Ask Money

Are private student loans an option for me?

Marketplace Staff Nov 4, 2013

Question:

I am 30 years old, married, and wanting to return to school to finish my degree. I have no current debt. Since my marriage I no longer qualify for financial aid due to the increase in household income, so we paid for a few classes ourselves, which is unsustatinable, so my plan was to take the bare minimum of student loans I need and work part time. However I’ve hit a snag.
In 2011, someone got a hold of my SSN and filed a false tax return in my name (kind of. My legal name is Philip Robert, but they filed under just Robert). They received a huge refund (they claimed $12k in mortgage interest alone). I’ve moved a couple of times since then, so I received a letter this past March saying that my current refund is going towards the debt I just found out about in that same letter. I currently “owe” around $8,000.
My father in law is a CPA and has been a huge help in getting the proper paperwork filed. We got everything in and I received a letter from the IRS last March saying they received and accepted my paperwork and I could expect resolution within 180 days. That time has come and gone by far. I called last week and was told it has not even been looked at and should expect to wait another four months. I contacted my senator and his office responded very quickly. Other than the IRS debt, no credit was taken out or any other debt rung up.
I am now ineligible for financial aid or student loans due to “owing” money to the government. I do not want to have to skip a semester and wait to August to continue my schooling.
Are private student loans a viable option? My credit isn’t fantastic but my wife’s is. Also, if I choose the private loans for only a semester or two until my tax situation is handled, will I have to pay those back immediately, or will they be like the other loans where I can wait until after graduation assuming I meet certain criteria (stay enrolled, etc.)

Response:

Carmen Wong Ulrich Nov 4, 2013 Former Host
You’ve got a lot going on here my friend, but it really boils down to one thing:  You want to finish your degree.  So how can you make that happen given that you have a currently — and possibly erroneous — bad credit history?

First, know that private student loans are nearly as bad as that dude standing on the corner, loaning to those in too-dire straits.  An extreme example, but consider this:  Private loans have the highest interest rates in the student loan business; many student loans are on par with credit card rates averaging in the high teens.  Also, there is no flexibility when it comes to payment.  Payments cannot be deferred, there is no grace period and you can’t file for forbearance.  (For more on student loans, types and caveats, head to:  www.FinAid.org)

I see you aiming your sights toward your wife’s great credit.  Hold on there, mister.  Yes, you’re in it together and if she took a loan out for you it could be considered a good investment on her part.  She knows you well (I hope!) so there may be little gamble there.  But, your wife’s great credit is a precious, money-saving thing that you may need even more urgently down the road.  Do you want to take the risk of possibly bringing down her credit scores if you’re both unable to make payments?

Exhaust your own options first.  Are you currently working full-time?  If so, does your employer offer any reimbursement for education costs?  And could you go to school at night and on the weekends while you’re working full-time so you can pay for each class in cash?  Private student loans have brought many a graduate down.  Try to pay-as-you-go route first.  It’s not easy but it’s less risky.  You could also go part-time (pedal to the metal though!) and work part-time, allotting all your earnings to paying for the classes while your Mrs. keeps the household afloat on her income.  You’ll get your degree, hopefully get a new and better-paying job and, keep you both out of debt.  A+.

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