Paying down student-loan debt

Dear Debt Adviser,

Several years ago, I used unsecured private loans to finance my education. I currently hold six different loans (one of which is actually a federal loan) with two different lenders. The total amount of debt that I have is roughly $56,000, and all the loans (with the exception of the federal) have outrageously high interest rates.

My total monthly payments are $830, which is 35 percent of my take-home pay. This makes it virtually impossible to save anything after all of my other monthly expenses are paid. In fact, more often than not, I have a difficult time paying a lot of my bills at all, let alone on time.

My credit is putrid, hovering around the mid-500s. I am hoping you might have an answer, or at least some suggestions as to how I can finally get a grip on my student-loan debt.

-- Cameron

Dear Debt Adviser,

I have a major student-loan problem to the tune of $178,494.51. This breaks down to $1,250.68 per month for the next 30 years.

I am 51 years old now. I went to college late in life. My thinking was if I got a good education I could get a better-paying job. Guess what? That did not happen.

My payments started in December 2007. I could not make the full payment, but instead sent the lender $200. I did the same thing the next month. In February, I was able to send the lender $1,300, but I continue to have difficulty making payments.

Do you have any help or advice for me on this stressful matter?

-- Mike

Dear Cameron and Mike,

I chose to answer you both in one column because I want to impress upon you and my readers that student-loan-debt problems can happen to all ages and under many different circumstances.

I recently had a conversation with a delightful lady named Florence who used to be the credit manager at Princeton University in New Jersey. She told me how some of the smartest kids in the country had no clue when it came to debt -- and often, neither did their parents.

Student-loan debt is one of a small number of unsecured debts that just will not go away. Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, privately funded student loans are treated in the same way as loans funded and guaranteed by the federal government.

Before the new law, a private student loan could be discharged under Chapter 7 bankruptcy. But now, if a student-loan holder defaults on payments, there is no bankruptcy option, except in very rare cases.

In addition, you may be subject to a number of other penalties intended to make you pay down the debt. These may include losing tax refunds, having up to 15 percent of your wages garnisheed and having Social Security payments reduced.

It seems as though the only remedy lenders don't have is to put a lien on your cat or dog.

It would be worthwhile to determine if you qualify for forgiveness or repayment by a third party. This is rare, but it does happen. You can find more information on forgiveness and/or repayment programs at the U.S. Department of Education Web site.

So, unless you are eligible for one of the forgiveness or repayment programs, you have to figure out how to pay your student-loan debt while meeting all your other monthly obligations. Below are some suggestions for you to consider:

-- Consolidate all your student loans into one loan that spreads the payments over a longer period of time. Usually you will receive a better interest rate and a lower monthly payment through consolidation.

-- Work out a repayment plan with your lender to extend payments or for graduated payments that increase as your earning potential increases.

-- Ask your lender to defer repayment until career and financial circumstances have improved.

-- Get a higher-paying job.

I suggest you start by comparing offers from consolidation companies. Don't sign anything until you understand all the terms and conditions of the loan and know that you can afford the payments.

If that fails, work your way down the list.

(Steve Bucci is president of Money Management International Financial Education Foundation. Visit www.moneymanagement.org for additional debt advice. If you have a question for Steve, e-mail debtadviser(at)bankrate.com. The Debt Adviser is a weekly feature of bankrate.com. For more stories, visit scrippsnews.com.)

(Distributed by Scripps Howard News Service, http://www.scrippsnews.com)