Q. I’m trying to help a 44-year-old who has more than $140,000 in student loans. She is currently employed at $17.50 an hour in a retail position – not her college field – and she’s been paying down on the loans since graduation based on her ability to repay. At this rate, she will be 66 before payments are over. She lives with a parent and can’t afford her own apartment. Are there any forgiveness or discharge that could help?
— A friend
A. This story is a common one – a college student who takes on thousands of dollars in debt, yet never works in the field they studied in college.
It sure is expensive.
As you may know, there are several different types of repayment options that if followed, result in forgiveness of the loan after a certain amount of time.
You can read the details here on the U.S. Department of Education’s website.
The problem with forgiveness is that the amount would be subject to income tax, said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton.
“For example, if after complying with the program, there is a balance of $100,000 that is forgiven, that could result in federal income tax on top of what other taxable income you have,” Hook said. “That could be in the tens of thousands of dollars.”
That still may be better than paying off the loans in full, he said. The rub? How to come up with the money to pay the taxes.
Hook said it sounds like your friend may already be paying based on a repayment program that takes into account her income.
She should be able to find out if she is on one of the applicable programs, and how much longer she needs to pay before she can apply.
In the meantime, Hook said, she should explore other means for paying the income tax – such as a gift or loan from parents, a sibling or friends.
“If, for example, she is 10 years away from applying for forgiveness, she can maybe put some money aside each year so that when the taxes come due, she has some money saved for it,” Hook said. “Obviously if it is a shorter period of time , then she may not be able to save for all of the taxes.”
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