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Debt CON-solidation

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I’m not a big fan of debt consolidation. I like how Dave Ramsey refers to it as “Debt CON-solidation” because it’s typically some type of scam to make more money. But this is essentially what I’m considering now. Let me back up to explain….

I’ve taken some flak in the past for not entering the Public Service Loan Forgiveness (PSLF) program, for which I qualify. My thought and rationale was two-fold:

  • I want to pay off my debts ASAP! The loan forgiveness period requires 10-years of on-time payments. I want my loans to be gone WAY before that!!!
  • I distrust the service. Simple as that. Who’s to say it won’t be cancelled or eliminated by the time a decade rolls around? This is the first year that people were supposed to qualify for loan forgiveness and I’ve read all kinds of horror stories of people who ended up screwed over for one reason or another. Not to mention, I owe the money so I’d like to pay it back. On a moral level, I feel an obligation for taking out these loans and I want to repay them myself.

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So that’s the reason why I haven’t – to this point – ever tried to enter into a PSLF program. But I’ve got to be honest here. We are drowning under high monthly payments. Between the money we owe the IRS, our new credit card debt, student loan debt, and our normal household bills – we have so much outflow that keeping up with my $550/month Navient payments has become a real burden. Like….I don’t know if we can do it. You can’t squeeze blood from a turnip. We just don’t have the money!

I’ve been working and working on our household budget and it’s just a total mess still. So I decided it might be worth looking into the PSLF program a bit more thoroughly.

I called Navient (my loan-holder) and did a bunch of additional research on studentloans.gov. Even though I’m currently in an income driven repayment plan, the way the PSLF program is designed, it requires all loans to be consolidated into a single loan. Why? I don’t know. Makes no sense to me. I was told that’s the rule from an employee at Navient and verified from studentloans.gov (side note: there is an exception – I was told I wouldn’t have to consolidate if I chose to move to a 10-year fixed repayment plan. BUT….I don’t get why anyone would do that because the PSLF doesn’t kick in until 10-years after on-time payments. SOOOOO, if I’m in a 10-year repayment plan….then at the end of 10 years there’s nothing left to be forgiven because everything has already been paid. Someone please clarify if this is wrong. This is what Navient told me and it blew my mind. I still don’t get how that makes any sense. Not to mention, a 10-year plan would put my payment over $900/month, so that’s not really an option for us right now).

So I decided to check out the application and just gather information. Here’s what I discovered.

If I consolidate my loans to a single loan that qualifies for PSLF….

  • My monthly payment will lower by about $100-150/month, depending on the type of repayment plan I select.
  • My interest rate will increase from 5.55% and 6.55% (current APRs) to 6.88% (consolidated)

I intend to stay in academia, so I don’t think there’s any reason to worry about moving jobs outside a field that would disqualify me for PSLF. BUT, if I enter into the consolidation and end up getting our finances under control and want to pay off my debts in full, I’ll end up paying hundreds (thousands??) extra due to the higher interest rate and lower monthly payments.

I don’t know what I think.

The idea of relying on this program still leaves a bad taste in my mouth. Not to mention, if any debt is discharged, I know I’ll owe taxes on the amount that is forgiven (so there’s still a “catch” after all that). BUT, it’s really appealing to me to have a lower monthly rate locked in and know that I’ll be DONE in, at an absolute maximum, 10 years total. I know that’s still a very long time and I want to be debt-free well before that….but it gives a permanent and definitive “END” date that I haven’t had up to this point.

Is anyone else participating in a PSLF program (or a similar loan-forgiveness program)? What are your experiences like? What are your thoughts on these trade-offs between a lower monthly payment and higher overall interest rate? What would you do if you were in my shoes?

You may want to check these out as well:


Canceling Student Loans to Grow US Economy

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You guys! I know I just posted this morning, but I came across an article I HAD to share!

If you’re a new reader, you may not know about my excessive amount of student loan debt. I graduated with a Bachelor’s debt-free, but after 6 years of graduate education (2 for my MA, and 4 for my PhD), I ended up graduating with just shy of $100,000 of student loan debt. I’ve been working hard to tackle this debt (along with my other personal debts), but even so – I still have over $60,000 to go!

So I was SUPER INTRIGUED when I came across this article by A.P. Joyce titled, “Want to grow the US economy? Cancel student debt, new report shows”

Here are some of the big talking points that jumped out at me:

The report finds that canceling all student debt would likely lead to an increase in U.S. GDP between $861 billion and $1,083 billion over the course of 10 years. It would also lead to an increase of 1.18 to 1.55 million additional new jobs over the same period — that’s about 50% to 70% more jobs per year compared to an average of recent years.

The report also finds that total loan forgiveness would cost the U.S. government approximately $1.4 trillion over the course of 10 years — a number that is almost exactly the same as what the CBO recently projected the Republican’s new tax bill would cost. But researchers said that the positive impacts of canceling student debt would likely be more broadly felt than those of the tax bill.“What our report shows is that you get a greater macro economics impact, bigger bang for the buck, and that student debt cancellation has about half the budgetary effect of the Trump tax cuts,” Kelton said.

The story is based on a report from the Levy Economics Institute, titled “The Macroeconomic Effects of Student Debt Cancellation”

I went back to the original source and checked it out, too. Here’s the key takeaway from that source:

The authors find that cancellation would have a meaningful stimulus effect, characterized by greater economic activity as measured by GDP and employment, with only moderate effects on the federal budget deficit, interest rates, and inflation (while state budgets improve). These results suggest that policies like student debt cancellation can be a viable part of a needed reorientation of US higher education policy.

It’s a radical idea, no doubt. Obviously I’m drawn to it (in no small part due to my own excessive student loan debt). I’ve always been proud to work on repaying my loans, rather than relying on one of the existing loan-forgiveness programs. BUT – some of this research is pretty compelling regarding the possible economic benefits of such a cancellation.

What are your thoughts on the topic? 


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