Question: “I am 35 years old, I have one child and another on the way. My partner is afraid to marry me because of my debts and I do not have a stable income. I have two master’s degrees, and I owe $380,000 in student loans. I am already on the income program and am worried about what will happen when I resume Payments are in January. I can’t afford loan forgiveness, because I think it’s a taxable event. Is there anything I can do to protect my family and mitigate the blow to me?”
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Answer: While this problem likely seems intractable, and you’re afraid of what happens when your student loan payments resume in January, don’t panic: You’re already doing a few things right, like getting an income-based repayment program, which is no doubt You have already reduced your payments. “Stay on,” advises Anna Helhosky, student loan expert at NerdWallet, adding that “after 20 or 25 years, depending on your debt, your loans will be forgiven.” (See below for the tax good news about this.) But then, should you pursue loan forgiveness, bankruptcy, and refinancing—some student loan refinancing rates now start at less than 2%—or something else? This is what the professionals told us.
See if you might be able to forgive a portion of these loans, says Scott Ward, a certified financial planner and ambassador for the CFP Board of Directors. In fact, Americans with direct loans who work in many government or non-profit jobs may be able to get loans free after nearly 10 years of payments have been made; You can read the full details of the Public Service Loan Forgiveness Program here. Here are some other loan forgiveness options — for educators, medical professionals, and more — that you can read about here. In addition, a number of companies are now offering to pay off a portion of student loans for their employees, so it may be worth pursuing a role at one of these companies. The added bonus: If you can boost your income with a new job that also offers student loan assistance, it may be easier to afford your payments.
Bankruptcy may also be an option, “but it can potentially be expensive and difficult for borrowers with federal student loans. If any of your debts are private, it may be worth considering because the courts are moving toward paying private student loans in bankruptcy,” he says. Hilhosky says. Here is a guide to what you need to show for your student loans in case of bankruptcy.
There is good news on the tax front regarding loan forgiveness: A easing measure passed in response to the Covid pandemic has frozen all student loan forgiveness taxes through 2026, says Michael Kitchen, higher education expert and managing editor at Student Loan Hero. This gives you time to save some money on your tax bill. And if that bill turns out to be too high to manage, the IRS is usually willing to put in place a payment plan that matches your current income.” You can read more about the tax exemption here.
In your case, you are already on an income-driven payment plan, which has lowered your monthly payments. Therefore, and for other reasons, refinancing may not make sense to you. But for other borrowers, that may start now, with student loan refinancing rates starting at less than 2%. It is worth considering refinancing if it will save you money, either by lowering the interest rate or shortening the term of the loan. But those with federal loans should know that refinancing “would permanently strip federal loans of their potentially beneficial collateral, such as access to income-driven repayment plans, deferment and forfeiture programs, as well as current and future loan-forgiveness programs,” as Andrew Bentis says. , Certified Student Loan Adviser and Debt Expert at StudentLoanHero.
* Messages have been edited for brevity and clarity