The Wall Street Journal – May 25, 2020

Nancy Pavelka, a retired special-education teacher in Long Branch, N.J., is footing a student-loan bill of more than $300,000 for her two daughters.

“I didn’t want my children to start their adult life deep in debt,” she says.

The 57-year-old Ms. Pavelka has taken out nine federal Parent Plus loans, which she recently consolidated into one loan with a 7% interest rate. That loan is currently in forbearance, accruing no interest due to the recent stimulus package. Ms. Pavelka also has qualified for $16,000 in student-loan money for herself to get certified as a licensed professional counselor, or therapist. She hopes to start that program in September.

Ms. Pavelka mostly lives off a teacher’s pension, which pays about $56,000 a year after taxes. She earned about $2,300 this spring as a substitute for a teacher on maternity leave. She was receiving about $700 monthly in child support for her youngest daughter. But those payments are ending as her daughter is graduating from college.

Ms. Pavelka remarried last year; she and her husband keep their finances mostly separate.
Her retirement benefits pay the health-insurance premiums for herself, her husband and youngest daughter, who is a paraplegic suffering from autoimmune disorder called transverse myelitis.

She has about $18,000 in credit-card debt but a debt-servicing company helped reduce her interest rate to 7% and her payments to $369 a month. She pays $450 on a $26,000 car loan with a 9.9% interest rate. She expects to pay about $596 a month on an income-based repayment plan when forbearance on her consolidated loan ends in September, though she may try for an extension.

Other monthly expenses include: $1,225 for her share of the mortgage (The house is not in her name.); $400 for food; $300 to insure two cars; and $450 for phone, internet and cable. Her husband pays for other utilities. Her younger daughter moved home when her school closed in March. Ms. Pavelka still has to pay $1,400 a month for her daughter’s campus apartment through July.

Advice From a Pro: Shelly-Ann Eweka, a wealth-management director at TIAA, in Charlotte, N.C., says that Ms. Pavelka should focus on improving her cash flow as a first step to eliminating her debt.

Her pension of roughly $4,600 a month is a huge benefit, says Ms. Eweka, who urges Ms. Pavelka to develop a monthly budget that is 100% covered by her pension. Any additional income should go to an emergency fund—six months’ worth of expenses, or about $30,000—to fund any unexpected expenses without using credit cards.

Ms. Pavelka should seek a full-time job to earn income as she pursues her counseling certification—a job that does not impact her pension or health-care benefits. And after she graduates, she could look for a job that could qualify her for student-loan forgiveness, though she would need to consider if she were sacrificing income to do so.

Also, the interest on her student loans may qualify for federal tax breaks. According to Ms. Eweka, she may be able to deduct as much as $2,500.

The couple should make an estate plan, particularly regarding their home. “If he doesn’t want to leave the home to her, he might allow her to live in it until she passes away,” Ms. Eweka says.

Life insurance, too, is a key consideration. Ms. Pavelka needs to address issues including: Would her policy cover her youngest daughter’s medical and living expenses? Ms. Pavelka and her ex-husband also need to review their life-insurance to determine what resources her daughter would have in case one or both parents dies early. “Hopefully, her daughter will be able to get a job that provides adequate compensation and medical benefits to take care of herself,” says Ms. Eweka.

Ms. Ward is a writer in Mendham, N.J. She can be reached at

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