Financial Advice

I’m a Nurse and Want to Get Rid of My Student Loans ASAP

Question:

Dear Steve,

I have around $44,000 in student loans, and around $5,000 in credit card debt. I have a consolidation loan as well wherein we owed $30,000 and shaved it off to around $10,000 so I don’t know if I qualify for another consolidation loan for our $5,000 credit card debt.

Which is better, a student loan with or without statute of limitations? There are pros and cons with each, such as I can qualify for a 10-year forgiveness program under a federal loan if I continue to work as a nurse where I won’t be required to pay after 10 years of service or 20 years where the remaining amount is forgiven, yet taxed.

On the other hand, I would have to pay a higher monthly payment than if I did a private loan which would decrease my monthly payment by 4% yet there’s that thought of being sued after 20 years if I don’t pay.

I am aware with bankruptcy it is possible to get rid of student loans, but not all of them qualify which is a fear of mine.

What are the best ways to get rid of these debts ASAP?

Thanks so much!

Hanalei

Answer:

Dear Hanalei,

You ask a lot of great questions. As it stands today, the two primary tax free options for eliminating federal student loan debt tax-free are either the Public Service Loan Forgiveness program or getting through an approved bankruptcy and specifically having your loans discharged. There are other programs but not for people who are able-bodied and working.

If you are working as a nurse your employment may qualify as long as you fall under the following:

“For the purposes of the Public Service Loan Forgiveness (PSLF) Program, a not-for-profit organization that is not tax-exempt under Section 501(c)(3) of the Internal Revenue Code is considered a qualifying employer if it provides at least one of the following public services:

  • Emergency management
  • Military service
  • Public safety
  • Law enforcement
  • Public interest law services
  • Early childhood education (including licensed or regulated child care, Head Start, and state funded pre-kindergarten)
  • Public service for individuals with disabilities
  • Public service for the elderly
  • Public health
  • Public education
  • Public library services
  • Other school-based services

Law enforcement includes organizations that are publicly funded and whose principal purposes include crime prevention, control or reduction of crime, or the enforcement of criminal law.

Public health includes organizations that employ nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner occupations and health support occupations, as such terms are defined by the Bureau of Labor Statistics.

Public interest law refers to legal services provided by an organization that is funded in whole or in part by a local, state, federal, or tribal government.”

A key factor that people miss to be eligible for the lowest payment of the PSLF program is you must have your federal loans consolidated into a new Direct Loan and repaying them through an income driven repayment program. Otherwise your time working will not count. Only time working when your federal loans meet this requirement will count. And the income driven plan is the same requirement and program for 20-year forgiveness as it is for PSLF 10-year forgiveness.

Depending on your credit score you might qualify for a new credit card consolidation loan today from one of the peer-to-peer lenders like LendingClub.com or Prosper.com.

You ask “Which is better, a student loan with or without statute of limitations?” There is no doubt that a federal loan is always better than a private loan. The features, payment options, and forgiveness opportunities make federal loans a better deal at twice the price. There is no good reason I’ve ever seen for converting a federal loan into a private loan that would then fall under a statute of limitations.

Keep in mind that if you default on a private student loan and hope that you won’t be sued because a loan has eventually exceeded the statute of limitations, you may be disappointed. Even if your loan is eventually past the statute of limitations that does not mean you can’t still be sued, you’d have to raise the out of statute issue in your defense. And you can still be in collections for an out of statute debt.

If you find yourself in a position where the private student loan lender is unwilling to offer you a payment you can afford and defaulting is your only option then settlement is more of a possibility than riding out a multi-year statute strategy and hope that it makes the loan vanish for good.

And keep in mind that many private student consolidation loans can have lower payments but it can be fools gold. If you extend out the terms of a current balance with a new loan for a longer terms then the monthly payment may be lower but the overall cost will be higher.

So my opinion is if you think your employment will qualify for the PSLF program, your loans are already consolidated and on an income driven program, then the PSLF is the fastest way to have your loans vanish tax-free. To make sure your employment will qualify, complete this form as soon as you are in a qualifying repayment program, Employment Certification for Public Service Loan Forgiveness form.

Steve Rhode
Get Out of Debt GuyTwitter, G+, Facebook

If you have a credit or debt question you’d like to ask, just click here and ask away.

This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

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