What Happens if a Cosigner on a Student Loan Dies?

Question: My mother cosigned a student loan for my daughter. She has been deceased for two years. My daughter hasn’t paid her student loans due to financial issues. I just got a debt collection notice from court in the mail with my mom’s name on it. How can we handle this? – Karen B. in Medford, MA

Andrew Pentis, personal finance expert and certified student loan counselor at Student Loan Hero, responds…

Dear Karen,

Up until 2016, major banks immediately placed a borrower’s student loan in default when learning of a cosigner’s death. Thanks to the Consumer Financial Protection Bureau’s efforts, that “automatic default” practice is mostly obsolete.[1]

Unfortunately, Karen, it sounds like your daughter’s loan was already headed for default before the passing of your mother.

Although it should be easy to remove your mother from the loan — and stop those debt collection letters from being addressed in her name — your daughter will still have to come up with an answer for repayment.

Removing a deceased cosigner from a private student loan

As a cosigner, your mother was as legally responsible for repaying the loan as your daughter, the primary borrower. Private lenders, however, will often remove the cosigner from the loan agreement upon their death. That would mean your daughter should have been solely responsible for repayment since her grandmother’s passing. She shouldn’t have to recruit a new cosigner in all likelihood.

If your daughter’s lender and collection agency weren’t informed of your mother’s death, however, that would explain why it sent a debt collection notice in her name.

Before taking any other measures, your daughter should review her student loan agreement. There could be language in her promissory note specific to cases of cosigner death.

In rare cases with smaller, less-scrupulous lenders, a cosigner’s passing could still trigger an auto-default. That means that the balance would be due in full and that the lending bank could file suit to collect it. If the legalese trips up your daughter and her lender is unhelpful, you could seek the assistance of a student loan counselor or lawyer.

After reviewing her loan details, your daughter could inform her lender that her cosigner has passed away. This will remove your mother’s name from the debt. Your daughter might have to provide a death certificate or other proof to stop future debt collection letters.

Talk to a student loan debt resolution specialist to find the best way to get out of debt for your needs.

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Handling loan repayment when a cosigner passes away

Even without her grandmother acting as her cosigner, your daughter will still have to handle repayment. She’ll want to get a move on because private student loan default carries serious consequences, including wrecked credit and, potentially, wage garnishment.

Again, your daughter contacting her lender is a smart first step.

Work out a repayment plan with the lender

If the debt has already been placed with a collection agency, your daughter’s options might be limited. Still, it’s worth reaching out to her bank, credit union, or online lender and expressing her desire to get back on track.

In some cases, private lenders offer a respite to borrowers who are experiencing economic hardship. SoFi, for example, offers distressed borrowers an income-based repayment program that caps monthly payments at a percentage of the borrower’s income. It’s similar to the income-based repayment plan for federal loans. The trade-off is that a longer repayment is a more expensive repayment, due to accruing interest.

Refinance the student loan with a new lender

If your daughter’s lender is past the point of offering support, she might look to refinance the loan with a new private lender. Through student loan refinancing, your daughter may be able to reduce her monthly payment to a more manageable amount. She would also be free to select a lender offering greater repayment protections, including forbearance, in case her financial issues continue.

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To qualify for refinancing, however, your daughter would likely need a new cosigner. It’s almost certain that her defaulted loan has harmed her credit score, which is key to refinancing eligibility.

Negotiate a settlement with the collection agency

If despite her financial issues, your daughter has some cash on hand, she could engage her lender’s collection agency in settlement negotiations. An early payoff or a modified repayment plan could be brokered. Just be sure to keep a record of all correspondence, as the paper trail could protect your family down the road.

There is no perfect solution to a defaulted debt, particularly in cases of cosigner death.

Beyond the emotional toll, losing a loved one often comes with financial headaches too. Fortunately, there are ways forward for your daughter.

What’s a “Private Student Loan Cosigner Release”? And Does it Cover the Primary Borrower, too?

Question: My wife took out a private student loan as an undergraduate through Navient. They tried to collect on the loan while she was in medical school, but she had no way to pay it. The loan went into collections. Her dad was a cosigner on this loan. They were calling him and her daily. It got to the point where they offered to settle the loan for a lump-sum payment. My father-in-law cashed in a life insurance policy on my wife to pay the settlement. Approximately eight months later, they’re calling my wife again, telling her that this settlement only removed her father from the loan — even though the settlement paperwork he signed said, “The above loan will be considered paid in full” and the loan at the top of the paper has my wife’s name on it and the total amount due. Is this true that he only paid himself off the loan as the cosigner? Is that even possible?

Chris H.

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

This is a classic outcome when people are unfamiliar with the debt settlement process. In your case, it sounds like they did something called a cosigner release.

On a private student loan a cosigner can be released from their responsibility to repay a debt once they meet certain requirements for repayment that the lender sets forth.

I’ve seen similar situations where, for only a few thousand dollars more, the lender would’ve settled the entire debt for both parties. However, the consumer has to ask the right questions to get that kind of deal. If you don’t, the primary borrower may still be on the hook for the remaining balance once the cosigner is released from their obligation.

If you feel the paperwork reflects that the entire loan balance was settled, then I would highly recommend you contact an attorney. Make sure they are licensed in your state and ask them to review the paperwork. If you don’t have money to hire a lawyer, find a local Legal Aid Society to get free legal advice.

Otherwise, it sounds like this was a student loan in your wife’s name where her father guaranteed payment on the loan as a cosigner. He subsequently agreed to settle his part of the obligation using a cosigner release settlement. This left your wife on the hook.

If this is correct, it leaves your wife on the hook for the remaining balance minus the amount paid on the cosigner release.

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How Do I Apply for Student Loan Forgiveness as a Teacher?

Question: I am a public school teacher in a title 1 district. How do I apply for student loan forgiveness? This is for my Master’s Degree.Valerie P. in Connecticut

Andrew Pentis, personal finance expert and certified student loan counselor at Student Loan Hero, responds…

Dear Valerie,

It’s safe to say you probably didn’t get into teaching for the money. But luckily, your profession does come with a healthy financial benefit in the form of student loan forgiveness.

In fact, teachers have three federal loan cancellation options available via the government. And not only that: You could also apply for repayment assistance on your federal — and, in some cases, private — student loan debt if you teach in one of about 15 states. So, let’s review all your options.

Three options for federal teacher loan forgiveness programs

Teacher loan forgiveness

Working for a Title 1 school helps you check off the top requirement to receive teacher loan forgiveness through the federal government. Confirm your school’s eligibility by searching for it in the Federal Student Aid office’s Teacher Cancellation Low Income Directory.

The other key factor for eligibility is teaching for five consecutive and full years at your low-income school (or education agency). After hitting the five-year mark, you submit a forgiveness application to your loan servicer.

An approved application could net you $5,000 worth of loan forgiveness for your Federal Direct or Stafford loans — unless you teach math, science or special education, in which case you could get a hefty $17,500 in repayment assistance.

Public Service Loan Forgiveness (PSLF)

Count teachers among the governmental and nonprofit employees eligible for the (in)famous PSLF program. Unlike teacher loan forgiveness, PSLF calls for 10 years of prompt payments to qualify. You’re also encouraged to pre-apply annually by filing an Employment Certification Form.

The other difference with PSLF is more positive: After teaching full time at a qualifying school for a decade (and paying your dues on an eligible repayment plan), you could receive complete forgiveness on the remaining balance of your Federal Direct loans, rather than just a stipend to put toward it.

Double-check with your school’s human resources department to ensure it’s a PSLF-approved employer.

Perkins loan teacher cancellation

If you borrowed Perkins loans from Uncle Sam during your master’s degree education, you wouldn’t be able to wipe them away via teacher loan forgiveness or PSLF — instead, you’d use Perkins loans teacher cancellation.

For those who work in a public or nonprofit elementary or secondary school, like yourself, the program could cancel up to 100 percent of their Perkins loan balance.

Unlike other forgiveness programs, this one awards money incrementally over five years: 15 percent following each of your first and second years of teaching; 20 percent after the third and fourth years; and the final 30 percent at the end of your fifth year.

Don’t wait to get the help you need! Stop credit damage, solve financing challenges on new loans and reestablish financial aid eligibility. Let Debt.com connect you with professional student loan debt help today.

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Student loan repayment assistance through your state government

You could also whittle down your master’s degree debt by looking to your state government for support. Like Perkins loan teacher cancellation, most state forgiveness programs award funds annually, in lump sums or matching payments.

Each state’s offering has unique eligibility criteria. You might need to teach a particular subject, in a specific type of school or an underserved region of the state, for example.

The major difference between your state and federal forgiveness options is how your private student loan debt (if you have any) would be treated. Some states are open to helping with student loans of all types, while others might deem loans funded by private banks, credit unions, and other private lenders as ineligible for assistance.

Read up on your state’s program to double-check that you would benefit. Here is a list of states currently offering such assistance.

  1. Arizona
  2. Arkansas
  3. Delaware
  4. Illinois
  5. Iowa
  6. Maine
  7. Maryland
  8. Mississippi
  9. Montana
  10. New Mexico
  11. New York
  12. North Carolina
  13. North Dakota
  14. Oklahoma
  15. Texas

Even if your home state isn’t, contact your local education department or agency to see if has something that can help.

Apply for as much loan forgiveness as you can get

Repaying student loan debt on a teacher’s salary is no easy feat, particularly with a master’s degree under your belt. Having a few loan forgiveness options at your disposal, however, should make it at least a little less challenging.

If you plan on teaching your whole career, Valerie, keep in mind that you could double-dip on forgiveness, even if not concurrently. With a bunch of Direct loan debt, for example, you could receive teacher loan cancellation for the first five years of service and then get PSLF after another decade on campus.

If these forgiveness programs still aren’t enough to wipe away your education degree debt, don’t lose hope. It’s wise to keep the lines of communication open with your federal loan servicer or private lender. This way, you’ll make yourself aware of other options at your disposal, including federal loan consolidation and private student loan refinancing.

In order to keep all your options for forgiveness or repayment support, however, be very careful about consolidating, refinancing or taking any other action on your loans until you know how it might affect your eligibility for the programs you’re interested in. The wrong move could erase your progress toward that much-needed dose of forgiveness.

What is the Statute of Limitations on Student Loan Debt?

Question: The university in Mississippi that I attended recently sent a notice to me for a balance due. The university said they did an internal audit and found that I owed money. This is not money from student loans. I received student loans when I was enrolled in 2003. The university claims that during the audit, there were some date discrepancies on when I withdrew, therefore they had to return some funds to the student loan originator. I was last enrolled in school in 2003. I don’t know when the audit was conducted. The notice I received (April 2019) said that if the balance was not paid in 30 days, it would be sent to collections. I’ve done a little research of my own. What I have found says that the statute of limitations is not more than 6 years. Would this be from that date of the debt or the date of the audit?  Does this apply to my situation and what can I do?

Crystal B. in Minneapolis

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

Dear Crystal,

The claimed debt could very well be outside the statute of limitations. But people misunderstand how that works. If a debt is outside the statute of limitations that does not mean they can’t attempt to collect on it. The out of statute argument is something you can raise if you are sued over the debt. But there is nothing automatic that would allow the expired debt to not be attempted for collection.

However, there is some talk recently about preventing creditors from either preventing them from collecting on out of statute debt and/or requiring creditors to inform the consumer the debt is outside the limits of being able to sue over the debt. There is no standard on this at this time.

I think your gut reaction is correct in that this is an out of statute debt. The statute of limitations on most debts in most states expires after six years. However, that is a legal position and the only person who can give you a specific legal opinion is an attorney who is licensed to practice law in your state.

One place to look for such an attorney is at ConsumerAdvocates.org.

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At this point, you should not panic. What you need are facts and legal advice so you can make an educated decision on how to proceed.

I’d really like to know more about this debt that is allegedly owed since 2003. Does the school even have any documentation to support the claim? You can attempt to get them to validate the debt. If the debt is large and is not student loan related, then it can be eliminated with bankruptcy but I don’t have enough information to give you strong guidance on that option.

I would not admit that you owe the debt. Doing that can restart the statute of limitations clock.

The most logical first step would be to make an appointment with a consumer attorney in your state to have them review the situation and give you advice if you have a defense if sued over the debt. If the attorney tells you the debt is outside the statute of limitations then you can politely tell the creditor what your attorney said and that they should not pursue the matter further.

If they do attempt to collect, direct them to your attorney who will love to deal with them for an affordable fee. Alternatively, you can draft a cease and desist letter to tell the collector that you no longer wish to be contacted. If a debt is past the statute of limitations so they can’t sue you in court, then this letter should stop any further contact.

Can Student Loans be Forgiven for Disability?

Question: I’m disabled. Am I still responsible for my student loan debt? – Julie N. in Florida

Andrew Pentis, personal finance expert and certified student loan counselor at Student Loan Hero, responds…

Dear Julie,

Being disabled can in fact qualify you for student loan forgiveness on your federal student loans, and perhaps even on your private loans too.

Unfortunately, you’ll have to clear some red tape to receive it.

The severity of your disability (for federal loans) and the generosity of your lender (for private) are among the factors that could decide your fate.

Get a free evaluation from a student loan specialist for your best relief option.

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How to discharge federal student loan debt because of disability

There are several ways to remove or receive forgiveness on your federal education debt, including what the Department of Education (DoED) calls “Total and Permanent Disability Discharge.”

That’s defined as any physical or mental impairment that has or will last five years or which could result in death. A licensed physician, the Social Security Administration or the Department of Veterans Affairs must certify your disability on your discharge application.

To apply (or to have a trusted representative do so on your behalf), visit the DoED’s specialty website, DisabilityDischarge.com. Nelnet, the federal loan servicer that handles claims, will pause your payments for up to 120 days, although it typically takes less than 30 days to review your application.

If your disability falls short of the “total and permanent” mandate, you’re not entirely out of options. You could request a deferment or forbearance — usually for up to 12 months, though possibly as long as three years, especially if your disability has damaged your personal finances.

Pausing your repayment isn’t a perfect solution: Your debt won’t go away, and it will continue to accrue interest (at least on your unsubsidized loans). Still, it could at least give you some breathing room while you focus on your health.

Explore private student loan cancellation options in cases of disability

The path to loan forgiveness for disability isn’t as clear-cut in the world of private student loans. It all hinges on the bank, credit union or online company from which you borrowed.

Consult your loan agreement or phone your lender to learn about its policy. Discover, Sallie Mae and Wells Fargo are among those that offer loan forgiveness when the primary borrower suffers a designated permanent disability. Be prepared to document your disability for your lender.

If your lender isn’t so forgiving, ask about its other forms of support.

Your disability might be stopping you from earning your regular income, for example. In that case, you could apply for your lender’s economic hardship forbearance or unemployment protection program (if it has one).

A forbearance would only temporarily pause your payments — not forgive them — but it’s a start. Still, keep in mind that interest will continue to accrue on your loan balance while you take a break from repayment.

If your disability isn’t stopping you from keeping pace with your loans, you might gauge your fit for the more permanent solution of student loan refinance. With a healthy credit score (or a cosigner who has one), you could consolidate your debt and lower your overall interest rate, saving potentially thousands of dollars over time.

Don’t forget the rules of disability discharge on student loans

Even if you qualify for forgiveness on your federal or private student loans, ask your loan servicer or lender if there are any strings attached.

The DoED, for example, won’t prohibit you from returning to work. However, earning significant income within three years of receiving a loan discharge could reset your repayment. You also wouldn’t be allowed to access federal financial aid (perhaps to go back to school) during the same three-year period without resetting the repayment of your discharged debt.

With private lenders, you might clarify whether your borrowing relationship will truly break, or ask about the affect loan discharge could have on your cosigner (if you have one).

Paying attention to the details of disability discharge will ensure you reap the rewards of loan forgiveness now — and avoid an unwelcome surprise later.

Whether you have federal or private student loans, Debt.com can help you find the right solution to get out of debt.

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Where Can I Get REAL Help with Student Loan Forgiveness?

Question: I am on the PSL forgiveness program for my student loans. I have paid on time and in full for three years now – but only 35 payments are showing as being eligible. However, I was told last March that an additional 14 payments that are eligible were NOT posted to my account. I was told it would take six months for the additional payments to show. It’s now a year later, and they still don’t show and I am being told it could take another six months. How can I get this resolved? Are there individuals that help with payments not posting properly to loans?

Andrew Pentis, personal finance expert and certified student loan counselor at Student Loan Hero, responds…

According to the latest government data, nearly 40,000 borrowers have applied for Public Service Loan Forgiveness (PSLF). How many got that forgiveness? Less than 1 percent.

Clearly, PSLF — probably the best known of the student loan forgiveness programs — has frustrated borrowers who’ve made the required 120 loan payments and believe they qualify. But there’s no telling how many other borrowers have had to troubleshoot their progress along the way.

Unfortunately, Sandra, you’re likely one among many.

With that said, at least you’re well on your way to the 120-payment mark. Now let’s see if we can help you receive credit for your unrewarded payments.

Stay on the line with FedLoan Servicing

It sounds like you’ve already filed an Employment Certification Form and started managing your PSLF progress with FedLoan Servicing, which is the Department of Education’s exclusive servicer of PSLF.

Hopefully, each time you’ve completed the form, you’ve received a letter denoting your number of qualifying payments. You’ve likely also checked your billing statements and logged into MyFedLoan for this information [1].

As for the correct number of qualifying payments, it’s unfortunate but not shocking to learn that FedLoan might have flubbed. One of the current nine federal loan servicers, FedLoan was sued by the state of Massachusetts in 2017 for allegedly mismanaging forgiveness programs for public service workers.

So to answer your question directly: Yes, it’s certainly possible that some of your qualifying payments are being processed and posted to your account incorrectly – or not getting posted at all.

FedLoan may just be delaying the process

From the description you give, it appears FedLoan isn’t disputing your requested number of qualifying payments. It’s only delaying the actual crediting of them. If, however, you find that FedLoan is no longer sure that the missing payments qualify for PSLF, you might need to provide them with W-2 forms and pay stubs to prove your eligibility.

You mentioned your efforts to talk out the problem — FedLoan Servicing can be reached at 855-265-4038 — but you could be tired of dialing.

Although it might not be such a satisfying answer, the first suggestion would be simply to keep at it.

I know of one borrower who claimed they didn’t receive credit for qualifying payments and had to check in with FedLoan monthly for more than half a year before finding a customer service agent who finally diagnosed the problem: Their payments weren’t initially credited because they were submitted while their loan was in “paid ahead” status.

If you’ve also made early or extra payments, then it’s possible that’s the source of FedLoan’s error.

Next steps to resolving your PSLF dispute

Unless there’s a similarly quick solution to your problem, Sandra, you’ll want to start a paper trail. Hopefully, you’ve kept records of each time you’ve been promised your payments-posting issue would be resolved. Because now’s the time to organize the files and state your case.

The Department of Education recommends submitting your request to FedLoan in writing (if you haven’t done so already) and including your supporting documentation. You can fax the servicer at 717-720-1628. Or you can use snail mail. But instead of directing your material to the servicer, you might be better off sending them to this specific office at FedLoan’s parent company:

Pennsylvania Higher Education Assistance Agency

The Office of Consumer Advocacy

1200 North 7th Street

Harrisburg, PA 17102

If FedLoan doesn’t help, contact Federal Student Aid

If you’re still not getting anywhere, it’s time to involve the Federal Student Aid (FSA) Ombudsman Group. The same records of your dispute (if you have any) will come in handy here, too. You’ll want to detail your timeline, including the 18 or more months it’s taken to see qualifying payments be credited to your account.

Start by calling the ombudsman group at 877-557-2575. When you’re ready, you can fax over the paper trail of your PSLF problem to 606-396-4821, or mail it to:

U.S. Department of Education

FSA Ombudsman Group

P.O. Box 1843

Monticello, KY 42633

One of the FSA Ombudsman Group’s specialties is fixing discrepancies with loan payments. At the very least, you should expect it to help objectively mediate your dispute with FedLoan.

To double your efforts, you can also submit an official complaint to the FSA Feedback System [2]. That’s one more way to make your voice heard.

Like changing your federal repayment plan or refinancing your student loans, beginning the chase for forgiveness is a big decision. Don’t let some poor servicing get in the way of achieving it.

Unfortunately, retracing your steps with FedLoan and involving an ombudsman might not turn out to be quick fixes to your problem. Still, they should help you eventually get credited with making those missing payments.

And, hopefully, by the time you’ve submitted magic payment 120, FedLoan and the Department of Education will have figured out how to approve worthy PSLF applications.

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.

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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?

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?

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.

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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.