Let me tell you about someone I recently met with during a financial counseling session.
Ann is a 54-year-young, mother and wife. She works on average 32-34 hours a week at a job she loves. Ann is an activity director at a local long term care facility; it does not pay Ann a lot of money, but the job covers her needs. Ann has worked in that position for over 9 years.
Over 20 years ago, she took out a student loan for about $10,000 and is still paying on that student loan today.
Ann has been a decent borrower over the years. She’s had her share of late payments, but has always done her best and stayed in contact with the lender when she falls on hard times. For well over the last 5 years Ann has allowed the lender to automatically withdraw out of her savings account to make her loan payments.
Recently tragedy struck and Ann found herself unable to make the payments. Therefore, she contacted her student loan servicer and they were more than willing to defer her payment for a few months to help out. During this phone conversation Ann asked about alternative repayment plans; she found out she has a current principal and interest balance of close to $24,000. As you can imagine, she was in complete disbelief. How can she have made payments all these years and owe twice as much as the loan was originally taken out for?
What We Did Together
I assisted Ann with pulling up and reviewing her statements for this loan. We looked at the last 5 years payment history. Over the last 5 years there had been a total of 9 times that she had actually paid down on the principal balance. Out of those 9 times the highest amount was $11.32 that her principal balance was reduced by. Ann was devastated. Every month she is paying $179.00 on her loan and the balance was getting bigger, not smaller. She had no idea that was even possible.
So I helped Ann review her repayment options. To get the loan paid off in 9 years Ann would have to pay $326 each month. That would be a huge increase in payment…in fact it’s almost double what she is currently paying. We had long discussions about changes she could make in her budget to could afford this payment, including ways to increase her income.
We talked about forgiveness programs available and what she would need to do to qualify for these programs. Ann and I also talked in depth about the pros and cons of each.
Ann’s Next Steps
There is no doubt Ann left with a lot more information than she ever imagined. While she did not have a definitive answer on how she was going to handle her situation, what she did have is more knowledge. This information will allow her to make an educated decision on how to proceed.
Had she not come in for an appointment, who knows how long Ann would be paying her student loans and how much more her balance may have increased.
If you have student loans – even if you’re making on-time payments – it is a good idea to meet with a student loan counselor. LSS counselors can help you with consolidation, determining the best repayment option, if you’re eligible and on the right path for loan forgiveness, avoid or get out of default, and even options with private student loans. Give us a call today for your free phone, Skype, or in-person student loan repayment counseling session.
Author Katie Eastman is a Certified Financial and Student Loan Counselor with LSS Financial Counseling.