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Question for the Money Doctors

Question submitted on Jun 21, 2012.

Question

My husband and I put ourselves thru college after having children and then paid for their education as well. The only way to get an education was through taking out student loans. Time and money spent on education was definitely worth it but it feels like we will never get the student loans paid off. My 49 yr. old husband was recently diagnosed with stage 4 prostate cancer so I’m desperately trying to reduce our overhead.

We consolidated our student loans in Aug 2001, totaling $46,575.00. With 6.875% interest and no missed payments, we’ve only managed to pay the principle down $6,900.00 in these past 11 years. We are in our late forties now, with grown children and grandchildren. I can’t claim financial hardship yet and would prefer to avoid that altogether. We do expect my husband to reduce his work hours significantly due to his illness so I’m being proactive. If he’s worried about money he won’t cut hours until he is forced to do so. How do we get these loans paid off soon without taking a second out on the house? Any suggestions will be appreciated, thank you! Lorri

Answer

Since you are unable to make extra payments on the principal to pay off the loan, an alternative solution is to attempt to lower the interest rate on your debt.  If your student loans are privately consolidated, contact your lender.  Many financial institutions provide incentives (in the form of reduced rates) to borrowers who make timely payments or who opt for automatic payment plans.  You may also be able to reconsolidate your student loan with a lower interest rate. 

If your student loans were federally funded, you will not be able to lower your interest rate through re-consolidation unless you have taken on new debt or are in default.  You do, however, have the ability to request a delay in payments in the event of financial hardship.  Given your husband’s health situation, this is a valuable benefit. 

Despite your reluctance to take out a second mortgage, my last suggestion would be to consider a cash-out refinance of your current mortgage.  If you have the equity, record low interest rates would reduce your debt faster with little to no increase in your monthly outlay of cash.  In addition, if your student loan interest is greater than the $2,500 limit for the federal tax deduction, or your income too high to deduct the interest, you may be able to deduct the interest on the cash out refinance as long as it is less than $100,000.  Best wishes with your husband's health.


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