Dear Debt Adviser,
I graduated college about two years ago. Because my family wasn’t in a position to help me, I had to take out a massive amount of student loans. I have both federal and private student loans. On my private student loans, I pay about $290 just in interest a month on a $48,000 loan ($11,000 of which is interest that already has accrued). I keep on deferring my federal loans because I can’t afford them. I want to consolidate, but I can’t find a lender who will do it. All the Web sites say that consolidations have been suspended due to the state of the economy. Furthermore, payments are going to skyrocket soon to include principal. Any advice?
— Gabriel

Dear Gabriel,
You are mistaken. You did not have to “take out a massive amount of student loans.” You had other options such as working and paying your way through a community college, attending a less expensive school that would not have required as many loans or searching for a college that would have provided more scholarships and grants. The choice to fund your college expenses with student loans was your decision. As long as you believe that this debt was not of your own choosing, you will be taking on the role of a victim. That is a terrible and a weak position for you to begin a new life. It’s your debt, you own it and you can fix it! That’s a much better and stronger place to begin your new life.

Now, let me get on with answering your question. You are right that we are experiencing a down economy and some student loan grantors such as Sallie Mae have suspended consolidations. So, until the lending/consolidation environment changes, you will have to make some adjustments to meet your debts. I realize that it may not be easy, but it is important that you do so. Not only will failure to keep up with your loans affect your credit, but it may hurt your job prospects and limit you from getting into certain occupations. There may even be a silver lining in this for you. It may well be better in the long run for you to make some sacrifices now and get these student loans repaid rather than dragging out repayment. The longer you delay the more you will pay.

I recommend that you first determine how much you will need to pay monthly for both your private and federal loans, including both interest and principal. Once you have that figure, then you need to create a spending plan that allows you to fund what is necessary each month to satisfy your student loans and meet all of your other essential monthly expenses. Notice I used the word “essential.” To make it work, you may need to make some sacrifices that you would rather not make. For example, living with a roommate to share rent and utility expenses, or if you have no other options and they are willing, living with your parents for a while. Driving a reliable clunker rather than a new model car is another way to save. You get the idea. On the income side of the equation, you might try to supplement your pay with overtime or an additional part-time job.

The bottom line is that your student loans will not go away except under very limited circumstances, and you will eventually have to repay them. If after making changes to your spending habits and other adjustments, you really cannot afford to make payments, then you need to seek help. Contact both your federal and private lenders and let them know your situation. See what they can do to offer you assistance. Your federal loans may be eligible for an income-based repayment plan and your private lender may be willing to offer an interest rate reduction if you have a good payment history. Whatever you do, don’t ignore them and just stop making payments. You could end up forfeiting future tax refunds and even some of your Social Security payments if the bill remains unpaid long enough.

Good luck!

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