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Private Student Loan in Default. Seemingly no way out

New Member

Private Student Loan in Default. Seemingly no way out

I'll try to keep this short(ish). Basically my parents made too much money for me to qualify for federal loans when i was going to college. So they took private student loans out in the amount of around 76,000.00.  Fast foward to now: they are in default (behind by about 48,000) and the total amount due is around 105,048.00. Rewind back to september 2016: the state of michigan intercepted my paycheck and put a lien on it because my student loans are now under the department of treasury or something kind of weird. SO, now i have a payment arrangement with the michigan department of treasury.
PROBLEM, they are still giving me 3 negative hits on my credit report every month. So my credit will never be able to recover. I contacted the Michigan Student Loan Program and was told that i do qualify to apply for rehabilitation. BUT that my monthly payment would be $978.48 is based on outstanding balance and interest rate. I know i can't pay almost 1,000.00/month on my student loan.

So I am considering attemptin to file for bankruptcy citing undue hardship which im pretty sure i can prove for various reasons including that this is the MINIMUM payment that I would be required to pay post-Rehab.

Has anyone been in a situation similar to this? I hate having the hits on my credit. I hate that i have to pay car payments twice as high as the sale sticker said because of these negative hits on my credit every month. I know rehab would be great, but they're private loans and I know i'd default again. there's absolutely no way.

Any one have any advice?

Message 1 of 10
9 REPLIES
Frequent Contributor

Re: Private Student Loan in Default. Seemingly no way out

Sorry you're going through that, wish I had a suggestion. I do have some clarification questions that may help whomever does potentially have a suggestion for you. You said your parents took out student loans, but they are reporting on your credit reports? Did they co-sign? Are they also reporting on your parent's reports?  Did you know about the loans? Were you paying on them before they went into default? Hopefully someone can help you out. Good luck!

Back In the garden March 7, 2018 until June 2019 (Mortgage)
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Message 2 of 10
New Member

Re: Private Student Loan in Default. Seemingly no way out

i knew that the loans existed but had no clue about any of the details. It was kind of a "here, sign this document accepting your student loans."

They did not co-sign on the loans. They had my grandpa co-sign the loans. They made enough money to have provided some assistance (but too much for me to get federal aid) but they set me up so that theire hands are completely washed.(Whenever confronted about it they give this dumbfounded look like they have no clue what i'm talking about and why it may have anything to do with them).

 

i have been crunching some numbers and could possibly work some overtime in order to pay the post-rehabilitation payment. But i'm wondering if i'll be able to refinance them (since this account is 14 years old and with as long as it has been in default, those negative remarks disappearing will boost my credit score to 700 or more easily) and get my interest rate down subsequently getting the payment amount lower also.

Message 3 of 10
Valued Member

Re: Private Student Loan in Default. Seemingly no way out

Wow, that’s a mortgage payment. The only thing I can think of is to get the cheapest housing you can find, like a small studio with utilities paid or a single wide trailer. Some people rent a room in someone else’s house. Maybe you could sell your car and buy a cheap junker, or are you upside down? I hope working overtime works out for you though and you don’t have to drastically change your lifestyle or declare bankruptcy!
FICO 8 Scores 4/1/2018: 694 EX 714 EQ 740 TU

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Message 4 of 10
Regular Contributor

Re: Private Student Loan in Default. Seemingly no way out

You can't file bankruptcy on student loans.

 

You will need to do an income verification if you really need to get the payment down if you really can't afford it.  What is your monthly salary before taxes?  Who is the servicer on the loans?

 

Not being able to afford it and not wanting to afford it are two very different scenarios.  It sucks to think of it that way, but that is the black & white.

 

$1,000 a month is crazy, but you would not be & are not the first person with a $1,000 a month loan payment.

 

Once you are in rehab they will stop reporting the delinquency to the CRBs

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Journey Milestones: Completed Federal Student Loan Rehab in Sept 2017. Settled First Premier Bank CC in August 2017. Constant uphill battle with Navient incorrect reporting on seven (7!) private student loans. No TLs listed in delinquency. Obsessively keeping 2 CC UTI @ 7-9% monthly.

End Goal: Pre-Approval for FHA Spring/Summer 2018
Message 5 of 10
Frequent Contributor

Re: Private Student Loan in Default. Seemingly no way out

This is where student loans kill you and your financial profile.

Rehab the loans, see if they can do an income based repayment plan during the rehab, worst case after. Some may even allow an interest only based repayment plan. Waste of money, yes, but it also helps immensely with rebuilding. I used an interest only based plan for a year when I was rebuilding.

Once you have that income based plan going for a year or two, GW them to remove lates etc. while also building up the rest of your credit profile.

After you rebuild, refinance them, consolidate, whatever to lower the interest rates and then apply for program to extend your repayment offering period and/or do another income based plan on the new loans. Repay them as quickly as possible. Aim for an interest rate around 4%.

This will just buy you time and lower that minimum payment until you can kill the loans.

It does work, I had a 528 credit score and defaulted on mine, on time payments for a year and they lowered interest rates by a few percent and removed all late payments. Bought a house a year later.

I hate student loans, losing 500-600 a month on your DTI kills your house search. But, a broker told me that a two year in school deferment doesn't calculate them into your DTI.

Don't worry, I have about same in student loans and didn't think I could afford anything. You'll be pleasantly surprised in a year or two after your scores recover.

Don't forget to build a budget spreadsheet accounting for everything including taxes and daily expenses. This will help you when you're applying for the interest only, extended repayment and income based plans.

Starting Score-(01/2017): FICO ||EX:575--EQ:549--TU:588||
Current Score--(04/2018): FICO ||EX:686--EQ:697--TU:715||




Message 6 of 10
New Member

Re: Private Student Loan in Default. Seemingly no way out

Actually you can file bankruptcy on student loans. Difficult. But, not impossible.
Message 7 of 10
Frequent Contributor

Re: Private Student Loan in Default. Seemingly no way out

You can but usually have to show effort with payments, prove that you have hardship and prove that your hardship will last a long time.

I've seen guys get tons of student loan debt removed and take the credit hit while making nice salaries and paying cash for everything. That was awhile ago though, like 15 years ago.

If that's an option an attorney might know some tricks to get it done.

Starting Score-(01/2017): FICO ||EX:575--EQ:549--TU:588||
Current Score--(04/2018): FICO ||EX:686--EQ:697--TU:715||




Message 8 of 10
New Member

Re: Private Student Loan in Default. Seemingly no way out

Yep. I have an appointment with an attorney Wednesday.

For anyone who has done rehab with private loans,
1) how quickly did your credit score recover
2) was it difficult to consolidate/refinance?
Message 9 of 10
Frequent Contributor

Re: Private Student Loan in Default. Seemingly no way out

I saw a 100 point improvement on my mortgage scores and 120+ on my 08 scores within one year.

I worked out a deal with my loan company, Sallie Mae/Navient to catch the loans up over a few months and then after 12 on time payments, they removed all late payments from my accounts. Multiple 90 day lates on 3 private loans and almost 6 month lates on one federal loan.

They later let me do interest only payments after the loans were caught up during the 12 month period and that helped a ton because I had 4 charge offs to work through.

Starting Score-(01/2017): FICO ||EX:575--EQ:549--TU:588||
Current Score--(04/2018): FICO ||EX:686--EQ:697--TU:715||




Message 10 of 10