Student Loans - What Would You Do

I was in the same situation a year ago. We did the consolidation route. I couldn't afford the extra money to rehab because it was going to be in addition to what they were already garnishing from my wages. I wasn't too happy about it, but for us it was the best option. I couldn't afford $650 a month in school loans (duh, that's why I was in default in the first place).

It really depends on how soon you want to buy a house!
I was in the same sort of predictament right after I graduated. I finished, but didn't immediately start making the big bucks, but the big student loan payments kicked in anyway!
I chose the consolidation route. That was almost six years ago now. My credit has been back in the good-great range for a long while. My credit score looked pretty awful for a bit, but was good enough to finance things again after 2 years.
Another thing that doing the consolidation also allow me to put my loans in deferrment. This meant I didn't make payments on the loan (though the interest continued to accrue). I did this 2x's for 12 months each time.
If I was you and I was not looking to buy a house in the next couple of years I would not put myself and my kids through all the hassle of rehabing the loan.

I let my student loans go into default. It sucked. A lot. I would up doing a rehab program to get mine out of default. I paid $250 a month for 9 months. Then I was able to apply for economic hardship and get a deferment. Talk to the people at the rehab program and see if they're willing to take a lesser payment. They were really nice and worked with me. If you decide to go that route, make sure they know how much your expected tax return is going to be. They're still going to take it this year, but that $4,000 might help to get your monthly payments lowered.
If you consolidate your loans you're still going to have a large monthly payment that you most likely can't afford. At this point, it's just a matter of who you're paying your money too, know what I mean?
Sit down with your budget. Know how much money you bring in and what your bills are. List any extra expenses that you might have. Then keep track of what you spend your money on. There might be ways that you can eliminate some of the money going out. Do you use coupons for your groceries? Do you qualify for WIC or Food Stamps? Really be honest with yourself and tighten your belt.
There is a way out of the hole (trust me, I've been there too!) but it takes a lot of hard work and a lot of belt tightening.

First off, you are not an idiot. We all make money mistakes. I'm not really sure what to tell you about the rehab vs consolidation (although I think consolidation - at some poinit you should be able to afford to start paying extra and get rid of it early), but one thing you need to do NOW is to adjust your exemptions so you are bringing home more. $4,000 divided by 12 months is $333 per month - that can go a long way into getting you out of debt and you don't have to worry about losing it at the end of the year.

And I promise you, if you work the program Dave Ramsey is NOT a cliche. It changed my life, really!! We are out of debt with money in the bank and I now stay home with my kids instead of living paycheck to paycheck with over $20,000 in debt like we did before (and our income is less since I quit work). Even if you don't follow everything to the letter, the principles are sound, it is just a LOT of hard work - every bit of it worth it. Good luck whatever happens. You will get through this!!

I highly advise that you DO NOT REHAB. Here's why...
1 - I'm 99% sure that it will not be deleted from your credit.
2 - You do not have a plan or the ability to make the payments, so even if you're able to make the first one or two payments, there's a great chance that you'll default making your credit even worse than it is.
3 - Your education is important, you've worked so hard and are almost finished, why throw that away?

Here's why I think consolidation is the better choice..
1 - You'll be able to pay the school the $2,000. That elimiates your debt, allows you continue your eduction, and doesn't negatively effect your credit.
2 - So what if you'll be "paying for the rest of your life". You'll have $2,000 that you can put in the bank, and take out on a monthly basis to help make that payment. Making payments on a timely basis will improve your credit rating.
3 - Time. You are in no position to be buying a house in the near future. Before you can do that, you'll need a downpayment and money for closing cost. You'll have time to repair your credit.

Just one more thing to add.... Why in the world are you getting a $4,000 tax refund? Any one, regardless of filing status, income, etc, should ever get more than $1,500. This is one of the worst financial decissions you can make. Stop lending the government your money for free.

Personally, I would go the consolidation route. I have over 100,000 in student loans (so I get how much it sucks. I'm still amazed by how little in student loans some people accumulate given the cost of higher ed expenses). But, this route will allow you to be able to complete your degree, get a better job, then you can take some of the extra money your making and pay larger amounts here and there on the consolidation. It will also allow you a break if you return to school on having to pay it. Your credit may be hurt because of the default being on it, however, it is not on there forever and it should improve as you make payments on your debts no matter what route you go. Also, you can adjust your payments in some situation based on your family size and income (or at least I was able to do this which helped tremendously).

If your living paycheck to paycheck, then it's going to be difficult in general to buy a house anyway and honestly, I don't think either option is going to put you in a better state anytime sooner for doing it. I don't think it'll hinder you from getting a house later on as long as your current on your payments after a few years.

Oh and I've never heard of Student Loans being included in bankruptcy. They are pretty much the only things that can't be from what I've seen.

I would consolidate. I am currently in that situation and in deferrment since there is no income left to pay on my loans yet. Have they actually reported a default, or are you in line for that? It sounds like you've already talked to them about all of your options, but if something is ON your credit report, it is ON your credit report and cannot be removed unless it is wrong. We have had really low credit and with credit monitoring we have managed to raise it decently enough to be approved for an FHA loan (that was 2 years ago, before my husband went back to school and we struggled and dropped right back to the bottom again), so I know it can be done. If you have no realistic game plan for making that new payment, don't commit to it. It will cause a lot more monthly and daily stress than you will want to be dealing with right now while you try to make those payments. I like a lot of what Dave has to say, but "eliminate your debt" and "increase your income if it is not enough" are not always reasonable steps, not to mention he thinks you need $1000 in your emergency fund before you start doing any of this. If you're expecting a big return, see if you can adjust your W-4 at work and increase your take-home pay. If you are not in a really high income bracket, you should be able to get a decent amount more on your paychecks and get a smaller tax return, which should make life easier, too. I just did that for this year for the first time. Good luck. :(

I would suggest that you find a not-for-profit financial advisor and ask for a professional opinion. My opinion is that consolidation through a federal program is a much better idea. I owe over $30k in student loans (I know, young and stupid) and pay $305 a month (scheduled for the next 20+ years). However, if you are still in school, you can go into a deferrment program that will either be interest free (while in school) or accrue interest while in deferrment. Once you finish school, there's a 3 or 6? (can't remember) month grace period before your payments start. And, those payments will start out based on your income and gradually increase based on your "expected financial growth." Personally, I'm still holding out for the government to open up more "forgiveness" programs--for example, there is a current program that allows some % of loans to be forgiven once payments have been made on time for 10 years for people who work in "service" jobs (e.g. for the government, teachers, fire & police, etc). Also, there are options for forebearance if you lose your job or have other hardships.

Finally, I know the feeling of wanting to get into a house of your own. It is harder now to get approved, but you have to look at the bigger picture and decide what's more important long-term. For example, I had bought a car many years ago and it broke down (dead transmission) less that 1 year later! Nobody (dealer, manufacturer, financing company) would help AT ALL. So, I towed the car to the dealer and left it for them to deal with (still owed almost $8k on it). 1 year later I was approved to purchase another vehicle, 4 years later bought a condo, and now (7 years later) am preapproved for my 2nd house! So, it may seem like FOREVER, but eventually everything will even out. And, contrary to what somebody said... Student Loans do NOT disappear with a bankruptcy!

Good luck!

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First of all we all make mistakes don't let anyone make you feel bad about asking for advice on this. I would tend to lean toward rehabing your credit just because it is so hard to do anything with out decent credit. Can you borrow from a family member if you can't get another job that pays enough for the difference? Can you get a family member to watch your child so you can work more to get the money? My last thought would be to consult a non profit consumer credit counseling service that can give you more expert advise on the best thing to do. Maybe there is another option you are unaware of. Good luck and I hope you are able to work it out.

The William D Ford consolidation is a better bet. It will allow you to finish your degree, thereby increasing your salary in the future. The higher salary, along with future raises and diligent savings will allow you to pay more than the 250 a month. Even if you could only swing $20 more at first that will make a big difference in the life of the loan and you won't be paying it for the rest of "life." As far as your credit, even though it is important in buying a home, it won't be the only factor and as long as you don't plan on doing it in the next year, even a default won't bring your score down that much if you keep everything else up to date and current. Pay bills on time, keep your credit card debt reasonable and in in a few years your credit won't be perfect but it should be good enough to qualify for a competitive mortgage. Also, with your college degree your salary would be higher, which helps in just getting a mortgage and you may have accrued enough for a decent downpayment that are all huge factors in obtaining a good mortgage. Your other option keeps you away from your child and your degree for a cleaner credit report that will probably have very little bearing on your future. Also, I wouldn't place a lot of faith on the "removal" of the default unless they've promised that to you in writing. You are doing a great job working for a brighter future for you and your child, don't let our screwed up student loan system intimidate you into working for them. You come first. Good luck!!!

Wow. It sounds like you've researched your options.

What I've been hearing, is that credit rating is going to be really important going forward, because of the number of people who've had housing issues, and the changes in the credit and banking worlds. So, even though it seems the hardest choice, if you can find a second job that pays enough, this would be the one I'd go with. Nine months seems long now, but paying for the rest of your life (the monthly fee plus the bad credit rating) seems like it would hold you back from your other goals.

I would do the consolidation, and than get a small credit card or car loan you can afford to start rebuilding your credit.

Did you look into a Hardship Deferment? I am not sure if you are eligible since you are already in default, but when I first graduated college (back in 2000), I was eligible due to low income and other bills. Take a look on the Higher Education Site for your state. I was with PHEAA then (Pennsylvania).

Good luck!

Whatever you decide, remember that bad credit is NOT "forever." It's...for 7 years.

Most "rehab" type programs, offers, companies do NOT deliver what the consumer thinks they will. They take your money and your credit trail remains just as bad (if not worse) than it was to begin with. Talk to your bank.

If it were me I would want to honor my commitments as soon as possible. That means letting the IRS step in and use your refund to honor your commitment for you.

If you get on the consolidation program you will be out of default, then go enroll in some classes and get the financial aide to cover the costs. It will help you stay afloat for a semester or two to finish your degree. The FA will pay for the classes. You can even have extra left over without loans. This money can pay off the other school. You can transfer the new credits to your old school after you pay off the debt and free up your transcript. It doesn't even hae to be classes you need, it can be baking, swimming, weight lifting, or it can be core classes you can use for actual credit towards your degree. I took piano, choir, tennis, museum studies, history of music (humanities), some psych classes at a loacl Jr. College and made up some hours just toget back on my feet. It worked and I got some of the debt paid off afterwards when I got a job in my field with my degrees.

the only suggestion i can give besides the consolidation, which probably isn't your "perfered" but can you look into a 2nd weekend job? something to earn that extra 400 you will need?

I dont know what the laws are where you are, but here you can have one "free" claim of bankruptcy. Its on your record for 7 months, then its gone. My DH did this with his student loans, and his credit is fine.I wouldnt eneter anything that you have to pay 200+ for the rest of your life thats just crazy. if you do pay it, pay it however you can afford, it cant stay on your report forever. Here a credit report lasts 6 years (or as long as you are making payments), or if you dont pay + they have no contact with you for the 6 years, it gets wiped also.