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Need help. Daughters loans.....UPDATE!

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Need help. Daughters loans.....UPDATE!

My daughter took out several US Dept of Edu loans. She never continued her education and was supposed to pay back these loans from a few years ago. My constant nagging her to call and set up a payment plan with them fell on deaf ears. She's a 23 year old who just thought the debt would just go away. I even offered to help her financially and that meant me paying 95% of it.

Her failure to communicate and set up payments has her now with a collection letter from Reliant Capitol. I am looking for some good advise that I have used on this board before. My question are?

What's the best way to handle this? I would do a payment plan with them to pay the loan fully with monthy installments. Is that the best way to go? The collections is very new. It hasn't been reported yet on her credit report. Although she has negs from DOE for her lates. I would of coarse ask for a pay for delete or I'll pay as long as it doesn't get reported type deal? There is so much information out there and I want to do the right thing. I felt this board has the best proven information.

Thanks for reading!!

Message 1 of 10
9 REPLIES 9
Established Contributor

Re: Need help. Daughters loans

I can tell you must be pretty frustrated! I mean you told her what to do and she just didn't do it, right? Unfortunately, your daughter and many of the rest of us fall into an category of people that is steadily increasing: people who are unable to pay their loans back and/ or don't know what to do about it. Servicers are of zero help and even the department of Education acknowledged that servicers often steer students to more expensive plans and give misinformation. Although, you offered to pay it for her, perhaps pride got in the way of getting help?
Regardless, it's not as dire as it seems. She's probably in default right now. Hey credit score has probably tanked but it's fixable through action and time. Now federal loans aren't like other loans. They have unique and extensive powers of collection granted to them. They can garnish wages and take tax refunds without taking you to court. They will also because go away. There is no pay for delete.
I'm guessing that you'd rather establish the ability for her to pay on an affordable payment plan rather than you paying off the loan. This will actually be better for her in the long run. Her old (eat?) accounts will be preserved on her credit report, the default will be removed and possibly the lates as well (with rehab only).
The first step I'd take is sit down with her and find out the status of her loans. You can see the principal, interest etc on the National Student Loan Database or NSLDS government website. The current collection agency should also be listed, although it might be an agency behind. This should prevent a scam.
Second, all of her contact information needs to be updated with both the collection agency and the student loans gov website. She's not going to outrun them. They will even eventually draw from people's social security.
She basically has two options to get out of default: rehab and consolidation. Rehab, you will end up making 9 payments over 9-10 months. These payments can be quite low because they can take into account income and expenses. At the end of this period the loan will be picked up by a servicer. The default is erased, the tradeline will date back just like the original account. Sometimes the lates are removed or you can get them removed with a dispute with the CRA. YMMV. Consolidation will lock in an average APR and create one new loan at 100% utilization on your credit report. The default is not guaranteed to be removed and same with the lates. I'm not fond of that option, but it will depend on what's best for you guys. Both will very likely result in a huge boost in her credit score. You can check out other threads here for other people's improvements. You can do consolidation in 3 payments or immediately which would mandate being on an Income-driven repayment plan afterwards.
Near the end it will be time to pick a payment plan. There are many options and even if you're not aiming for PSLF, a person can still get general loan forgiveness through IDR plans, the most popular of which are are REPAYE/ PAYE and Income-based repayment (IBR). The repayment estimator can give a general idea as to what the monthly payments will be on each plan and if there will be loan forgiveness at the end. Unless she's got a great, stable job, it usually underestimates how much will be forgiven.
Any questions? I can provide links if you'd like. This is all free information and any resources that you have to pay for are usually a scam.
Hope this helps.



Message 2 of 10
Valued Member

Re: Need help. Daughters loans

WOW! You really have helped! Thank you so much on the overwhelming amount of information. I'm going to have to read it several times to digest it...lol. I've read about the REHAB on here and didn't quite understand with whom I get that started with. 

Because the loans have defaulted to collections, do it set this up with them? 

 

Message 3 of 10
Valued Contributor

Re: Need help. Daughters loans


@glockrunner wrote:

WOW! You really have helped! Thank you so much on the overwhelming amount of information. I'm going to have to read it several times to digest it...lol. I've read about the REHAB on here and didn't quite understand with whom I get that started with. 

Because the loans have defaulted to collections, do it set this up with them? 

 


You would contact the collections agency and they should be able to walk you through it, and when the rehab is finished they'll send you back to the servicer or might give you a new one.
I am also a huge fan of the rehab over consolidation option (for a few reasons), but your daughter is luck to be able to use these options, and even luckier that she has you to help her out.   

03 Oct 2019


Garden goal: keep on keepin' on until 2020.
Usually a faithful practitioner of AZE5or6or7; working on AZE1or2 and grumbling about it.
Message 4 of 10
Valued Member

Re: Need help. Daughters loans

Thank you so much for the reply and words of ecouragement. I will call and set up a rehab. I will come back and post my results. 

Message 5 of 10
Valued Contributor

Re: Need help. Daughters loans

I know some parents/family have a hard time with this, but the right thing here is that you also need to let her drive this one. Help provide information if you want, but she needs to do the work and take the actions. If she doesn't, you need to let her sink unless your name is also tied to the loan, in which case you work through it and take it as a personal lesson learned to never tie your name to her finances again.

 

If you swoop in and try to do the work for her (again), is she suddenly going to become an adult and figure out how to be more financially responsible? No, she isn't. If she isn't taking this at least as seriously as you are, and doing twice as much to fix it, then it's time to step back and let her deal with it alone. Perhaps the damage this will wreak on her life might be exactly what she needs to wake up and learn it's time to become an adult.

 

 


Message 6 of 10
Valued Member

Re: Need help. Daughters loans........UPDATE

On friday we contacted the Collection agency and went over all the details of her account. She was offered 2 methods. One was a consolidation which consisted of paying the loan balance in 3 consecutive payments for 3 months or a rehabilitation program. She chose the rehab because it allowed her a better outcome for her credit and it was income based. The main details are:

1. Pay a fairly low income based monthly payment for 9 consecutive months.

2. ED will waive any collection costs incured as a result of the rehab , unless it is defaulted

3. After sucessful rehab the loan will be transfered to ED''s Loan Servicer..

- ED will credit all money paid during rehab to the loan balance

- ED will request the CRA's remove the defaulted loans from the report

4. Set up a new payment plan/amount with the Servicer to finish off paying the loan.

note: Rehabilition can only be used one time once it was rehabed successfully.

 

I hope this information helps people out that had questions like myself. My daughter has realized that you can't let things go because they won't go away and it's usually not as bad as it may seem. The collection agency was super helpful and friendly! Thanks for all the replies. 

 

 

Message 7 of 10
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Established Contributor

Re: Need help. Daughters loans........UPDATE

Glockrunner:
That's a great choice! The income-based payments can also take into account her expenses. I was told that to use W2's you have to fill out the income/expense form. But if you use your tax return, you don't have to fill out the income/ expense form (if that's an advantage). The 9 payments must also be on time, according to the schedule.
It would be good for her to look at the payment plans available, especially the income-driven repayment (IDR) plans. After rehab is finished, this helps create affordable payments for almost all borrowers. She can always pay more too. Calyx informed me that you can only rehab once, but you can consolidate the second time, in case that helps anyone.
If she doesn't have access to her credit scores, Creditchecktotal had a $1 trial to get FICO scores and reports from the 3 credit bureaus. It would be neat to use it before rehab and again after to see what her score change is.
I'm glad both of you found a solution that worked. Good luck to you and your daughter.



Message 8 of 10
Valued Member

Re: Need help. Daughters loans........UPDATE

Hey Sabil,

 

Thank you again for your input. I did get a credit report on her from Experian. I plan to get the rest this week. Her score is prettty bad because of the defaulted loans. Although when using a simulator her scores can improve 40 points in the next 3 months. Once she has rehabed and the report gets cleard up she will be in great shape. Just a fyi for people, when I did the math on her as far as what was calculated for the rehab income based payment it amounted to .5% of her yearly income paid per month. We could have had it adjusted lower if we chose to calculate her monthly debt too but the payment was quite reasonable already. 

Message 9 of 10
Moderator Emeritus

Re: Need help. Daughters loans........UPDATE

I understand how frustrated you must feel!
I feel like there are a number of issues here and that definitely your daughter will need to meet you halfway in taking responsibility for the loans she took out. I think that explaining the big picture on how this defaulted debt can affect her future will definitely help. You are such a good mom for helping her, but definitely she needs to take the reins otherwise there is a fine line between helping someone or hurting their chances of learning what they need to do to be self sufficient and self reliant.

Kudos to you!

Starting Score: 08/29/2011 TU 671 EQ 674
Current Score: TU 642 EQ 656 EX 647
Filed Chapter 13 on 06/01/2017 after job loss.

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