Few options exist for erasing $175,000 student loan debt

By Liz Pulliam Weston
Money Talk
June 13, 2010

Dear Liz: I really screwed up. I decided I wanted to go to a private college and am now saddled with $145,000 in private student loans and $30,000 in federal student loans. I am working on my master's degree and am about to have a child. I'm looking at payment options for when I graduate and am very scared for my family's future. I can't afford to pay $1,000 or more a month in student loans and I really want to buy a house so my family can have a home. What should I do?

Answer: You may have to give up your dream of homeownership. Maybe not forever, but probably for a long while.

The amount of debt you took on is staggering. In general, people shouldn't borrow more for an education than they expect to make the first year out of school — and there aren't many jobs that pay $175,000 at entry level.

Your options are few. You typically can't erase student loans in bankruptcy, and there is no statute of limitations on the debt, meaning your lenders can pursue you until you're dead.

You may be able to qualify for forgiveness on your federal student loans. People who work in public service jobs for 10 years can have the remaining balance forgiven, while those who work in other jobs can get forgiveness after 25 years. For more, visit FinAid.org and search for "loan forgiveness."

In any case, you should pay only the minimum on your federal loans and put as much as possible toward the private student loans, which have variable rates and less flexible repayment options. You're learning this too late, but paying for college with private student loans is a lot like using credit cards, except you don't have the possibility of wiping out the debt in bankruptcy.

http://www.latimes.com/business/la-fi-montalk-20100613,0,4248126.column