Delinquent student loans are a huge and growing problem. If you've borrowed money for college that you can't afford to pay back, you may feel backed in a corner. In some sense, you are. These loans do not carry the same consumer protections others do. On the other hand, there may be programs you aren't taking advantage of, including flexible repayment options and loan forgiveness program. Here we share advice on dealing with student loan debt.
I was unemployed for several months and my student loan with ACS was delinquent and now ASA American Student Assistance has “purchased” the debt and say I can do the rehabilitation program but they are going to add 18% to the total.
Also, the letter I received from ASA said that I had until 2/8/16 to contact them and this would prevent the loan from going into default.
Upon contacting them, I was told it went into default Dec. 6, 2015 and I would be charged the 18%. How can they do this when the letter clearly states deadline of 2/8/16? Please reply as soon as you can, I don’t know what to do!
If your loans were more than 270 past due then at that point they went into default.
I am assuming these are federal student loans since you mentioned the rehabilitation program. More details on rehabilitation can be found here.
Rehabilitating your student loans offers you some real benefits. It stops any potential wage garnishments and suits. It brings your loans back into a current status and gets things back in order. It can also avoid collection costs if you act quickly.
According to the Department of Education, you may not have to pay the collection costs up to 16% if you act quickly in rehabilitating the loan. Here is what the Department of Education says about collection costs after the 270 day default, “Department regulations bar a guaranty agency from charging collection costs to a defaulted borrower who responds within 60 days to the initial notice provided by the guaranty agency, enters into a repayment agreement, including a rehabilitation agreement, and who honors that agreement. This includes, in the case of loan rehabilitation, both collection costs on the initial and subsequent qualifying payments and collection costs upon the ultimate sale or assignment of the loan. For defaulters who do not enter into a repayment agreement, guaranty agencies can and should charge collection costs.”
But it sounds like the February 8 date was the last day you had to avoid the collection costs since your loans actually went into default on December 6th.
All I can do is infer what happened based on the information you gave me. But that’s my best guess.
I know dealing with your student loans can be a confusing mess. But there are some good options for preventing loans from going into default, including zero dollar monthly repayment plans. For anyone reading this who might be in the same situation, please read “The Ultimate Guide to Dealing With Student Loans You Can’t Afford.”
I went to a community college about 22 years ago. In order to go I had to take out several loans in the last 6 months of my college life I became extremely ill. I contracted a brain infection that left me with no memory of what I even took in college. I am permanently disabled from the infection. I have never been able to repay the loans that I had to take, and for the last 20 years they have taken my income tax returns. Not the state, but always my federal returns.
My question is how long are they allowed to keep taking the return?? I thought after 7 years they just had to eat the loan. Knowing I did not have the to repay it? Now they are threatening to garnish my wages. I am a provider for my 22 year old autisic daughter. The government gave my daughter a grant to hire someone to teach her how to live life on her own.
I’m so glad you reached out to me for help. I’m so sorry to hear this situation has persisted for so long. So let’s resolve this quickly.
It sounds to me the student loans in question were federal student loans. That’s the only way your federal tax refund could be intercepted.
If you have received a diagnosis of permanent disability then you should apply for a Total and Permanent Disability (TPD) Discharge of your student loans. When you qualify for this program your qualifying student loans will be wiped away completely and tax free. You can get more information and learn about the application process by clicking here.
On the off chance you don’t qualify for a TPD discharge, there are some other programs you may be qualified for to reduce your loan payment based on any income you receive. There would be some additional steps to qualify for this program since your loans are in default and the age of the loans might create a technical hurdle. I’d have to look into that further if that’s the route you elected. For more information on those programs, click here.
But to answer your seven year question, it is a federal student loan so they can collect forever unless you take action to get this under control.
So let me start by thanking you for providing an avenue for people like me to ask you questions! I am really grateful for hopefully getting help with my debt problems.
I am 24 years old and graduated from college over a year ago and now have over 100k in loans. The details of the loans are as follows:
– AES loans: 1) Balance = $38,467.33
Interest = 2.728% (This loan was originally 25,000 and had an interest of 10% but they lowered the interest 2 years ago, so it has almost doubled in amount)
2) Balance = $30,425.41
Interest = 7.18%
3) Balance = $2,981.31
Interest = 10.43%
– Sallie Mae loan: Balance = $27, 804.97
Interest = 9.63%
I have 3 small loans from my school totaling $9,000 and federal loans totaling over 50k. As you can see I am deep in student loan debt. I am less concerned about the federal loans b/c I feel like I can manage those being that I may go into education and can eventually get a good portion of them forgiven. But going into this profession will not provide me with enough money to pay the private loans.
So after reading your article on why you should stop paying private student loans, my question is: is this the kind of situation where I should stop paying those private loans? On credit karma my credit score is around 600 now so I’m not sure what kind of impact stopping payment would have but I really don’t make a lot of half of my income goes towards these loans. I’m just concerned about not paying these loans and the impact it will have on my credit and trying to buy a house in the future or anything where my credit would be necessary. But I have no savings and not paying these student loans would loosen up a lot of income for me to start saving money and investing.
Thank you for any help you can give me!
First off, let me give you a big hug for thinking about becoming a wonderful overworked and underpaid teacher. The world needs more incredible teachers who are willing to slave and sacrifice to help kids learn.
The teacher student loan forgiveness program can be a bit confusing. While it is true, federal student loans can be forgiven in full for some teachers, you have to read the fine print. Not all loans are eligible for forgiveness under the Public Service Loan Forgiveness program and the program requires 120 on-time payments before forgiveness is possible. But here is the big rule to watch. If you are employed by a for-profit school, you may not be eligible for total loan forgiveness.
So even if you were brave enough to become a teacher, you’d need to work for a nonprofit 501(c)3 or public school.
There is a Teacher Loan Forgiveness program but it forgives up to $17,500 of your federal loans. To be eligible for that program you’d have to teach full-time for five complete and consecutive academic years in certain elementary and secondary schools and educational service agencies that serve low-income families, and meet other qualifications. Again, more fine print.
Your credit score, as we financial professionals say, already sucks. So if you were to strategically default on your private student loans, now would be a logical time. You can then later focus on rebuilding your credit and credit score.
Anything you do will have an impact on your credit in one way or another. If you continue to pay the private student loans on time you have the ongoing outstanding balance which sounds like to impacts your debt to income ratio and reduces your ability to qualify for a larger mortgage.
Then there is the inability to save and invest. That can have very serious longterm consequences. Use my online calculator and see how much you are throwing away by not saving, click here.
As with many things in life, there is no blanket answer I can give you. Every situation is different and people have different temperaments for making it through this process.
This can be an effective strategy if you have the cash on hand to settle, or you can get your hands on it.
Of course the downside to trying the settlement route is the forgiven debt could create a tax liability you may have to pay, it will appear on your credit report for up to 7.5 years as your delinquency will, and when you default, your lender could always sue you if they wanted to. There are big risks but there are also big rewards when faced with no good options for your unaffordable private student loan debt.
If you stopped paying and the time of the default exceeded the statute of limitations in your state, you could even then go for a total discharge of your private student loan debt in a bankruptcy. You’d really need to get a good understanding what that timeline might be for you. Talk to a bankruptcy attorney, for free, to get an opinion from an attorney who is licensed in your state.
Ultimately, the lack of ability to save money for an emergency, the inability to prepare for the retirement future, and the debt burden creates a significant financial cost. Some action will be necessary unless you can significantly increase your household income.
I have $13,364.87 debt in federal school loans through Navient, previously Sallie Mae. I have almost paid off the accrued interest. Only $26.53 of that total is interest. I have been paying since 2000.
I have two loans. One was originally $23,972.99 and is now $10,905.11. The other was originally $5,500.00 and is now $2,486.29.
Do you know how I can settle the loan? What can I say or do to negotiate a settlement?
I appreciate your help.
Frankly I would not try to settle them. Here’s why. At this point settlements seem to be offered mostly to people who are just after charge-off and significantly delinquent.
Going delinquent is a strategy for some but not a blanket solution for all. Being in significant default on your student loans while lower your credit, subject you to being sued, put any cosigner that you might have in potential trouble with Navient and the forgiven part of your student loans would be taxable as income if you are not insolvent.
But all of that applies to private student loans. Since these are federal student loans then the rules are very different and the options fewer to settle unless you wind up sued by the Department of Justice over you student loans or got for an undue hardship discharge through a consumer bankruptcy. Click here for more information on the bankruptcy discharge. Otherwise, the government has no incentive to settle since if you you fall behind they can garnish your wages and intercept any tax refund due, without taking you to court. Additionally, a default in your federal student loans could add an additional 20% to the balance as a collection penalty.
You’ve come so far and if it is within your ability to finish the payoff of your loans, I’d suggest that strategy. The benefit for doing that is a better credit record than letting it all hit the fan when you can afford to make the payments.
But consolidating the loans for a lower period of time may lower the monthly payment but will increase the overall amount you would repay. Typically the least expensive way to repay federal student loans is with the standard ten-year repayment plan unless you qualify for one of the few federal student loan forgiveness program.
Question:My girlfriend and I both have lots of student loans. We Googled “student loan consolidation” and got some sketchy-looking websites. But we’re desperate, so we entered some info into some fields. They said she could get her loans consolidated but mine couldn’t be. Is this for real?
— Bill in Iowa
Howard Dvorkin CPA answers…
After getting some information from you, Bill, I figured out the discrepancy: Your girlfriend took out government loans, while you have a substantial number of private loans. Why does that matter? I made this video to explain the differences…
How to save money on those hefty student loans
For more on the differences between private and government student loans, consult our in-depth advice at Federal vs. Private Student Loans. The news isn’t all bad for you, Bill: You have both kinds of loans. You and your girlfriend can take advantage of several federally mandated programs. As you’ve experienced, however, some of the businesses aren’t exactly confidence-inducing.
Think about it this way: You can do your own taxes, or hire an accountant or tax-preparation firm to do it for you. That’s very similar to how student loan consolidation works. You can do it yourself — and Debt.com shows you how in Do-It-Yourself Student Loan Consolidation — but that can be overwhelming.
The federal government offers various programs depending on your circumstances. (You can get a plain-English rundown on them in our section called Options for Paying Off Your Student Loans.) The businesses that help you through the process charge you a fee, but the ethical ones never charge in advance, and they never charge more than a fraction of what you’re saving. How do you know you’re dealing with one of those ethical businesses? That’s what Debt.com is for.
We partner with companies that offer all sorts of debt-related services, and they must abide by our Code of Ethics. When you call us at 1-800-810-0989, one of our experts matches you with a company best suited to help you. It’s worth the call, because while the options can be complicated to navigate, the savings can be huge.
The vast majority of student loan borrowers take on federal education loans, meaning they’ll end up working with a federal loan servicer when it’s time to repay their debts. One of the largest of these servicers is Navient, which is both a new and seasoned player in the student loan space — in 2014, student loan giant Sallie Mae spun off its federal education loan servicing into a separate company: Navient.
Borrowers previously working with Sallie Mae as they repaid their federal loans became customers of Navient (the name is built off the word “navigation,” because the company says its goal is to navigate borrowers through repayment), but Sallie Mae continues to originate and service private student loans.
If you’re one of the 6.1 million federal student loan borrowers with loans serviced by Navient, you should be well aware of it (Navient also services private student loans). Navient sends letters and emails to its borrowers as soon as their loans have been assigned to the servicer, but if you haven’t been paying attention, here’s what you need to know.
Navient communicates with its customers through mail, email, phone calls, text messages and all the media on its website. Early on, while you’re still in school, you’ll mostly get letters or emails designed to keep you connected to the company, even if you’re not making payments yet. Keep in mind you can make loan payments at any time — doing so before you enter repayment will help you save money — but you should get familiar with your servicer and set up your online account access as soon as possible.
If at any time you have questions about loan payments, contact your servicer right away.
“Immediately,” said Nikki Lavoie, spokeswoman for Navient. “If you don’t think that you can make your next payment, or you’re changing jobs, or you’re having trouble finding employment — whatever your financial circumstance is that’s causing you financial worry, that’s the time to reach out.”
“If a borrower falls behind on the loan, we’ll reach out to him or her with a phone call and work with that borrower to understand his financial circumstances and select the best repayment plan for him,” Lavoie said. “Nine out of 10 past-due federal loan borrowers who work with Navient are able to get back on track with their payments.”
Apparently I have a consolidation loan through ACS for double the original amount. I have another consolidation through AES and that amount is consistent (a bit more because of some forbearances). Original amount about 26K, amount they are claiming over 45K.
I have sent several formal requests for ACS to substantiate the loan amount only to receive paperwork for the original amount and what looks like a “typed-in” signature. Not even an e-signature? How do I move on this? Shall I ask for more information to substantiate the amount? What are my rights?
An exploding balance is alarming. To see your balance growing so much that it approaches doubling is certainly a concern. But there are some very valid reasons why this might happen.
When you take advantage of a deferment, forbearance, or a reduction or hold on payments, that causes the balance to grow fast. Each month, if you are not sending money to at least cover the interest earned by the leander it will be added to the balance. If you were in default on the loan, additional fees and collection penalties can be added to make the balance grow. And of course a combination of these events can really inflate your balance, quickly.
Your concern is if the ACS loan is a valid loan. The Consumer Financial Protection Bureau (CFPB) provided examples of letter consumer can send to accomplish this goal. You can click here to see those letters.
The fact the documentation they sent you has what appears to be a typed in signature could just be evidence of a document that was electronically signed by you and does not require it to say e-signature.
But it sounds like you don’t dispute you had a loan with ACS, just uncertainty over the balance they claim. In that case you would need a report on the history of your account to show how the balance was derived. This might even be available to you online if they allow you to login and examine your account history, payments, and charges.
The Agreement is helpful to look to determine what fees, penalties, and/or charges you agreed to when you took out the loan. If you are claiming the loan is fraudulent and you did not take it out, well that’s an entirely different issue.
If you want to pursue this further you can either send the CFPB suggested letter(s) via some sort of traceable means or you could hire a local attorney to represent you in contacting the lender. A letter from a local attorney might carry more weight and generate greater attention by ACS.
My parents are signer and co-signer for a huge private student loan over $100,000 which was used to cover expenses for my ex-wife over 10 years ago. We since divorced and as part of our divorce agreement, we divided liabilities on her student debt and removed her name from some of the loans (the loan company then allowed us to do this). So the end result was that a loan amount of >$100,000 was the sole responsibility of my parents; we agreed at that time that I would help with the monthly payments which exceeded $1,000/month.
Shortly thereafter, I had employment problems and was unable to contribute much to the payments. My parents are retired (over 80 years old) and cannot contribute anything to the payments. So we went through a series of deferments but eventually we fell so far behind that the loan is now in default and the principle has increased to over $140,000. I’ve tried to negotiate a lower payment schedule many times but with no luck. I am not legally tied to this loan but, as mentioned above, I had agreed to pay the loan on behalf of my parents who are the only legally bound individuals to this debt.
I was wondering if there was any type of escape clause in our situation where the actual student who borrowed the money is no longer affiliated with the loan and the signer and co-signer are elderly with no means to pay the loan. Thanks in advance.
I don’t see how you could just toss them back like a hot potato. It appears you removed your ex-wife’s name from the loan and your parents either were left as co-signers or accepted full responsibility for the loan.
However, as you have learned, deferment is not a solution and just explodes the balances.
If you can’t afford to repay the loans at this point, what you need is a strategy and not just a close them in the closet approach. That just makes things worse.
You also mentioned that the loans were used to cover expenses but I wonder if some of those were unqualified educational expenses. If so, that part of the debt could be discharged in a consumer bankruptcy by your parents. See this article for more on how and why.
While there might not be a magic “hand it back” wand, there are some options worth pursuing to ultimately deal with this.
Before I go I wanted to leave you with three easy action items you can jump on right now to address your situation. Just click here.
We talk a lot about student loan debt and how to deal with it here at GetOutOfDebt.org. It is something that so many people are trapped under. How do you start a family, buy a home or just live a comfortable life when your minimum monthly student loan payment is more than most mortgage payments? You could easily pay off those pesky student loans if you only had more money.
You could get a second job. Who needs to spend time with friends and family? Don’t you just love that soul crushing feeling of your seemingly insurmountable student loan debt hanging over your head? No? Well then you are in luck. I was recently introduced to a website that just may help. Gradible.com provides opportunities to help pay down your student loans.
How it Works
All you have to do is create a profile, which takes all of two seconds, verify your email and start completing tasks. Every task you complete earns you “LoanCreds” 10 LoanCreds is equal to $1. You will not receive a check for any amount of money, ever. You enter your loan account information and Gradible sends the money directly to pay down your federal or private student loans. The tasks vary from craigslist postings to surveys, blog posts, data entry and more. The amount of LoanCreds you earn depends on how much work you put into completing tasks.
Is it Worth it?
I wanted to get the inside scoop before telling you guys to rush over and start an account. I had the opportunity to talk to a few of Gradible’s users.
John Michael has earned $2400 in the last year in addition to working full-time. He credited Gradible with more than helping him earn some extra cash to pay down his student loans. When asked about his experience with Gradible, John Michael told me "Having this extra money on the side honestly gave me the extra bit of confidence and security I needed to quit my old job and move across the country. Knowing that I had this way to continue paying off my loans was that extra little bit that made it easier for me to get out of a bad career situation and find another job that made my life a lot better."
I also spoke with Autumn, whose experience with Gradible really exceeded my expectations.
Autumn joined the site in late October and has already earned $2478. Autumn is incredibly motivated to pay down her debt and while she typically logs 2.5 hours a week doing simple craigslist postings she said there have been times when she put in 8-30 hours a week doing data entry. In regards to the amount of hours she logs doing the data entry Autumn said, "I’m willing to spend the time because I know I am helping a company grow their business and product, and it’s something I can work on after I get off work in the evenings while sitting at home watching Netflix or listening to music."
Keep in mind that Gradible.com will send you a 1099 after you have redeemed LoanCreds in the amount of $600 or more. You are responsible for paying taxes on that money as income earned even though it went directly to pay down your student loans and never saw the inside of your bank account. However, estimating your taxes is not difficult. I have had to do it for many contract jobs I’ve held over the years and the process is very straight forward.
Gradible.com is a legitimate way to help pay down your student loans.
They have already helped their members pay back more than $250,000 in student loans. You determine how much you work. Whether you can put in 3 hours a week or 30, this is a realistic way to chip away at your student loan debt. There is finally an alternative to waiting tables or cleaning office buildings at night in addition to your 9-5.
The Gradible team is easy to work with and new tasks are added all the time. I only wish they offered a program for mortgages or personal loans as well.
Pete Wylie, co-founder of Gradible.com, made it clear how much he and the rest of the Gradible team want you to succeed when he said, "We are very committed to doing everything in our power to help those with student loans manage repayment."
We were in no way compensated for this article. We really do think this is a great company that can really help a lot of people in dealing with their student loan debt.
My wife works in the Boston public school system. has for 10+ years. she has ~$95K in student loans.
I thought she should qualify for debt relief since she works in the school system. Unfortunately, they look at our joint income, which puts us out of contention. Their formula doesn't account for all the expenses we incur with 3 young children.
How do we get the system to focus on her income and access the student debt relief we seek?
I think you might be getting a couple of different programs mixed up. The first would be the Public Service Loan Forgiveness program that would eliminate her federal student loans after 120 on-time payments after October, 2007.
While that program discharges loan balances, it does not lower your payments. I think you might be talking about some sort of income driven repayment program. In that case you should probably take a look at these programs.
However, I can't stress enough that you must confirm her public school service qualifies for inclusion under the Public Service Loan Forgiveness program. Otherwise you might head for a payment reduction that would just put your deeper in debt. If she will qualify for loan forgiveness in October, 2017, then an Income Based Repayment Program would be worth considering at this point.
I went to a public school and obtained 2 degrees. A good portion of my student loan debt were in private loans.
The economy crashed in 2008 and I couldn’t find work in 2009 so I went back for more education to hide from the economic realities (I had no way to pay on the loans).
Sallie Mae – however, put half of my private loans into default (now around $40k) even though I sent the deferment sheet in. I have another $50k in private loans I’ve been paying down that I have cosigned with my mother.
My public loans have been in deferment. I’m just starting to look to pay on those. I have around $30k in federal loans.
I know I can’t get rid of the private loans, and I don’t know why they haven’t come after me in court yet.
It will be 6 years in September since my default. I had no idea I was even in default till the spring of 2013.
What do you suggest?
It would be prudent for you to meet with an attorney licensed in your state and get a clear understanding if the statute of limitations has expired on those unpaid private student loans. If so, then they can’t sue you to collect anymore but they could continue to report you delinquent on your credit report for another year. The reality is you simply may be able to walk away from those loans if that’s what you want to do.
If the loans are past the statute of limitations don’t be surprised if a future debt collector calls you and tries to get you to pay. Collecting on out of statute debt is a tactic some debt collectors try. But this is a tactic the Consumer Financial Protection Bureau and others are closely studying.
I fully expect we will see new regulations and rules in the near future regarding collecting this expired debt. Soon, debt collectors will have to notify consumers when debt is no longer legally enforceable. For now, they can try to trick you into paying it.
On the federal loans, you might want to consider getting those out of deferment and into a better repayment option. There are some good ones that can result in a low or zero dollar monthly payment, For details on those programs, click here.
Before I go I wanted to leave you with three easy action items you jump on right now to address your situation. Just click here.
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