‘I Owe $90K in Private Student Loans. What Do I Do?’

I recently got a notice in the mail saying my student-loan servicer has sold my loans. I was in deferment for a year (these are private student loans, so they weren’t affected when the government put federal student loans on hold), but I still owe about $90,000. It also seems like the process of transferring the loans to a new servicer has hurt my credit score — it used to be in the 700s, but now it’s in the mid-600s. 

The latest letter said I need to start paying again in January, but I’m not sure what the monthly amount will be or if I can afford it. My parents used to help me cover these bills, which were over $1,000, but my dad passed away in 2022 and my mom said she wasn’t able to help me with them anymore. (That’s why they went into deferral; I put them on hold because I wasn’t sure how I was going to pay them.) I believe my parents co-signed on the loans, but my mom and I have a difficult relationship and I’d prefer to keep her out of this if possible.

I feel stuck and hopeless. I make $55,000 a year and can barely afford my rent as it is. Last I checked, these loans have an 11 percent interest rate, which means they could grow faster than I can pay them down. What do I do?

Oof. I’m so sorry you’re in this position. Private student loans are typically a raw deal and don’t offer much (if any) wiggle room, even under dire circumstances. It sucks that you were talked into them when there are much better alternatives (like government student loans). I don’t mean to rub it in, but you’re in a tough spot.

I spoke to a couple of student-loan experts to suss out your next moves, but basically I don’t have great news. There’s not much you can do besides hit these monthly payments head-on, which I’ll get to in a minute. First, I want to review some options you might have heard about.

If you’re hoping to change the terms of your loan (like lower your interest rate or switch to an income-driven repayment plan), you’re probably out of luck. Unlike federal student lenders, the vast majority of private student lenders won’t allow you to do so. This isn’t because they’re evil (even if they are); the real reason is that regulators don’t allow them to “substantially alter” the agreement, says Betsy Mayotte, president of the Institute of Student Loan Advisors, a nonprofit organization that helps student-loan borrowers navigate their debt. “It might be worth reaching out to your new lender to ask if they have lower payment plans, but in most cases, it won’t get you anywhere,” she adds.

Trying to refinance isn’t likely to pan out either — at least not right now. The main problem is you have what’s known as a high debt-to-income ratio; your debt is about twice as much as your annual take-home pay, and lenders don’t like that. “Lenders are going to look at your debt-to-income ratio and pass on refinancing,” says Mark Kantrowitz, the author of the website Private Student Loans Guru and a member of the editorial board of the Journal of Student Financial Aid. “What’s more, interest rates are high, so it’s doubtful that you would get a lower rate than what you currently have, especially if your credit score isn’t optimal.” Your best bet is to wait a few years, work on getting your debt-to-income ratio down and your credit score up, and try to refinance then.

Even bankruptcy isn’t a viable option, says Kantrowitz. To get your private student loans discharged, you would have to prove that they pose an “undue hardship” as legally defined by the Brunner Test, which is very hard to pass. (Basically, you would need to show that paying them would render you incapable of maintaining “a minimal standard of living” for yourself and your family — in other words, that it would put you at or below the poverty line.)

In summary, your private student loans probably aren’t eligible for refinancing or discharge. This puts you in the unenviable position of having to face them head-on. I know you don’t want to hear this, and I hate saying it, too. But it’s time to look at the numbers.

Some back-of-the-envelope math: If you owe $90,000 with an 11 percent interest rate, the monthly payments for a ten-year term would be about $1,240. That’s a lot of money no matter what, but it’s especially brutal if you’re earning $55,000 a year. If you try to stretch out your payment term to 20 years — the longest most private lenders will offer, says Kantrowitz — that would lower your monthly payments to $929, but you’d be paying so much more in interest that it’s hard to justify. (Over ten years, you would pay about $59,000 in interest, but over 20, the total interest balloons to almost $133,000 — substantially more than the loan itself.) These are ugly numbers, I know.

Mayotte recommends breaking things down as much as possible — the old adage of eating an elephant one bite at a time. If you need to come up with an extra $1,240 a month, that’s roughly $310 a week. What kind of side hustles can you get? I know it sucks to work full time and have a second job on nights and weekends, but it may be your best shot at bringing in some much-needed extra cash. (And as Kantrowitz points out, having a side hustle gives you less time to spend money on fun things — sad but true.) You could explore higher-paying job opportunities, too, but I know that’s easier said than done.

You’ll also need to do a deep dive on your budget and see what you can cut. I won’t sugarcoat it: This will be a yearslong slog. But the quicker you can pay down your debt, the sooner you’ll be able to refinance it and the less you will owe in total. Think of it as a marathon — the faster you run, the sooner it will be over, but you need to pace yourself.

One other tip is to set up an auto-payment for your monthly bill. “Some lenders will cut your interest rate by a quarter to even half a percent if you opt for auto-pay,” says Kantrowitz. “That might not sound like a lot, but it will add up.”

As for the drop in your credit score, there’s a chance that this happened in error, in which case it would be fixable. “Sometimes when a loan changes servicers or lenders, they don’t transfer data correctly,” says Kantrowitz. “It could be that the new servicer didn’t get all the information from the old servicer, or the new servicer might have different reporting standards than the old one.” For example, you’ve been in a period of forbearance, but the new servicer may treat that as a period of nonpayment, even if it was authorized by your previous servicer. Woof.

The best way to get to the bottom of this is to check your credit report (you can do so here for free), which will display your debt, month by month, and whether it was reported as delinquent. If you find something wrong, contact your lender and have it rectify the situation with the credit bureau. “My experience with educational lenders is that when they make a mistake, they will fix it,” says Kantrowitz. “Worst-case scenario, you can file a dispute with the credit bureau and the creditor has 30 days to either remove the negative information or confirm its validity.”

Finally, we should broach a touchy subject: your mom. I understand if you don’t want to bring her into this, but if she’s a co-signer on your loan, the truth is that she’s already on the hook with you. If you don’t or can’t pay back these loans, then her credit score will be affected along with yours. So it’s worth having a conversation with her, at the very least to explain what’s going on. Best-case scenario, she will try to help you out once she sees that she’s equally liable for the pickle you’re in. Worst-case scenario, nothing changes and you’re in the same tight spot.

I know none of this sounds like good news. You should never have been put in this situation in the first place — when you agreed to this loan, I’m sure it was presented in much rosier terms than the reality. Your path forward won’t be easy. But it is doable (albeit painful) if you create a plan and stick to it. Best of luck.

Email your money conundrums to mytwocents@nymag.com (and read our submission terms here.)