It's not my student loan, but my son's. He both didn't pay when he could and at times couldn't pay anything because he wasn't working. Now it's been turned over to the Department of Education and they can do some pretty harsh things from garnishing wages, fines, and even prison time, according to the letter.
Does anyone have any experience with defaulting on a student loan and have the government take it over and then threaten them with a variety a punishments like these? I'm looking for any advice at all.
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As per the norm: consult an attorney for sound legal advice.
My opinions:
I doubt they'll toss him in the slammer for it. Communication is critical, he must be the one to do it as the debtor and ignoring will not make it better or go away.
They will garnish wages for sure. He should be able to call up and arrange an installment payment plan ... what I don't know enough about is what those are like once the DoE gets ahold of it to collect.
You weren't a signatory to that loan as a guarantor or anything, were you?
No, he was the sole borrower.
No, he was the sole borrower.
Here's a question - is the loan of sufficient size as to permit bankruptcy protection? That might be an option, depending on the specific terms of his student loan. There might be a specific clause re: bankruptcy...
Again, we are talking about things requiring legal expertise I do not have. So I'm floating out questions that might need answering as there isn't much you can do to help him directly except maybe keep a roof over his head and food in his belly.
My brother-in-law could be in the same boat, I'm fuzzy on the details. He lives with his parents in Jacksonville. Small world, eh? :)
LOL it is, indeed.
I know in nearly every bankruptcy case I've ever heard of student loans were exempt from that particular lifeline. I had mine wiped out because of my disability status. I hadn't paid in years and I'd accumulated a LOT of interest and there was no way I could pay any of it back. I "only" owed about $35k, but it was such a relief to have that taken off my back.
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Oof. Ok, so pending sound legal advice, my suggestion is that he gets on the horn to the DoE as soon as possible to arrange an installation plan.
No one to whom one owes big piles o' money is going to wait forever to get it when payments stop. It is my experience that calling or writing them is critical to surviving the ordeal. If he hasn't communicated with them before, now is the time to do so.
This does depend on the terms outlined in the letter from the DoE.
The loan guarantor has turned it over to collections by the Dept. of Ed. So I doubt they have anything helpful to say, but I'll try to get him to call them.
I'm off to bed. My back and leg pain have become too much to deal with tonight, but if anyone else thinks of something to add here I'll check it first thing tomorrow. Thanks for the advice, everyone!
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My advice: Don't panic.
Defaulted student loans are practically an epidemic in this country. The DoE does itself no favors by sending incredibly threatening letters as a first salvo.
You've gotten the standard (excellent) advice, but I feel it's important to reiterate it:
(1) Get a lawyer. Most people balk at paying $200-$300/hour just to get "some guy to make a few phone calls", but many loan guarantors are happy to get even 10-15% back on a loan they think they've "lost", so that $3000-$4000 you spend on the lawyer may save you from $10,000-$20,000 in penalties, interest, and (possibly) payments. I've never done it, so I am not speaking from experience, nor am I a lawyer. But I have heard it strongly recommended that you have a professional negotiate the terms of your repayment for you.
(2) If you can't afford a lawyer, or can't find one quickly, call the loan guarantor to at least let them know you're working on a repayment plan. I like Kittyburger's idea of trying to negotiate it yourself, but I worry that you'd save more money in the long run by shelling out for a lawyer in the short run. That's just a question I can't answer.
(3) Don't worry about prison. Your son can't repay the loan if he's in jail. They want him working so that they can garnish his wages. It's one of those pointless threats that some bureaucrat thought would make the matter sound "serious", when instead it just panics the kids and makes them want to run away from the problem.
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Thanks, NH. That's reassuring.
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NH speaks wisdom in all three points.
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For three miserable years back in the mid-1990s, I worked in the collections department for the finance division of a major university. My role was to get students to pay off their outstanding bursar bills and/or their university-funded student loans in default. We were loathe to sell off debts to collection agencies, as we usually only got 25% of the outstanding debt, but it was better than nothing.
My advice might be like closing the barn door after the horse ran off, as I only dealt with students that still owed the school directly.
But if you still owe the school: Call them immediately. Ignoring education debt will NOT make it go away. Ignoring outstanding student loan debt will only make it worse. Student load debt is almost never dischargeable in bankruptcy.
Once the debt is sold to a collection agency, the original lender is no longer responsible for the debt, and cannot legally work out payments any more; working with the school will be FAR more pleasant than working with an outside collection agency.
That said, all is not lost! I would agree that retaining the services of a lawyer who specializes in debt repayment would be a very good idea. Collection agencies are much more willing to cut deals with lawyers than with people who negotiate on their own behalf. Your son will need to negotiate a new repayment plan, and he must stick with it.
Good luck!
Thanks, Haladir!
The other thing I'd say is most financial consultants/CPAs will offer advice for free about all things to do with budgeting, loan payment, etc. They probably are most likely to know not just how to handle the actual situation, but also advise your son about budgeting/repayment. You want a lawyer too, but you need to talk to a pro about your actual financial options as well. Ask friends who they use in your area and if you get a good referral, go talk to them. You can certainly get bad advice from these kind of folks, which is why I suggest getting a recommendation. Yes, these people make money of preparing taxes and assisting in investment portfolios, but they are often also happy to and capable helping people get out of holes they are in--because the more financially solvent people they know and work with, the more they are going to get paid to do the other stuff.
Thank you!
The loans were issued by the university itself. I think there was just one, maybe two. But they were combined into one and then sold off to the Dept. of Ed.
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Many credit unions have budget counselor/money management consultants that they refer members to.
Even if you aren't a member, they'll tell you who they use. That would be a stellar recommendation
Yeah, that I know. And I've told him numerous times to take care of this problem. But he's in this "f*** the system" phase of his life and he basically refuses to do the right things to function well in society.
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Yeah, that I know. And I've told him numerous times to take care of this problem. But he's in this "f*** the system" phase of his life and he basically refuses to do the right things to function well in society.
Then let him learn this lesson the hard way. Harsh way to learn, but some people don't learn some things other than by taking the harder road.
Yep.
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I do have personal experience with defaulting on a student loan. Mine was the Stafford Subsidized Direct Loan, so I can't say for any private loans.
In my case, I called and talked with the DoE, and explained my situation to them. They negotiated a monthly payment I could handle, $40/month (ten under the usual minimum). Before I called to talk it out, my income tax return for that year was taken to apply to the balance.
Over a decade later, everything is well, I was able to take more loans out to finish my degree recently, and my credit has recovered.
The takeaway: Lenders will usually work work the borrower, so long as they can make some kind of regular dependable payment. They'd rather get money slow and steady rather than go to the trouble to seek legal remedy.
Thanks, Scythia!
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No worries. I hope things work out okay.