Don't worry, we can help you (or at least help you help yourself). And this is long, but hang in there! We can help!
Federal student loans never go away; although they might disappear off of your credit report, as soon as you applied for a mortgage, they would've seen that you had that debt, so it's very good that you work on it now. They will also be garnishing any tax returns at this point, too, btw.
PHEAA or whoever owned your loan should have contacted you before, but lack of communication is pretty notorious with servicers and collectors. That said, I will urge you to keep complete records and notes of all communications. That means not only filing any correspondance with them, but taking notes with anyone you speak with. I actually have a cheap notebook that I keep just for this reason. Names, dates, times, points made, who make the call, etc. I'll even tell them to give me a minute to get my notebook and that I'll be taking notes. You can also ask them for the call log/recordings later (though whether or not they comply is another matter).
As for the amount: Because you defaulted on your student loan, they were allowed to assess fees. They can be pretty steep, and there's virtually nothing you can do to get them removed, as they're part of the federal gov't's rules and regs. So you might have owed 25k once upon a time, but no longer (they can charge up to 16% on the unpaid principle and interest whenever they sell loans, and who knows how many times they did that!).
Do yourself a favor and go to the Dept of Ed and download your student loan data directly, so you know where you stand:
https://nslds.ed.gov/nslds/nslds_SA/
They *can* garnish up to 15%, however, it sounds like you went into default years ago, and never resolved it, so I have good news for you:
You can call them up and request rehabilitation. Rehabilitation is a program where you make 9 months of voluntary payments and when the program is done, the default is removed from your loan. This will give you a current installment loan that will back date to the opening of your loans. This means really nice, long tradelines which is really good for your score! Because the date of first delinquency was so long ago, I don't believe the lates will be added to your account (probably just "no data").
Because this is a student loan, there are regs that the collector has to follow, which will work in your favor. The servicer should discuss your options, and if you take rehab, the payment should start out at the amount you would pay under the IBR formula (15% of your discretionary income, which is determined by your income and size of family). If you cannot afford it, they should work with you. If you successfully rehab, then after you're assigned a new servicer, you can talk to them about the different payment plans. I'm not on IBR, I'm ICR (a bit different), but I have no dependents (I file single, have no kids) and make a not-insubstantial income and I still only owe ~250/month, so you will likely be OK.
You have two options, by the way, to get out of default: Rehab and Consolidation. I am going to tell you to take the rehab, because it removes the defaults and will give you long tradelines. You could consolidate, which will start a new tradeline and you would begin payment plans on that. You can choose your servicer with consolidation (I would suggest Great Lakes, Mohela, or Cornerstone).
The upside to consolidation? One tradeline, you start payments, it will be positive.
The downside? it is a new tradeline, and that can hurt your mortgage scores (they like older lines)
The upside to rehab? Positive tradelines (if you have more than one student loan), so the math works out better for age factors and OLD tradelines, which is great for your mortgage scores.
The downside? It could be a lot of tradelines so if you miss payments that's a lot of negative information, the upside is that it leaves consolidation for the future if you need it.
Sabii and I tend to favor rehab by a lot. I have a consolidated loan, because I defaulted a second time and saved my bacon that way (please don't be me). In your case, I would work less hard to keep you away from consolidation because it appears that your default happened so long ago that it's not reporting on the CRAs. Consolidation doesn't remove defaults or bring old lines current like Rehab does.
Also, you are very lucky that the CRAs are pretty automated; technically, those student loans should still be reporting (due to the HEA), but I think they just drop everything after 7 years.
Let us know if you have any other questions!
Happy practitioner of AZE7or8or9or10 | Team Finances > FICO
