What to do about a defaulted loan?

[shalane85]

I have a student loan that just went into collections as of Jan 09. The CA say they want 120 a month for 8-9 months to get it out of rehab. I cant afford that. I barely have 100 dollars left over after I pay all my bills. I offered to pay half of that but they refused saying that if I dont voluntary comply with their offer they would garnish my wages, which means I may not be able to pay rent, daycare, buy food, etc... I dont know what to do. Does anyone have any suggestions? The CA was so rude with me as if I'd stole money from them. I know they are doing their job but they dont have to be rude. One lady got so irratated with me b/c I said I couldnt afford the payment that she hung up on me. What can I do? What are my options? Im a single mom of three and I feel helpless at this point.

[llecs]

I can't speak to the SL itself, but there's a couple things to try.

First things first. If the CA calls, ignore the call. Don't answer it. Never ever talk to a CA. Their word is never their bond and they'll say anything just to get paid. But don't ignore the debt, though. I'd contact the OC to see if you could get on some sort of payment arrangement.

Financially speaking, get on a written budget if you haven't done so already. Cut out extra expenses like dining out, movies, entertainment, cable, etc. If you are receiving a refund this year from the IRS, then apply most or all of it to the loan and change your W-4 if employed. Change your dependents if employed to get more on your paycheck or opt to have your employer take out a fixed amount for fed and state withholding every payday.

For income, work extra. Or get a second job or better job. Start your own business from home. Sell of stuff you don't want or need. Cash in an non-retirement accounts like savings or CDs. Temporary suspend any investments like to an IRA or 401(k) to focus on debt repayment (return on investment is likely less than any interest rate for a SL). In short, do anything to cust expenses and everything to bump your income.

[MattH]

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@llecs wrote:
I can't speak to the SL itself, but there's a couple things to try.

First things first. If the CA calls, ignore the call. Don't answer it. Never ever talk to a CA. Their word is never their bond and they'll say anything just to get paid. But don't ignore the debt, though. I'd contact the OC to see if you could get on some sort of payment arrangement.

Financially speaking, get on a written budget if you haven't done so already. Cut out extra expenses like dining out, movies, entertainment, cable, etc. If you are receiving a refund this year from the IRS, then apply most or all of it to the loan and change your W-4 if employed. Change your dependents if employed to get more on your paycheck or opt to have your employer take out a fixed amount for fed and state withholding every payday.

For income, work extra. Or get a second job or better job. Start your own business from home. Sell of stuff you don't want or need. Cash in an non-retirement accounts like savings or CDs. Temporary suspend any investments like to an IRA or 401(k) to focus on debt repayment (return on investment is likely less than any interest rate for a SL). In short, do anything to cust expenses and everything to bump your income.

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I agree with all these suggestions.  Original poster should be aware that student loans have an extra-special legal status.  OP, is this a Federal or Private loan?  In either case, it cannot be escaped in bankruptcy, in the case of Federal they can do things like garnish wages WITHOUT even going to Court.  If at all possible OP should pay what they ask, because they have nearly-unlimited power to take it anyway.  Basically, the lobbyists for the student loan industry got Congress to give them nearly all they wanted.

[Anonymous]

Shalane, I can certainly empathize with you.  I was told to pay 150 a month and tried to negotiate it down to no avail.  I agree with the other posts about trying to lower your monthly expenses coupled with trying to increase your income, so you can get started with the payments.  I thought it would put me under great strain each month, and some months it did, but I am now 2 months away from completing rehab and that icky colelction default tl will come off my reports - as soon as you can start, you will be happy that you got the clock going to get those 9-10 months under your belt.  If I am not mistaken, after they are rehabbed and out of default, you can request forbearance/deferment.  Best Wishes to you.

[Anonymous]

OP, you've gotten some great advice from the others who have already responded. However, I wanted to offer some additional advice that (hopefully) will help you to get to a reduced payment that you can afford.

1. Figure out what you can afford, and begin making payments, in that amount, directly to the Guaranty Agency, NOT the collection agency.
2. Go through your State's Treasury Dept. to get the name & contact information of the Director of the Guaranty Agency. Write a letter to that person, explaining your situation, explaining what you can afford, and that you've begun making payments. Also, note any abuses by the collection agency that contacted you. Copy the Office of the Ombudsmen for the U.S. Department of Education.
3. Contact the U.S. Department of Education, Office of the Ombudsmen. Explain that there is no way for you to afford the payments that the collection agency is demanding, and be able to keep your family afloat. Ask for their assistance in getting an official agreement for the more reasonable payment, and to have the loan called back from the collection agency, and rehabbed throught he Guaranty Agency.
4. If the collection agency that's contacted you has been abusive, or if they've violated the FDCPA in any way, contact a consumer attorney to pursue filing suit against them.

[shalane85]

Lil Mirth, I appreciate you all responding to me and giving me the great advice. I asked the collection agency that if we began making payments of $60 a month would that help get me out of default. They said it wouldnt count. Since this is a private loan instead of a federal loan Im not sure if the obudsman can assist me. I did file a complaint with the FTC on the collection agency b/c they did use abusive language with me over the phone. I will take your advice and again I appreciate the support from you all.

[BAB]

IMO, I would try to come up with a way to pay what they asked for. Im a witness, they will come after you! Sad to say, but they do not care about your living expenses. By law, they can garnish up to 25% of your paycheck each period! Which will be cheaper, Them taking out up to 25% of your check or you paying what they asked for? I know its hard, but there is a way. Just try to get an extra part ime job to get it out of rehab for about 10 months. After that, if you still cant pay, they will give you much better options...Good Luck! Im in default too, so I know a little something.

[LynnInMN]

Some very poor advise has been given in this thread.

1.  NEVER ignore a CA collecting on a student loan.  They are the ones you will initiate a garnishment since they are assigned the account.  You must keep in contact and keep negotiating.  Ask for reasonable and affordable under the Higher Education Act....use those exact words.  How much do you owe??  Also all communications must be over the phone.,..they will not negotiate in writting. 

2.  Sending payments to the guarantor will be credited to the CA.  Also just sending in payments that are not agreed upon will not stop a garnishment.  

3.  AWG or admin wage garnishment is 15% of your disposable pay, not 25%

4.  Ombudsman and /or the guarantor will not intervene for a collector being "rude".  Unless they truly violate the FDCPA and you have proof, you are stuck with the CA. 

[BAB]

Lynn,

I reside in the state of Louisiana. I worked at 2 different jobs at 2 different times. Each employer took garnishment out of my check each period. They CAN take up to 25%. That doesnt mean that they take the whole 25. UP TO 25. I didnt read or hear this through someone...I witnessed it and it was in writing to me. I may be wrong or they screwed me over. But, i have experienced garnishment and it aint no joke.

[LynnInMN]

Federal student loan Admin Wage Garnishment only allows 15% garnishment.  A court judgement for a private student loan would be 25% or your state max.  

 Due to the rehab disussion the OP posted, I have to assume this is a federal loan.