Very High Student Loans in Default

[Anonymous]

Hi, I am a chiropractor and came out with very high student loans, dept of education ones, with an interest rate of 8.5%.

I paid and deferred but when the great recession hit that was it, so I have been in default for over ten years.  The total now is over $480,000.

I called them when the new Obama era income sensitive repayment plans came out to try to get a payment plan going and the minimum payment was $1380 a month; at the time my gross income was about $3000 a month, so that didn't work with whole eating and keeping a roof over my head thing.

My IRS lawyers says to not talk to them, and not pay them and he expects a congressional solution at some point.

He is not a student loan expert.

I would like to have good credit, and have gotten my scores over 600 even with the two student loans dinging me every month.

Does anyone have any suggestions for my situation?  I currently only make 65k a year pre-tax, and the tax bite is hefty with self-employment tax, so I don't think that the $1380 is affordable yet.

"Kevin Smith"

[Anonymous]

Hello Kevin,
I'm sorry that this happened to you. No shame, most of us have almost been there it been there. Student Loan payments can be so unaffordable, even to those who want to pay it back. Then with interest, years pass and you've got a monstrous debt.
You mentioned 10+ years. When did the loans start, if you don't mind sharing?
I'm not a lawyer or a student loan expert but here's what I know: ignoring this debt is a very bad idea imo. The reason is this isn't simply a private loan where they would have to sue you or it would go past the SOL. These federal loans are for life. So if you refuse to make payments or get out of default (we'll talk about that in a minute), what they'll eventually end up doing is a wage garnishment (25%?), taking your tax refund each year, prevent you from buying a home, possibly taking away your profession license and/or eventually taking from your social security. Federal loans are different; many of the above methods require little to know advance notice and there doesn't need to be a lawsuit or judgement. If you choose to get out of default once they start the wage garnishment, you'll have to make the involuntary payments to rehab *and* you'll have the garnishment.
The good news is that not only is it fairly simple to use your only (a second default is forever) opportunity to get out of default. The even better news is that based in the numbers you shared, you might be in luck with affordable payment plans and as a chiropractor you should look into Public Service Loan Forgiveness and see if that's an option for you.
To get out of default, you've got to options: rehabilitation and consolidation. I'm biased. Rehabbing a loan takes many more month (9-10) but it will guarantee the removal of your default from your credit report. Your loans will get picked up by a servicer, you'll pick a payment plan and you're back in with all the Federal Loan protections. Since you have an older loan, I'd look up to see if it was a variable interest rate. If so, you could at that time consider consolidation to lock it in at least where it was. If you're going for forgiveness (I would at that loan amount), interest rate won't matter. If you consolidate while in default, you'll get out sooner but you'll be restricted to IDR plans, the default is not guaranteed to removed and it will be giving you a brand new loan, at 100% utilization. The original loan is probably one of your oldest tradelines; that too why I suggest rehabbing.
As for congress, the only thing they are remotely talking about is capping loan forgiveness and ending the program. There had also been talk about grandfathering in people already in it. I have not heard anything about Congress coming up with a solution for people in default. I would almost bet on you getting your wages garnished before this happens. Horrible suggestion to wait imo. There are numerous threads of people on here who were in default like you and overwhelmed. I have not seen one person who was unhappy to be out of default, see their credit score increasing steadily and actually get affordable payment plans. To rehab they'll either use a standard calculation of affordable payments for 9-10 month or you can have them calculate it with your income and expenses (both of which will need to be provided copies of) and hopefully come up with a lower involuntary payment. The consecutive payments must be paid on time.
As for plans, you can see about what your payments will be every month by using the the repayment estimator. It tells you about what about your monthly payments will be for the next year (ignore the upper number in the range), how long you'll be paying in the plan until possible forgiveness, how much will be forgiven including interest and principal. It's so helpful. I've also found my payments to be lower than the estimator.
Income-driven repayment plans are probably your best options. To popular ones are the newest, REPAYE, and IBR. It all depends on your marital status (REPAYE is always both incomes and both federal loans taken into account while IBR is just your income if you're married filing separately. It also has an income limit that you may exceed though).I can go into this in detail if you like but I can also provide you some links.
That's all a lot of information to process. What questions can I help you with?

[calyx]

Most of what Sabii says is absolutely true and on point.  It's really important that you get those student loans under control.    Most loan handlers will work with you, and they will help you get set up with a payment plan that you can work with.  The longer you go with these loans in default, the uglier it is going to get, because they will keep tacking on fees, even after garnishments.

They can and will garnish, though it's currently limited to 15%.  They will also take your tax refund (if any) and this is the one kind of debt that's allowed to garnish your social security (if/when you qualify).

Rehabilitation is the way to go, it will bring your loans current.   I will kindly disagree re: only one default.   There is a way to get out of a second default, but it ain't pretty (I did it, don't be me).

I sincerely doubt that anything congress comes up with will be beneficial to those in debt anytime soon (if you follow politics, or do some googling, you can see what kinds of bills and proposals have been mentioned by lawmakers).  Not paying because of what might happen in the future is a bet that I definitely would not want to take.

[Anonymous]

Calyx: There is a way out of a second default?? Thank God! I'm trying to help someone who has half of their loans already rehabbed. The collection agency was unhelpful, so time ran out and they were garnished. I would be grateful for any information you could PM me. Thank you!

[calyx]

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@Anonymous wrote:
Calx: There is a way out of a second default?? Thank God! I'm trying to help someone who has half of their loans already rehabbed. The collection agency was unhelpful, so time ran out and they were garnished. I would be grateful for any information you could PM me. Thank you!

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I will write it up and shoot it on over to you!   Give me a bit of time to pull it together - I have my finance journal/bujo with me, so I should be able to give a decent amount of details (I hope).

[Anonymous]

Calyx: That's awesome, thank you so much! 😀

[Anonymous]

Thank you for your detailed response. 

I graduated in 1999, they started in 1996.

I don't think that I can get garnished, at least not currently, as I have no wages,  and no tax refunds as I worked as an independent 1099 contractor.

I do live in state where my license can be removed by the state for not paying student loans, but from what I understand this has never actually happened.

The loans were not variable interest rate.

I am no longer married, partially related to this situation.

If I call and they don't give me an affordable option like what happened last time, where am I then?

What are the potential down sides of letting them know my phone number and address?

Is there a student loan expert lawyer I can hire to represent me?  My lawyer said that making any payments starts the clock ticking again?

I am scared to deal with those people and worsening my situation somehow, but rehabbing and forgiveness sound good.

Is there any path to forgiveness or getting the loans written off without rehabbing?

Thank you!

[Anonymous]

There is something about loans before I think 2000...I think you're options are slightly less limited for plans after rehabbing. I think you can't do one of the IDR plans. I'll have to do some research.
No wage garnishment or tax return then. But I'm not sure on their policy on the rest of collections (a regular judgement can eventually do a bank levy). And if you get social security, they will take some of that. But your license, you bet they do that. It might be limited to certain states but it's a big deal right now. Talk about stupid, if you take a professional's license, how in the world can they work to pay back the loan??
If your rates are locked in I would just keep the original loan instead of ever consolidating.
You'll have to do the calculations in the repayment estimator. Since you're in default you'll have to enter your info manually but when you get out you can sign in to have it automatically fill in your loans.
I don't know what plan option they gave you last time but it does not sound like one of the affordable IDR plans.
Here is the estimator:
https://studentloans.gov/myDirectLoan/repaymentEstimator.action
I mean, you can hire a lawyer. I personally wouldn't do it. It's intimidating, sure, but rehabbing is fairly easy. The benefits are numerous. I'm not a lawyer but I think they are confusing it with private loans. There is no SOL. It might return to your credit report if you rehab but it could do that at any time without taking action.With federal loans, you owe until you pay them off, get forgiven or die, with few exceptions. They are unique. Update your information; they'll find you eventually anyway.

Once you make those reduced payments and get out of rehab, you'll get your protections back (including loan forgiveness). The default will be removed. Not before though.
I don't know your age; for many, forgiveness at 20-25 years will not be beneficial. However, I can't see how you'd want to go through life with a default possibly wrecking your credit score.
If it puts you at ease, maybe you could ask a student loan attorney to ask questions. The Dept of education also has a chat and phone number for basic questions. Calling the collection agency and getting written information...I'd recommend doing those yourself and asking this forum for information, links, etc.

[Anonymous]

I put in Direct Unsubsidized since I don't know all your loan types.
If you qualify for IBR or REPAYE, those will be about $578 & $386/ month. Income-contingent is a last resort but most people qualify for it. It would be $875. These numbers are likely high because they don't use your gross. Not too bad, right?
If you're an independent contractor, there's a way to get even lower payments at any time by using your lowest monthly income to recertify, good for a whole year.

[coachbeau]

Calyx,

How did you get out of a second defult?