Home> Credit
Library
FAQ ABOUT STUDENT LOANS, DEFAULT
AND YOUR CREDIT
Difficulties paying your student loans? The Ombudsman works
with student loan borrowers to informally resolve loan disputes
and problems. Their goal is to facilitate and provide creative options/alternatives
for borrowers needing assistance with the following federal loans:
- Direct Loans—Subsidized and Unsubsidized Direct
Student Loans, Direct PLUS Loans (for parents), and Direct Consolidation
Loans;
- Federal Family Education Loans—Subsidized and
Unsubsidized Stafford Loans, FFEL PLUS Loans (for parents), and
FFEL Consolidation Loans;
- Guaranteed Student Loans, SLS Loans; and
- Perkins Loans.
Student loan debt is enormous in the U.S according
to HRSA.
Total Default Loans $161,771,165 (as of 8/15/03, as amended by additions
and deletions). You begin your journey to grab an MBA or degree
but few realize the financial distress that lies ahead. Student
loans are generally federally insured and have no
statute of limitations. The statute
of limitations is the "tolling of time" to collect
a debt. Government loans including student loans are not subject
to that provision. Additionally, student loans may no longer be
included in a bankruptcy proceeding except in certain circumstances
wherein the court approves it.
Bankruptcy: Nondischargeable Debts: Student
Loans
A student loan is generally a Nondischargeable debt. In other words,
you will still be responsible for paying the loan even if you receive
a discharge of debts in a bankruptcy
proceeding. There is one exception, however, that may allow
a borrower to discharge his or her student loan(s). If the denial
of a discharge of the educational loan would impose a hardship on
the debtor and his or her dependent, then the educational loan may
be dischargeable. This exception is sometimes invoked by students
who have borrowed heavily for college or trade school only to find
that they do not have the earning power to pay back the loans. To
determine whether the undue hardship exception should apply, the
bankruptcy court will generally require the debtor to show the following:
Based on current income and expenses, the debtor cannot maintain
a "minimal" standard of living for him- or herself if
forced to repay the loan. This minimal standard is usually defined
by the local poverty line.
-The conditions creating the undue hardship are
unlikely to improve significantly during the repayment period or
in the foreseeable future.
-The debtor has made honest, good faith efforts
to repay the loan.
-The debtor has made a good faith effort to maximize
income and minimize expenses.
If the debtor satisfies each of these conditions,
the undue hardship exception should apply. However, ultimately the
decision is at the discretion of the bankruptcy court, and in most
cases, the undue hardship standard is a difficult one to satisfy.
Bankruptcy information Powered by
Mycouncil.com
Delinquency
Delinquency of student loans is an enormous problem for both the
lenders and the consumer. Delinquent student loans are at an all
time high and lenders make it tough to escape and student's are
mostly unaware of their options. Since most student loans are not
authorized to be included in a bankruptcy, the debt will remain
owed. There is little escape from the loan except in a few circumstances
like disability, death or improper certification. When a person
defaults on a student loan, a guaranty agency immediately charges
18.5% for collection costs. The guaranty agency pays a collection
agency 2.5% - 3% to collect on the defaulted loan. When a
person enters loan consolidation on a defaulted or delinquent loan,
the guaranty agency collects that 18.5% on the new note. 20 U.S.C.
1091 requires that the defaulting borrower be charged "reasonable
collection costs."
There are at least 57 guaranty agencies and millions
of people paid that 18.5%. If your debt lies with a collection agency
or guarantee agency, it's wise to try and work out a repayment with
the original lender. There is no reason you should have to deal
with a guarantee agency unless the original lender refuses to take
the loan back. If they do, they no longer have to pay the collection
agency so it's in their best interest to collect their own debt.
If they feel you will not be a hard case to collect, they may just
pull the loan back at your request.
Generally speaking any original creditor like
a student loan lender is not covered by the Fair Debt Collection
Practices Act. Only third parties to the debt are. Third parties
include attorney's attempting to collect and collection agents.
Student lenders can attempt a judgment entry on you without ever
having to serve you. But what about your right to fair trial? Well,
the one thing they must do before they sue you is attempt to notify
you of the evidence against you. The flaw in this seems to be that
many have moved and the attempt was made, therefore you may be a
judgment debtor without knowing it! Students can hold some of the
blame but not intentional blame. A young adult may not understand
the full scope of the debts. While in college not only do they incur
necessary student loans but many amass a lot of credit card debt.
Once they graduate they find the resources are not available to
pay everything.
So what do you do?
Your best option with student loans is to work out a refiguring
of the loan if possible, to bring it current or have a rehabilitation
started. Through rehab, deferment, transfers and consolidation,
you do have several choices. Contact your ombudsman, lender or school
to find out what options you have with your loans. There are different
programs for different loans such as FFEL, Government Student Loans,
William Ford and several others.
DETERMINING WHO HAS YOUR DEFAULTED LOAN
Be sure to check the collection notices that you have been receiving
to determine which agency holds your defaulted loan. Additionally,
you may call the Federal Student Aid Information Center at 1-800-433-3243
(1-800-4-FED-AID) to determine who holds your loan. Also, if your
loan is a William D. Ford Federal Direct Student Loan, please contact
the Direct Loan Servicing Center. This agency is the best source
of information about this type of loan. Many defaulted FFEL program
loans are held by a guaranty agency, rather than the U.S. Department
of Education. If your loan is held by a guaranty agency, that agency
is the best source of information about your loan.
Similarly, if your defaulted Perkins Loan is still
held by your college, you should contact the college for more information.
However, if your defaulted loan is held by the Department, please
read on to find out how you can resolve the default status of your
loan. Federal Family Education Loans (FFEL), which include Federal
Stafford and Federal PLUS loans. When placed in default, these loans
are first assigned to a guaranty agency (an organization that administers
the FFEL Program for your state) for collection.
Periodically, guaranty agencies assign loans to
the Department for collection. Direct Loans. Federal Stafford and
PLUS loans are also offered through the William D. Ford Direct Loan
Program. When placed in default, these loans are assigned to the
Department's Debt Collection Service. Federal Perkins Loans When
placed in default, Perkins Loans may remain with the school or be
assigned to the Department for collection.
Update Dec 2005: -Collecting student loan debts
from retired people legal? It is now. In a recent Supreme Court
decision (The student loan case is Lockhart v. U.S., 04-881.) ,
the court ruled that it is legal to collect student loan debts from
seniors. See this link for story> http://seattletimes.nwsource.com/html/nationworld/2002670090_webscotusloans07.html
Next> - or- All
about student loans-Default, Collections, Lawsuits and Repaymen
|
