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Posted in Student Loans
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Question By
cj001

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Paying on student loan for 13 years but balance just keeps going up!!
How am I ever going to get these payed off if the balance continues to go up? I've been paying on them for 13 years now and owe more than when I graduated. What happened to a percentage going off if you made all on time payments? (That's what was told to me when I started making payments.)

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Student Loan Forgiveness

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Assuming you only have Stafford loans, you can get your loans forgiven after 10 years worth of on-time payments through the Public Service Loan Forgiveness program. This program has many restrictions, such as you must be woring for the government or a non-profit organization.

For everyone else, if you have been making 20 - 25 years (depending on certain restrictions) of on-time payments, you can apply to have the balance of your loans forgiven. This loan forgiveness program does not require that you be working for a government entity or a non-profit.

Regardless of which loan forgiveness program may apply to you, you must apply for loan forgiveness. It will not happen automatically. Also, many private student loans are not eligible for loan forgiveness. You should consult with your lender(s) to find out if some or all of your student loans may be applicable.

While loan forgiveness may sound great, whatever amount is forgiven will be counted as taxable income by the IRS. If you make $50,000 per year and you get $20,000 worth of student loans forgiven, you will be paying taxes to the IRS that year on $70,000 worth of income. Many people taking advantage of loan forgiveness programs cannot afford the lump sum payment required by the IRS for the forgiven debt. It may be possible to work out a payment plan with the IRS, but when the time comes for you, you should consult a licensed accountant or a licensed attorney who practices in the area of tax law before you utilize a loan forgiveness program.

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My own experience

Helpful to 9 out of 11 people

I had 5 separate accounts from 2003 through 2008. Grand total combined was: $22,000 (principals only)

4 from Sallie Mae (now Navient) and 1 from ACS. The highest APR was 6.2% and lowest 2.3% during repayment.

A) I NEVER PAID MINIMUM. Always paid extra to each account. 

B) I ALWAYS KEPT PAYMENTS ON TIME.

C) I PAID EXTRA IF I MADE EXTRA MONEY OR HAVE LEFTOVER. Loan account with HIGHEST APR got that extra payment.

D) I CONCENTRATED MY MONEY INTO THE LOWEST LOAN (not necessary the lowest APR). Better to wipe out 1 account completely and then move on to the next lowest account rather than flirting with all my 5 accounts and let APR of all 5 continue to accumulate more debt as they remain active.

E) AGAIN, ANY EXTRA MONEY WOULD BE PUSHED INTO AN ACCOUNT AS AN EXTRA PAYMENT.

I struggled to pay all 5 accounts in a little over 10 years. It robbed me of my financial freedom but it was worth the investment for my college degree. Be disciplined and persistent with your goal. Don't put more burden on yourself by racking up more debt elsewhere. If it bothers you that those loans aren't paid off for over 13 years already, then the incentive should be more intense starting now.

Good luck!

Reply by
lilsweet1970

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Helpful to 5 out of 10 people

If you paid on your loan longer than 10 years the government is offering forgiveness.  look into it.

Reply by
cdsabra4

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Helpful to 5 out of 5 people

With regards to (D) above, I don't think this is the correct approach.

First of all, APR does not accumulate debt as it is not an account, it is simply a way of describing the interest rate being charged.

From a financial perspective, you should always pay off the loans with the highest interest rate, not the ones with the lowest balance, as paying off the highest interest rate loan will decrease the amount that you pay over the life of the loan.

Even from iHateDebt's perspective of taking into account the psychological costs, the reward for paying off the lowest balance loan is just that you have one less account to "worry" about. This is a negligible benefit, as loans today are set up such that you should always auto-pay them, or at least such that paying them individually is not a great hassle.

In any case, the point for CJ001 is a very basic one: if possible, you should pay off the loan with the highest interest rate first.

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Look into your repayment plan

Helpful to 2 out of 2 people

You mention that you have been paying on your loans for 13 years. With that being said, you were not on the standard 10 year repayment plan, otherwise you would have paid them off 3 years ago. As many know, there are multiple student loan repayment options. Some of the options have you pay such a small amount (I.E. income based repayment, graduated repayment, etc) that the total yearly amount may not even pay for the interest accrued. Example: if you have $100,000 in loans with a 6.8% interest, and if your income based repayment allows you to only pay $400/month, this ~$5000/year payment will not equal to the $6,800 in interest accrued for that year. The end of that first year would then have a balance of $101,800, and so on. Some people get excited to reduce their payment, but they often over-look this key factor. You might want to look carefully at your loan repayment plan and loan details, in addition to looking into the student loan relief as others have mentioned. Based on your situation, it would be cost-effective to speak to an accountant to figure out your best approach. Best of luck. 

Reply by
kl16412

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Enter Your Reply  I'm in the same situation, cj001.  I've been paying interest only for the past ten years, which hasn't put the slightest bit of a dent in my balance.  I have now paid more in interest than the loan balance, but I'm not in a financial situation to make higher payments.  I applied for loan forgiveness (I teach special education in a qualifying school), but I was told that my interest-only payments aren't considered qualifying payments, and therefore I qualify for nothing.  I'll just keep paying interest only until I die unless I manage to win the lottery before that.

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Helpful to 1 out of 1 people

Always pay extra and always make sure the money is going where you want it.

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How payments are typically applied

Helpful to 2 out of 4 people

Payments are typically applied first to all loans for any late fees, if any, then interest (usually occurs on a daily basis), and finally the unpaid principal balance. When it comes to extra payment amounts, after all interest and late fees due for all loans have been satisfied, the extra amount is automatically applied to the unpaid balance on the loan with the highest interest rate (if there are multiple loans in your account), unless you contact them for the amount to be applied in a specific way. Also, avoid making minimum payments as most of the amount will be going towards towards interest (which accrues daily) for all loans and then your unpaid balance. Most of the time, paying an extra amount or making additional payments may result in your loan being prepaid or paid ahead, which means you won't be considered past due if you were to stop making payments or paid less than your regular payment amount (but only until you're no longer paid ahead). In other words, the extra amount is not being directly applied to the unpaid balance. You must contact your lender after payment to request for the amount to be directly applied to the unpaid balance and not used as prepaid for the next due.

cj0001, I have never heard a percentage going off if you made all on time payments.

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Check Payment History vs. Amortization

I had a similar situation and my accountants couldn't figure out the math.  Finally I discovered the lender was sending the same monthly payment for 7+ years but that payment was about 12% lower than shown on the amortization schedule.  This screwed up everything.

I called the Ombudsman office and they really didn't have an answer (after months with an open case, speaking with a few different people).  Also, it has been 10 years now and the banks don't keep copy of account statements that long.  So I have the orignal loan app with amortization schedule, most of the bank statements and all of the lender invoices.  Nadda!  Pay up sucka.

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