Dealing with School Loans During a Layoff

Excerpted from WSJ.com

Even when I had a job, paying my monthly bills was never a highlight of my days but I had a job so I could afford it. It was okay. These days though, with just unemployment insurance as income, those loan bills are sitting in my mailbox and email inbox a little longer.

Many of my laid off business school colleagues are deferring their student loan payments. But I just can’t afford to…yet. I took out loans at the height of the interest rate boom. And when I consolidated, well, we’re talking over 7% interest. It’s a pretty high number, considering how interest rates have fallen. I’ve tried petitioning my lenders to reduce my rates, but to no avail. I’m locked in.

I’ve been asked, why not defer? Well deferment, at least for now, is not an option especially with my private loans. If I were to defer, the loans would compound in interest, racking up quite a pricey bill over a year. Thus, each month just under half of my unemployment check goes to Sallie Mae and AES for my private loans.
Strange as it sounds, I’m more concerned about how to pay my student loans when my unemployment insurance ends than my living costs. Go figure.

In the next few months as my unemployment runs out, my small savings will dwindle as I pay these loans. Once my savings runs out, I’ll eventually have to stop paying student loans and watch the high interest mount. I have already cut back as much as possible. I have rented out my apartment and currently live with friends and family. I cannot cut back anymore, as there’s nothing more to cut back on. I do not buy clothes, go to expensive restaurants, or otherwise spend money.

Recently, I read an article about how some Americans in default with huge student loans have fled the country and started new lives abroad because they can’t obtain jobs at salary levels sufficient to repay their loans. And I regularly read about the Americans underwater on their homes, cars, and other investments, who are walking away from these debts. But even declaring bankruptcy doesn’t clear away educational loans.

I have many friends also struggling with heavy student loan burdens, and wonder if there is not a better solution to obtaining an education. When school tuition for many colleges and universities costs hundreds of thousands of dollars, I wonder how other laid off workers are managing their student loan payments.

The fact is, it has made me question the high cost of my M.B.A. I hope schools will implement a counseling system to advise students as to long-term effects of financial aid choices as this recession continues. I received a full scholarship for my undergraduate degree, and had never dealt with the financial aid system before.

At the end of the day though, I choose to believe one day I will be able to pay off these loans. But I do wonder: the government has been handing out money to bail out banks and has been assisting homeowners who can’t afford their high interest mortgages. How about a student loan or even a student loan interest rate bailout, especially during this recession? It sure would make checking my mailbox a little less stressful.