Question: “I’m 35 years old, I have one kid and another on the way. My partner is afraid to marry me because of my debt, and I don’t have a steady income. I have two masters degrees, and I owe $380K in student loans. I’m on the income program already and am worried about what happens when payments resume in January. I can’t afford to have the loans forgiven, because I think it’s a taxable event. Is there anything I can do to protect my family and lessen the blow for me?”
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Answer: Though this issue likely seems insurmountable, and you’re scared about what happens when your student loan payments may resume in May, don’t panic: You’re already doing some things right, like getting on the income-based repayment program, which no doubt, has lowered your payments already. Anna Helhoski, student loan expert at NerdWallet, advises that you “stay on it,” adding that “after 20 or 25 years, depending on your debt, your loans will be forgiven.” (See below for the good news on taxes related to this.) But beyond that should you pursue loan forgiveness, bankruptcy, student loan refinancing — or something else? Here’s what the pros told us.
Look into whether you might be able to get part of these loans forgiven, says Scott Ward, a certified financial planner and CFP Board ambassador. Indeed, Americans with direct loans who work many non-profit or government jobs may be able to get loans forgiven after making roughly 10 years of payments; you can read full details of the Public Service Loan Forgiveness program here. And here are some other options for loan forgiveness — for teachers, medical professionals and others — as well, which you can read about here. Plus, a number of companies are now offering to repay part of their employees’ student loans, so it may be worth pursing a role at one of these companies. Added bonus: If you can raise your income with a new job that also offers student loan help, it may be easier to afford your payments.
Bankruptcy might be an option too, “but that’s potentially costly and difficult for borrowers with federal student loans to achieve. If any of your debt is private, it could be worth considering since courts are trending toward discharge of private student loans in bankruptcy situations,” says Helhoski. Here’s a guide to what you need to show to get your student loans discharged in bankruptcy.
There is good news on the tax front with regards to loan forgiveness, says Michael Kitchen, higher education expert and managing editor at Student Loan Hero: “A relief measure passed in response to the COVID pandemic has frozen all taxes on student loan forgiveness until 2026. This might give you time to save some money for the tax bill. And if that bill turns out to be too high to manage, the IRS is usually willing to set up a repayment plan that will work with your current income.” You can read more about the tax reprieve here.
In your case, you are already on an income-driven repayment plan, which has lowered your monthly payments. For that, and other reasons, refinancing may not make sense for you. But for other borrowers, it might (see the lowest student loan refi rates you might qualify for here). It may be worth considering refinancing if it could save you money, either by lowering your interest rate or shortening your loan term. But those with federal loans should know that refinancing “would permanently strip federal loans of their potentially useful safeguards, such as access to income-driven repayment plans, deferment and forbearance programs as well as current and potentially future loan forgiveness programs,” says Andrew Pentis, certified student loan counselor and debt expert at StudentLoanHero.
*Letters have been edited for brevity and clarity