The first thing any borrower should do when they are having trouble repaying debt is talk to the lender to see what options are available. Do not default on the loan, as defaulting can cause you to lose options. It sounds like you have already done that, since your monthly payment is less than the interest that is accruing. This means your loan balance is growing, digging you into a deeper hole. That might provide some temporary relief, but it is only making the problem worse. It is not a long-term solution to a structural income deficit.
The 14% interest rate is very high, typical of borrowers with bad or marginal credit scores. You need to find a way to refinance this debt into a loan with a much lower interest rate. For example, $47,000 borrowed at 14% interest with a 25 year loan term has monthly payments of $566 per month, while the same loan at 8% interest has monthly payments of $363 a month. If you have a relative with excellent credit, ask them to cosign a private consolidation loan. This will refinance the Tuition Answer Loan into a loan with a lower interest rate from another lender. Another possibility is to look into a personal loan from a local bank, to see if you can get a lower interest rate loan that way, and use that low to pay off the private student loan. Private student loans do not have prepayment penalties, so you can use any source of cheaper financing to pay off the private student loan.
If you are unable to refinance the 14% loan, you
For your federal loans, look into teacher loan forgiveness and public service loan forgiveness. Also, if your loans are in the extended repayment plan, look into the income-contingent repayment plan (and starting July 1, 2009, the income-based repayment plan). These repayment plans typically have the lowest monthly payments.
You should also take a hard look into your finances to see what expenses you can eliminate in order to repay your debt. For one month keep receipts from every purchase you make. If you can't get a receipt, keep a record in a small notebook or a piece of paper. At the end of the month make a table that shows how much you spent in broad categories, such as rent/mortgage, eating in, eating out, tv/cable, entertainment, auto, insurance, telephone, cell phone, student loans, etc. Next to eat expense mark whether it is mandatory or discretionary. A mandatory expense is one for which you have no choice in whether you incur the expense. Then choose which of the discretionary expenses you will eliminate in order to let you pay the mandatory bills. This is going to be painful, but you need to do it. Get rid of cable TV. Stop eating out. Carpool. Even among the mandatory bills, look to see if there are ways you can economize. For example, if you live in an expensive apartment, see if you can't find an apartment with lower rent.
