Private student loan sold and now in collection

[Anonymous]

Hey all. I posted this in the Student Loans section and never got any replies. I know this may not be the right place but I'm trying to get some insight on this. Here is my original post with updated information.

My wife had a student load through CitiBank in the amount of $3000. Well I guess her deferrment was over and she never paid it. This morning she got a call from a CA (she told me the person said he was from a CA representing AIG) saying that her loan was in collections and the balance was due immediately. Nothing was resolved this morning. Since then we have not got any other phone calls nor have either of us spoken to the CA. When she called me at work, she was terrified and on the verge of a complete meltdown.

I plan on contacting this company soon. I'm not afraid and I know how the CA's are. I've been down this road before (private student loan in collections). My question to everyone is, what is the best way to proceed? I got attached to this board because I am trying to clean my credit up, but this is something I do not know a lot about (private student loans in collection). The CA tried to get $3500 out of her this morning. He told her to go to the nearest small bank or credit union and take out a loan to pay them. He stressed a small bank or credit union. There is no option for rehabilitation.

My name is not on the loan at all. She had this loan before her and I were together. If necessary, I can PIF or pay a settlement, but if possible I would like to avoid doing so. Do the steps of validating a debt still apply? I remember from my experience a few years ago, finding out information about private student loans was difficult. Almost everything I found was about federal student loans.

The other thing I'm trying to figure out is how to get some benefit from this. I know your scores are partly based on your diversification of debt. I have a JCPenny card in good standing and a MC that has yet to start reporting to the CRA's. Could maybe getting a line of credit or personal loan help my scores out? Should probably throw out there that my FAKO/FICO scores are all 550 < score < 600. Although I'm working on getting some of these off. Probably not in enough time to change my scores.

Thanks in advance for your reply.

[Anonymous]

bigdguy,

according to Title 34 of the Code of Federal Regulations (CFR), Section 674.39a, "each institution must establish a loan rehabilitation program for all borrowers for the purpose of rehabilitating defaulted student loans made under the part, except for loans which a judgment has been secured..."  No matter what your agent says, they are REQUIRED to have a plan in place.  Don't take "no" for an answer.

So, if your loans are defaulted and in collections but not judgments (you will know if it's a judgment), then the creditor or third-party collection agency must have, in place, a rehabilitation program.  The rehabilitation plan requires 9 or 12 (if a perkins loan) consecutive, on-time and voluntary payments to bring them out of default.  *Notice I did NOT say FULL payments.  The CFR only requires that you make the payments voluntarily and on time but does not require remittance of full payment.  Typically an institution will require a full payment when you start your rehabilitation but the remaining 8 or 11 are at your discretion.  This is very helpful in situations where a collection agency has a crummy rehab program.  Also, if you enter into a rehabilitation plan the collection agency is required to waive any and all collection fees at the completion of the rehabilitation.

Finally, 34 CFR, Section 674.39b(3) states that (b) "within 30 days of receiving the borrower's last on-time, consecutive, monthly payment, the institution must" (3) "instruct any credit bureau to which the default was reported to remove the default from the borrower's credit history".  This means your student loan(s) will reflect perfect payment history from the start of the rehabilitation plan and all derogatory record including late payments, default or collection will be deleted - permenantly.  Your student loans become perfect trade lines!

Hope this helps.

[Anonymous]

JP_Credit_Help - That is some kick ace information and I so appreciate the help and explanation. However, I think this deals with federal loans. I checked out The Code of Federal Regulations and do not see anything about private loans, which is my problem. I do not think the information you provided applies to my private loan.

Correct me if I'm wrong?

[Anonymous]

Bigdguy--you are correct.  Federal student loans are regulated.  Private student loans are not.  Private student loans are just a loan (for educational purposes), and do not have the option of rehab.

I can't tell if there's something wonky going on here.  So it's her student loan in her name.  So it's her credit that is tanked because of it.  So you have to decide if you want to help her.  That's one decision.  The way to help her is to pay it off.  If it's not paid, they'll eventually sue her.  Sounds like they're not going for a payment plan.  You can see if the OC will accept the payment--and sometimes they will.  That's a way to the CA off of her report.  But you can't make them take the payment.

If more than one CA is reporting, then it would be necessary to determine who holds the loan.  If it's only one CA, then I don't think you're in a position to dispute their ability to collect on this.

So the next decision is whether or not there's a way to benefit your credit.  An installment loan may help your mix.  But I'm not sure you're in a position to successfully get a loan at this time.  Regardless, the two of you may be stuck with paying this off.

[Anonymous]

Her credit was tanked to begin with

When it comes to the installment loan, are the odds better going through a local CU? I said in the beginning I can PIF tomorrow if I wanted to. I have a reserve fund with more than your average person and enough to cover this. Could I possibly use that as collateral for an installment loan? I know no one can say for sure, but maybe someone has prior experience with a similiar situation.

Message Edited by bigdguy on 02-06-2009 09:47 AM

[shalane85]

Okay this post was pretty helpful since I am in a similar situation. Now my husbands loan is private also and they are asking for 120 a month. If we pay 60 a month for 10 consecutive months will the CA agency have to take us out of rehab even though this is a private loan?

[Anonymous]

I gave you this link more as of a reference. You'll want to continue with this back in your thread.

[Anonymous]

Okay. The CA wanted $3500 out the gate. The other day he offered $2700 for a settlement. I got a loan for $2500. How do I play my cards?

Do I tell him all I could get a loan for was $2500? Do I tell him that $2500 was the absolute most I could get? I thought about telling him my parents loaned me $2000 and all I could give was $500. I can kick in the extra $200 if necessary, just trying to get him to take the $2500 and be done with it.

[Anonymous]

bump