Rehab, Pre-Garnishment, Help

[bwbw80]

I have 2 student loans totaling around $4,300 in default.  I've been sent the garnishment letter and requesting a hearing.  I am attempting to rehabilitate the loan (first option) in an attempt to avoid garnishment.

Right now, they are saying that because they plan to garnish, I have to pay $890/month voluntarily.  The $890 is the same amount they would garnish.

Basically, they are saying there is no chance I can rehab this loan.

Has anyone been in this situation and been able to get a more reasonable monthly payment?

[SCF]

Are these federal student loans?  If so, the CA is required to offer you a "reasonable and affordable" payment plan for the rehab.  You can ask for a financial worksheet from them where you list your income and expenses that will help both parties come to an agreement on a fair payment amount.

I do not know if entering into rehab will immediately stop the garnishment, or if you have to make several on-time payments before they will lift the order.  The loan is not technically out of default until the rehab is complete, so I believe they can continue to enforce the judgment for some amount of time into the process.

[bwbw80]

Yes, federal student loans.  I have submitted financial documentation to them.  They still insist on $890/month (which makes rehabilitation impossible).

[scvbd99]

$800+/month to rehab a $4300 federal loan is indeed way too much.  "Reasonable and affordable" is generally 1%-2% of the total you owe.  They can ask you to pay more, but once you tell them you want to start rehabilitation, they must allow you to start.  

Call them back, and politely tell them that you want to begin rehabilitaiton immediately.  If it were me, I'd tell them I'd pay $86/month (that's 2%), and that you want them to send the contract immediately.  They have 15 days to send it after you reach terms for the rehab, or they are in violation of federal law.  If they don't cooperate immediately or try to get you to agree to more per month for rehab, tell them you plan to contact the federal student loan ombudsman group.  

That really should be enough to get the rehabilitation started.  If not, then by all means, do contact the ombudsman group. Fill out the online form, and tell them that the servicer/collection agency is trying to get you to pay more than what is reasonable and afforedable for rehabilitation.  They will usually contact you within 10 business days by phone.  Again, I doubt you'll have to take it this far as long as you're polite but firm the next time you talk to them. 

https://studentaid.ed.gov/repay-loans/disputes/prepare/contact-ombudsman

[bwbw80]

Hi scvbd99 (we have talked on another forum),

They are refusing to rehabilitate the loan, stating that I am in "garnishment status."  They realize that $890/month will not allow me to rehab it.  They are saying that I'm not eligible because both the balance is too low and also because I'm in garnishment status.

I contacted them on 2/24 to resolve this matter.  The CA rep told me I had to pay $1,000 down to rehab.  Had they offered reasonable affordable then like they did on a follow-up call ($100/month), I would have taken it.  Their rep did not.  They demanded.  Since I was trying to figure out my options, just 3 days later they sent it over to garnishment.

So basically, they are refusing to rehab the loan.

[bwbw80]

Talked to the DRG today.  Basically, they are somewhat agreeing with the collections people.

The fact is, I make enough (on paper) to afford $890/month.  Now, in reality, that would hurt my family.  But, based on the almighty calculator, that is what they consider "reasonable and affordable" to use for my rehab.  DRG says the reason why the rehab does not work in my case is because the $890/month would pay off my loan before rehab can complete.  Basically, everyone is saying rehab is out the door.

So that leaves me with consolidation.  I submitted consolidation application on Monday.  My understanding it takes 60-90 days.  Right now my goal is to ward off garnishment until the consolidation comes through.  

[SCF]

I think you would be well off to contact the Ombudsman.  The CA is throwing pretty much every distraction they can in your way - from everything I've read and understand, rehab SHOULD be possible for you.  I've seen posts about smaller loan amounts, and people with relatively high incomes making a case based on their expenses for smaller payments.

Consolidation will remove the default status immediately, but you don't get any of the credit improvement benefits like the removal of the collection account and removal of the default status from the original tradeline.  If you don't care about the improvement to your report, then just being done with it might be the best idea, but if you do want those benefits, you should be able to get them.  The ombudsman can probably help you grease the wheels a bit so to speak.

[bwbw80]

I think that is the problem:  Based on my expenses,  both DRG and CA believe I can afford $890/month.  But when I look at my full budget,  including expenses they will not count, that amount would be incredibly stressful.  If the Ombudsman sides with them, I am going to have to stall for 60-90 days.

As much as I would love the credit correction, I am more interested in protecting my family financially.

What sucks about all of this is the fact that I tried to do a rehab agreement with them before they started processing it for garnishment but the rep tried to improperly strong-arm me into a large down payment.  While I was trying to see if I could come up with that or learn other options, they started the garnishment process.  All of that within 3 days.  Has their rep accurately helped me establish a rehab plan of 1.5% of total! I would not be dealing with this.

[bwbw80]

Maybe someone here can explain this to me.

In digging through the latest Federal Register that defines the program for rehabilitaiton agreements, this is what I found:

Changes: We have revised §§ 682.405(b)(1)(iii) and 685.211(f)(1)(i) to specify that the initial loan rehabilitation payment amount determined by a guaranty agency or the Secretary equals 15 percent of the amount by which the borrower's Adjusted Gross Income (AGI) exceeds 150 percent of the poverty guideline amount applicable to the borrower's family size and State, divided by 12, except that if this amount is less than $5, the borrower's monthly rehabilitation payment is $5.

This sounds like the calculation to determine reasonable and affordable based on income.  When I performed the calculation based on my numbers and family size, the $890 is not the number I came up with.  I came up with $359.59.  That, to me, is reasonable and affordable.

Am I interpreting this correctly?

Here is the link to the federal register:

https://www.federalregister.gov/articles/2013/11/01/2013-25331/student-assistance-general-provisions...