Getting old student loans out of default: Anyone have experience?

[Jenny in Florida]

But if it is an acredited post-secondary program, it might still qualify for deferment, right?  At least that is worth checking.

 

It's not accredited. It's not affiliated with a university. It's a private studio.

[Katy]

SO I haven't dealt with this either, but I did read a blog post a few years back that I can't seem to find now about why someone chose to default on their loan, and it was very much the situation redsquirrel described above. 

 

The person said it was better to have extra money withheld for taxes and then have your refund seized, which lowers the debt amount without allowing interest to accrue.  Then when you get the debt down to a manageable amount (I think less than $1000 was suggested), you call and make arrangements to get out of default.  That way the interest that can accrue is minimal.  I'm sorry, I can't seem to find that post any more.  I think the blog was taken down.

[Tsuga]

 

 

 I'd like to move on from suggestions about how to manage my life or make more money, since that really wasn't what I asked in my original post.

 

I hear what you are saying.

 

I empathize with your situation.

 

It sounds like you can't afford to make payments on your loans and that is the heart of the problem, which is why I went in that direction.

 

I do hope you can find something that works so you can manage a repayment plan, but in the long run, it might be best just to focus on the kids at this point, like you are doing.

 

That said, please be aware that if your children work in public service as teachers or in social services, they may qualify for reduced payments and some loan forgiveness in the long run. If for any reason you run into trouble paying their loans, supporting them in that could help them at least avoid the situation that you are in.

 

Good luck.

[Jenny in Florida]

It figures, right? came home from work, decided to screw my courage to the sticking point, picked up the phone and called the Department of Education number . . . only to get a recording telling me their "system is unavailable at the moment."

[redsquirrel]

It figures, right? came home from work, decided to screw my courage to the sticking point, picked up the phone and called the Department of Education number . . . only to get a recording telling me their "system is unavailable at the moment."

 

First of all, good job making the call. That must have been very hard

 

Try calling back on a weekday during work hours. Lots of those sorts of things aren't operating on weekends or after hours due to the sequestration or whatever it is called. Or, maybe they are just having computer problems.

 

Plus, if you call during the week you are more likely to get an experienced person.  The weekend people tend to be 'second string' . There are more likely to be more experienced supervisors around on a weekday as well.

[Alessandra]

Well, don't envy Europe over this one, there is no point. My BIL is in the same position as Jenny because Denmark will not release his transcripts so that he can have a better job. He can prove he has a degree, he has the actual diploma, but he is severely hampered in his career because Denmark will not release transcripts for people to work abroad. They consider the degree as belonging to them even though BIL's parents paid for his college and have paid more than 66% of their income in taxes their whole lives. BIL's father is legally blind from some cateracts it has taken more than three years on the waiting list to get removed, so I don't really think you want their healthcare, either. It only looks shiny on the outside.

I am so sorry. What a terrible situation!

[Alessandra]

I got my loans out of default. It was years ago, so my memory is foggy. But my initial payments were quite low, like 50 or 100$ a month. Now, I know that isn't nothing, but it was low compared to what it could have been. That is why I say low.

 

I had zero choice in one part, and I hated it: I had to give them access to my bank account. They sucked the money out automatically, I did not send them a check or make a payment. That was something about which they were immovable and would not negotiate.

 

Once that year was over I was out of default...and my payments went up a whole lot. They did not warn me about that and I freaked out. I then refinanced or something with a federal program. That made my payments manageable...but it is like starting over again. So, all those years that I did make payments, and I did try as hard as I could in my 20s and 30s to stay out of default, count for nothing. OTOH, I am out of default and have a 'clean' credit record. And, as before, the money gets taken from our bank account automatically.

 

Here is what i was able to piece together: My loan got out of default b/c there are companies that buy defaulted loans. They contacted me, I did not contact them. I think their reward for taking on defaulted loan is that for the year you are making payments they keep the money. I don't think it is actually applied to your loan. Then when you have proven that you are able to make payments, they sell the loan for more more money. You are getting screwed and you have to accept that. They don't tell you what your options are when you are done getting out of default. They just sell your loan and cut you lose. I was making payments and then I got a letter saying "congratulations, you aren't in default any longer and that is the end of our relationship." And the same day I got a letter from a different company saying "Hi, we own your student loan now and you owe us 500$ a month! " I had been led to believe that they payments I was making to get out of default would stay the same while our income stayed the same.

 

If you can't afford the new higher payments, that is not their problem. If you end up back in default, so much the better for them. Maybe they can buy it again and get more money from you. It was only after spending days on the phone with the new company telling them that there was no way I could ever afford those payments, they they had better just default me again, that one person asked if I had heard of federal consolidation of student loans. She sent me the paperwork and told me that if I told them I was applying for federal consolidation that I could not be made to make a payment. So, I never had to make the huge payment, and I was enrolled in the federal program within days.

 

So, look into some sort of federal program that refinances or consolidates your loan, but I think they can't take you if you are in default.

Good grief, how awful!

[Jenny in Florida]

It sounds like you can't afford to make payments on your loans and that is the heart of the problem, which is why I went in that direction.

 

Here's what I think is frustrating: I've made at least two attempts to get on track and on a payment plan I could actually honor. The first time, when my loans were initially going into default, I spent hours on the phone with assorted people and was told in no uncertain terms that, since I had not kept up my payments, my only option to avoid default was to pay a lump sum of all my back payments. I'm not saying that's not "fair," but it was impossible for me. So, I gave up and reconciled myself to the idea that I was going to have rotten credit for the foreseeable future.

 

Then, when our kids were tiny, my husband got involved and tried to help. Once again, we spent days making multiple calls, speaking to a bunch of people in various departments, making it clear I wanted to honor the debt but needed a payment plan we could live with. The basically insisted that my only option was to resume payments equal to what I had originally defaulted on PLUS an additional amount each month to cover the interest that had accrued. We had two young kids, and I wasn't even working. Again, it may have been legal and even "fair," but it wasn't reasonable. We decided that paying rent and feeding the kids was more important and, once again, walked away.

 

Consequently, for the last 28 years or so, since I found myself after graduation unable to keep up with the payments, the government has gotten no more out of me than the couple of hundred dollars they've snagged from our tax refunds. If they had simply negotiated a low payment with me all those years ago, they'd have me off their books entirely by now.

 

Nowadays, I would be perfectly capable of making regular monthly payments, as long as the amount is something I can reasonably handle out of my own income. Granted, it might still take me a decade or so to pay off the total (including the interest), but wouldn't that be better than demanding more than I can promise and then getting nothing?

 

So, it's not that I can't make payments. I can. And I want to do so. I just wish I could have some assurance, before I open the door and risk enduring another round of harassment and years of being afraid to answer my phone or check the mail, that there is a reasonable hope I will be able to work out a deal I can live with.

[Alessandra]

It figures, right? came home from work, decided to screw my courage to the sticking point, picked up the phone and called the Department of Education number . . . only to get a recording telling me their "system is unavailable at the moment."

Courage!

[Jenny in Florida]

First of all, good job making the call. That must have been very hard

 

Try calling back on a weekday during work hours. Lots of those sorts of things aren't operating on weekends or after hours due to the sequestration or whatever it is called. Or, maybe they are just having computer problems.

 

Plus, if you call during the week you are more likely to get an experienced person.  The weekend people tend to be 'second string' . There are more likely to be more experienced supervisors around on a weekday as well.

 

Weekdays are often really busy for me, and my schedule is unpredictable. (And the jobs I have do not allow me to make or receive phone calls while I'm on the clock.) I happen to have this afternoon free, so I figured I'd do it while I was awake and brave and otherwise unoccupied. 

 

If I could handle this by mail or e-mail, it would probably be done already.

 

I know they have no obligation to make it easy, but honestly, it's like this whole system is set up to make it as painful and challenging for me as possible.

[Alessandra]

Weekdays are often really busy for me, and my schedule is unpredictable. (And the jobs I have do not allow me to make or receive phone calls while I'm on the clock.) I happen to have this afternoon free, so I figured I'd do it while I was awake and brave and otherwise unoccupied.

 

If I could handle this by mail or e-mail, it would probably be done already.

 

I know they have no obligation to make it easy, but honestly, it's like this whole system is set up to make it as painful and challenging for me as possible.

This.

 

It would make sense if they had amnesty days. Doesn't IRS have that for back taxes in some cases? I know there are days when unpaid traffic tickets can be paid without penalties. The news is always full of stories about people who have been wanting to pay, but jest needed a bit of help. Win, win.

 

I am following this thread because I have two kids who will be college age in a few years.

[MeghansMom]

I see. Okay. I always put minimum deductions so I get something back because I know I'm not saving except for retirement.

 

Re: Selling: Well, had to try. You never know. 

 

 

I hear what you're saying, but would it be at all possible to work 50-hour weeks or take private students for tutoring?

 

That's what I did to start paying down debt and move into a better place. Two jobs. It is very hard. But if you can't get income-based repayment based on solely your income, something's going to have to give.

 

Your kids are in college now. It doesn't sound like you're that old. :) Would taking on Saturdays help at all?

Did they count BOTH your jobs towards student loan repayment?

 

We are good on my student loans now but I am worried that if they count both of DH's jobs, we will be stuck in default again.

My plan is to start a two year program for something like paralegal or dental assisting/hygienist and then pay off my own student loans.

 

Best of luck to you, OP.

[Katy]

I just spent some time on google and the collection fees when your loan is sold after being rehabbed will be 16%.  So if you owe 30,000, and you spend 6 months paying $100/month to get out of default, your balance will then be something like:

 

$30K initial debt upon default - $600 in monthly payments = $29,400 x 1.16 for collection fees = $34,104 owed.  So those months of payments really are for nothing.  If at all possible pay down the debt before you get out of default.

[MeghansMom]

I just spent some time on google and the collection fees when your loan is sold after being rehabbed will be 16%.  So if you owe 30,000, and you spend 6 months paying $100/month to get out of default, your balance will then be something like:

 

$30K initial debt upon default - $600 in monthly payments = $29,400 x 1.16 for collection fees = $34,104 owed.  So those months of payments really are for nothing.  If at all possible pay down the debt before you get out of default.

 

 

They are for nothing except getting you out of default. Then she can get her transcripts and get a better job. For me, it is getting back into school and having the loans put on hold until I graduate a couple of years from now. THEN, I will be able to pay my loans.

 

I will disclose that at 36,700 on our joint income tax with one child we pay 83 and 86 on two student loans. No pay raise for about eight years but then no safety net to go to a new job either for my Dh. He does get small bonuses monthly now but he has to kill himself for them. DH works a second job and I am praying...ha!...that the student loans do not go up too high or we will be right back where we started. My student loans are pretty high too. Like 45,000 on one and 27,000 on the other.  We also owe medical bills to the tune of ten thousand after coverage. Our daughter is special needs with VACTERLS association and raised four other children with practically no support from one of the spouses and did not receive any for a good portion of my son's life also. (both custodial).

 

It has been pouring for a long time at our house.

 

OP, are you certain with the amount of loans for the three of you and both of your incomes that the loans are not within your budget for six months or a little longer? Long enough to get them out of default and get a higher paying job, then pay on them?

[HelenNotOfTroy]

My husband got his loans out of default through consolidation. He had to make a few payments (the federal student loan website says three) and then his loans were consolidated into a new loan which is treated like any other, with the option to change payment plans or use deferral and forbearance. Everyone getting student loans should be fully informed about payment plans and deferral and forbearance so that they don't go into default.

[MeghansMom]

My husband got his loans out of default through consolidation. He had to make a few payments (the federal student loan website says three) and then his loans were consolidated into a new loan which is treated like any other, with the option to change payment plans or use deferral and forbearance. Everyone getting student loans should be fully informed about payment plans and deferral and forbearance so that they don't go into default.

 

There are many in default and not by their doing. It is not as simple as being fully informed, I wished it was.

[Jenny in Florida]

Everyone getting student loans should be fully informed about payment plans and deferral and forbearance so that they don't go into default.

 

Indeed. Too bad the people responsible for helping to inform me when I took my loans out 30+ years ago weren't especially conscientious about making sure I understood the rules. 

 

Also a shame that no one informed me of these payment plans -- or even deferral or forbearance -- when I first got in trouble and asked repeatedly for help. Part of that may have been that many of the payment options people take for granted now didn't exist when I graduated, but still . . .

 

Of course, it also would have been nice if the family members who encouraged me to take the loans and said they would help me pay them had lived up to that promise.

 

And a nice bonus would have been that the government and the university from which I graduated didn't put in place policies regarding default after I had graduated that are affecting my life now.