private lenders have the wherewithal (or willingness) to track you down. We also won’t get into the ethics of knowingly not repaying what you borrowed. That’s fodder for a different type of advice column.

Instead, let’s review how to deal with your debt here at home…

For one, if you have federal loans, consider switching to an income-driven repayment plan to make your monthly payments as affordable as possible. Grouping your debt via a debt consolidation loan could be your first step.

If you have federal and private loans, you could attempt to refinance with a private lender. You’ll need a strong credit score (among other factors) to unlock refinancing companies’ lowest interest rates. Also, you’d lose the perks of federal loans, such as the ability to alter your repayment plan.

Finally, you could be eligible for student loan repayment assistance for your undergraduate loans or future doctorate costs. After all, it’s better to receive a helping hand than to have to look over your shoulder.

Andrew Pentis is a personal finance expert at Student Loan Hero.

See a similar question below:

Question: I studied in the United States for many years. But when I got my degree, I moved to another country. I currently have a federal loan around $120,000 that I cannot repay. Soon it will go into default. However, I am NOT an American citizen, and I live outside the United States. What could the consequences be, if any? Do I have to pay back the loan anyway? Will my credit score be affected? Can that hurt me in Mexico?

–John in Naucalpan, Mexico

Howard Dvorkin answers

Moving abroad and leaving debt behind is a dangerous game. Like many games of chance, it’s hard to predict if you’ll win or lose.

Let’s break it down by first answering what I think you’re asking: “Can debt follow you to another country?” The answer is no, the United States government isn’t going to send a debt collector to your door in Mexico.

However, if you ever want to live or work in the country again, you’ll face the same penalties as any U.S. citizen who stops paying their student loans for 270 days (after which it goes into default). One of those penalties is serious: The government will seize a chunk of your paycheck.

It’s called student loan garnishment, and it works like this…

When most people hear the term garnish, they might think about parsley on the side of a dinner plate. But that’s not the garnishment we’re talking about. This garnishment will make you lose your appetite. Student loan garnishment means the government will take a chunk of your paycheck or your tax return. The government then uses that money – your money – to pay down your student loans.

Thankfully this only happens when you’re in default. That’s when you fail to make monthly payments for nine consecutive months. At that point, the government goes after your cash and it’s totally legal. How much can they take? Up to 15 percent of your check and all of your tax refund. This is definitely something you want to avoid. And luckily there are proven ways to grind garnishment to a halt. Learn about them at Debt.com.

That means, should you ever land a U.S. job, the government can remove 15 percent of each paycheck and apply it to your student loan debt. The government can also garnish Social Security checks and disability benefits if you’re receiving them. You probably aren’t, but I mention both to show just how serious the federal government is about the student loans it guarantees.

You might think, “OK, I’m safe as long as I don’t cross the border,” but that might not be true. If you work for a company based in the United States, your paychecks can still be garnished. You’re in Mexico, John, which is a major U.S. trading partner. It’s not unlikely you might find good work with a U.S. company – and suffer the consequences.

As you can now see, just because you left the country, you didn’t leave behind your debts. They survive and even grow. In this way, U.S. debt follows you if you depend on an American company for pay.

As for your credit score, it operates much like your debts. Because you’re no longer paying what you owe, it will plummet. The only good news: Lenders in Mexico don’t use U.S. credit scores.

Another option

To keep your options open and your payments low, consider switching to an income-based repayment plan to make your monthly payments as affordable as possible. You could also group your debt with a debt consolidation loan.

Student loan debt is such a massive problem in this country, the federal government offers options to make payments affordable. These are legitimate programs for greedy reasons: The government eventually wants its money back, but with more than $1.2 in student loan debt outstanding – more than all the credit card debt in the nation – it doesn’t want more defaults. It certainly doesn’t want its borrowers fleeing the country.

Buried in student loan debt? Don’t flee the country. Contact Debt.com, we have the solutions to fit both federal and private student loan debt relief.

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Can I Pay Off My Student Loans By Betting On Sports?

Question: Now that the Supreme Court says gambling on sports is legal, do I have to pay taxes on my winnings? I’m really good at predicting sports but never gambled on it because I’m a school teacher, and I’d get fired if I got caught. But now that it’s legal, I plan to pay down my student loans by making money on sports book.

— Jim in North Carolina

Jacob Dayan answers…

Before I answer your question as a tax expert, let me quote some of the other experts here at Debt.com when I told them you planned to pay down your student loans by gambling on sports.

“It shouldn’t need to be said, but gambling isn’t the same thing as saving or even investing,” warns Debt.com chairman Howard Dvorkin. “By definition, who wants to gamble with their finances? This is a terrible idea. I don’t know how else to say it.”

Adds Steve Rhode: “Say what? That’s crazy!”

We’ll get back to your student loans in a moment, Jim, but let’s talk about taxes and gambling winnings.

[Community Tax co-founder Jacob Dayan]

Hi, I’m Jacob Dayan, CEO and co-founder of Community Tax.

First, you need to know this, gambling on sports is not yet legal everywhere in this country.  The Supreme Court didn’t just wave a magic wand and declare bet on the NBA and NFL in all 50 states; it simply struck down a law that bans sports betting. Now, it’s up to those states if they want to allow it.

That can take months or even years for them to decide. One thing that’s for sure, though, the IRS is already tough when it comes to gambling that’s legal right now. We’re talking casinos horse racing, and the like.

So yes, if and when the states make sports betting legal, you’ll need to document everything that you win and lose. Things can get complicated so shorten your odds of messing up by consulting a tax pro. You can learn by visiting Debt.com.

It’s not a done deal yet

First, let’s clear up some confusion: gambling on sports is not yet legal all over the country.

Jim is referring to the Supreme Court ruling in Murphy v. National Collegiate Athletic Association. In May, the Supreme Court decided that the Professional and Amateur Sports Protection Act, which stopped new states from legalizing sports betting in 1992, violated the 10th Amendment of the Constitution.

Don’t remember that one? It means that unless there’s a specific power given to the federal government, that power resides with the people or the states. This is essentially the “states’ rights amendment,” and the Supreme Court ruled that the Professional and Amateur Sports Protection Act granted authority to the federal government power when it really belonged with the state — because the act ordered states to take specific actions to ban sports gambling. Only four states Nevada, Oregon, Delaware, and Montana were grandfathered in under the Professional and Amateur Sports Protection Act because sports betting was already legal.

The Court’s ruling does not, in itself, make sports betting legal. However, many states are looking into how to regulate sports betting so that it may become legal. Gambling revenues in taxes alone could be enough incentive for the state to make at least some forms of sports betting legal before the end of the year.

Then again, the Court’s ruling does not stop Congress from passing legislation to directly ban sports gambling. So your student loan repayment plan needs to wait at least a little while.

Don’t gamble with the IRS

Even now, the IRS takes reporting legal gambling winnings and losses very seriously. Auditing gambling losses is one of their favorite past times.

Let’s say that sports betting spreads and more Americans participate. What are their income tax obligations on any gambling winnings? The first step to staying fully compliant with IRS tax law is to report all income received. The IRS list six key points when it comes to reporting gambling earnings…

  1. Gambling winnings include lotteries, raffles, horse racing, casinos, or any cash or fair market value of physical prizes you win such as cars or trips.
  2. Look out for forms W2-G from the source of your winnings. You’ll receive a copy, but so will the IRS directly from the payer. Therefore, the IRS knows when something is missing from your returns!
  3. You must report all gambling winnings on a tax return even if you don’t receive a W2-G.
  4. Gambling income is reported as “Other Income” on your tax return.
  5. You may deduct your gambling losses up to the number of your total gambling winnings as an itemized deduction on a Schedule A. You may not claim a loss on gambling income.
  6. Accurate records are a must. The IRS requires you keep detailed records in the form of a diary of all of your winnings and your losses. Receipts, tickets and other documentation you may have should be saved as well.

While the Court’s ruling may not have legalized sports betting nationwide, it has certainly bulldozed a path. If you’re even a casual gambler, you might want to consult a tax professional to help you maintain the correct records in case you’re audited.

Finally, about those student loans. Jim, if you’re a public school teacher, you might qualify for student loan forgiveness. You should check it out, because it’s a federal program, and it’s more reliable than betting against the spread on the NFL or NBA.

Jacob Dayan is co-founder of Community Tax LLC, a full-service tax company helping customers nationwide with all of their tax resolution, tax preparation, bookkeeping and accounting needs.