<p>I've lurked here for many years while my kids were in college and learned everything I know about financial aid. You have been a wealth of information. I am currently leading a Dave Ramsey Financial Peace University class at my church and have some questions about federal student loan forgiveness. There is a girl in my class who is mentally challenged, however, I don't have details about this. She works full time at McDonald's and brings home $972/mo. I was working with her on a budget last night and realized she has over $40,000 in student loans for less than 2 years of on-line courses...with no degree. How did this happen? Are there not limits? She won't be able to pay this off in her lifetime. Is it possible that any could be forgiven? </p>
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Are they federal loans or private loans? Federal loans see <a href=“https://studentaid.ed.gov/repay-loans/forgiveness-cancellation”>https://studentaid.ed.gov/repay-loans/forgiveness-cancellation</a></p>
<p>That amount makes me think they are private loans. Federal Direct Stafford loans have a limit per year students can borrow. As a dependent student it would be between $5500-$7500, and an independent student can borrow $10,500-$12,500 per year. For two years, a student would not be able to borrow $40,000 in federal loans. </p>
<p>I don’t think there is any forgiveness program for private loans</p>
<p>@4kidsdad You are correct. </p>
<p>Thank you for all the replies. I’m going to request additional information, but I do know she would have been independent. At least $25,000 is with Sallie Mae, so I was assuming that would be federal.</p>
<p>Sallie Mae also has a private loan they offer students, referred to as the Sallie Mae smart option loan. Make sure that you clarify if Sallie Mae is the servicer for the federal loan - or if it is in fact a private loan the student borrowed with them. </p>
<p>One source that might be able to help is the cfpb, Consumer Financial Protection Bureau. They have been going after some of the for profit schools. There are several that recently closed, and one of the benefits to students is that if the loans were federal and taken out within a certain time of school closing, they are forgiven.</p>
<p>If she has no assets, it’s no likely they can collect from her. Private loans do not have all the garnishment powers of federal student loans, so the lenders aren’t as likely to reduce the loan to a judgment. If the lender does reduce the loan to a judgment, then it is dischargeable because then it’s just a judgment. If this person isn’t trying to buy anything (house, car) or borrow anything and just wants to straighten out her bills, I’d try to work something out but if you can’t then just ignore them.</p>
<p>How old is she? There was a time when it was rather easy to get larger Sallie Mae loans w/o co-signers. Several years ago, those were tightened up…likely because of situations like you described and other crazy situations.</p>
<p>Ask her if she has a co-signer.</p>
<p>I recently met a young woman with a large amount of private student loans - and she went to a CC and didn’t graduate either. Her mom was her co-signer. Her monthly income is similar to the OP’s friend. Her mom is elderly (in her 80’s) and I’m not even sure if she truly understood what she was co-signing. I don’t think this young woman will ever pay the loans off. </p>
<p>Thanks for all the suggestions. I was able to see the paperwork last night and she had miscalculated the outstanding balance. She owes a total of $25,000 and both loans are indeed federal. She was allowed to borrow as an independent student at $12,500/year. I would guess she’s in her late 30’s and took out the loan within the last 5 years. She does have assets because she lives with her sister in a house they inherited from their late parents. There is something very wrong with her being able to click a button on-line and end up with this much debt and no way to pay it back in her lifetime. I’m looking into the Pay-as-you-earn payment plan. My understanding is that she would have a very small payment and after 20 years, it would go away.</p>
<p>You are correct about he Pay as you earn plan with the 20 year forgiveness. The student will only qualify for the balance to be forgiven if she has been making the payment required (which would likely be low - as you said). However, any remaining loan balance forgiven may be subject to income tax. Just something to be aware of for the future. </p>
<p>I personally know of a student loan of about that much that was being pursued for non-payment in a similar situation. A lawyer got it discharged in bankruptcy or dismissal of a garnishment based on the kid being similar to what you describe (basically unable ever to repay)…I think in that case they were garnishing his soc security he needed to live. </p>
<p>^^ Yes, good and bad that it is a federal guaranteed loan. Good in that she’s eligible for interest based repayment or pay as you go. Bad because they can attach federal payments or refunds to her, like SS or a tax refund, without a court action. Make sure she’s in a repayment plan to avoid the garnishment or attachment.</p>
<p>If she is mentally challenged, was she competent to sign the loan forms?</p>
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My understanding is that she would have a very small payment and after 20 years, it would go away.</p>
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<p>Well, it may depend on what you consider to be “very low”.</p>
<p>I helped a student last year who owed that much, and she earned about what this girl earned (working retail in a book store, minimum wage.). her fed loan payments were refigured with her modest salary and she still could NOT afford to pay them (i think they were about $150 a month).</p>
<p>For interest based repayment, it is 10% of the earnings, but quite a bit is exempt. For example, if $750 is exempt (it is the portion that would be below the federal poverty level), then it is only 10% of the rest ($235?) so $23/mo. But it may not be that much.</p>