you’ve defaulted on your student loans and are hiding
from calls from debt collectors, your future doesn’t
have to remain bleak.
being in default is not a good situation. Taking action
to get student loan relief before slipping far behind on
student loan payments would have been a much better
if you are in default — meaning you’ve failed to pay
your loans for 360 days — you do have options, and it’s
worth it to try to remedy the situation.
isn’t going to work indefinitely, and even filing for
bankruptcy offers only a slim chance of getting these
loans off your back. Bankruptcy rules don’t allow
people to get rid of their student loans unless there is
an extreme hardship that won’t let up, such as a
a recent email, a desperate man with only a part-time
job wrote me that he feared he’d ruined his life by
defaulting on both private and federal student loans.
While unable at this point to afford his loan payments,
he hoped someday to be able to buy a home and wondered
if the black mark on his credit record would make that
answer: There is still time to fix this, and with the
passage of time even a mortgage might be obtainable. But
here’s what a person would have to do first.
UP THE FEDERAL MESS
can’t hide from the federal government. Uncle Sam can
track you down through work and tax records and garnish
your pay, which means taking money you’ve earned
before you get a paycheck. The government also can keep
any tax refund you’d normally have coming and dog you
as you age by taking some of your Social Security.
avoid this, the simplest approach would be to file to
consolidate your federal college student loans, said
attorney Emily White, of Columbus, Ohio. Typically,
college students take out multiple federal Stafford
loans, and consolidating means you bunch them all
together into one loan that you repay over 10 or more
years. Consolidating loans is a simple process you can
do online through the official federal student aid site.
make sure you don’t leave federal loans out of the
process, use the National Student Loan Data System
(https://www.nslds.ed.gov/nslds/nslds—SA/) to identify
every loan you’ve taken out. If you miss some of your
loans, consolidating won’t solve your problems.
you consolidate your loans, be sure to ask for a payment
plan that will reduce your payments to fit your income.
This is called income-based repayment. A person with a
part-time job, for example, may end up with tiny
payments each month. Borrowers will no longer be
considered in default once the loans have been
consolidated, White said.
you have already consolidated your loans in the past,
and defaulted, you are probably going to have to follow
another option. You will have to go through a process
do this by contacting the servicer, the entity you
probably see with an 800 number on your student loan
bills. With paperwork in hand, you specifically ask the
servicer to put you into the official rehabilitation
process with payments that are based on your income. To
find what is considered affordable for your income, try
this calculator: https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action.
Doing the calculation before calling your servicer will
equip you to be an advocate for yourself. Sometimes
servicers aren’t helpful, but you can hang up and try
on your income, payments during rehabilitation can be as
little as $5 a month. Make sure you get assigned
payments you can afford, because if you start missing
payments again without asking for a deferment, you won’t
get a second chance at rehabilitation. The government
can demand full payment of all you owe at once, said
student loan expert Mark Kantrowitz of Cappex.com.
you enter rehabilitation, the government will stop
garnishing your pay, and if you make nine out of 10
payments on time under the plan you negotiated with the
lender, you will no longer be considered in default. You
can make payments based on your income and your credit
record will start to heal.
borrowers continue to stay on top of monthly payments
for seven years after consolidation or rehabilitation,
they can clean up their credit record. Provided they
have a solid job, they should be able to get a mortgage.
in mind that the process of consolidating student loans,
or working through rehabilitation, should be done on
your own. There are numerous student loan debt relief
companies that prey on desperate, confused people,
charging borrowers a fee in the process. These services
can’t arrange special deals that are beyond what
individuals could request on their own when working
through the consolidation process, said Joanna Darcus,
attorney for the National Consumer Law Center.
is no sympathetic Uncle Sam to help you out of your
troubles with private loans.
private lenders might be willing to negotiate lower
payments with you, but most don’t, and private loans
can’t be consolidated or rehabilitated to bring them
out of a default. But the lender also cannot garnish
your pay or go after a tax refund or Social Security.
doesn’t mean you are off the hook. In default, a
private lender is likely to sue you to recover money.
White said that to win a case a lender must provide
paperwork that shows clearly the borrower’s history on
the loan. In many cases the paperwork is sloppy and the
borrower can win on that basis, she said.
is when it may be worthwhile to get an attorney that
specializes in student loans through www.naca.net, the
site for consumer law attorneys. But White said that if
the amount of money owed to a private lender is small,
it may not be worth incurring attorney’s fees.
a difference between owing $6,000 and $100,000,"
she said. Instead of fighting a suit, paying off the
lender might be better.
going to great lengths to repay a student loan in
default, be aware that each state has a statute of
limitations on how long a lender can sue and recover
what is owed, Darcus said, noting a person getting
hounded from bill collectors might no longer have to pay
and the bill collector could be bluffing. Yet, a person
could accidentally start the clock back up again and
inadvertently open the door to be sued simply by
answering a bill collector’s phone call and
acknowledging a loan, she said