Defaulted Student Loans + Applying for More Federal Loans

Well if you are in default, Sallie Mae will not still be holding it if it is a federal loan. The guarantor would have been forced to pay the default claim. So for starters, you need to find out who is holding both of your loans.....log into NSLDS or call 1800-4fedaid for that information. Or is the one held by Sallie Mae a private loan?

For your federal loan(s) you have 2 options. You can rehab....that requires 9 payments of 1% of your balance. After 6 on time payments, you become eligible for financial aid. Your payments after that must remain current. Once the rehab is completed, the guarantor will mark your tradeline as paid as agreed. You keep the lender/servicer negatives.

Option 2 is federal consolidation. This takes approximately 45-60 day for your new loan to fund and get you out of defalt. I always recommend the Direct Loan Program thru the DOE. You will be stuck with both negative tradelines.

Yeah, you increased balances is very typical. You are charged up to 24% in collection fees plus your interest has been capitalizing on itself.

Both loans are federal -- and are begin held by two different guarantors.

1) PA Higher Education - $14,000 - 5% interest

Recommended Payment: $130/month
Interest Accruing Per Month: $50/month

I told them I was part-time employed (true), then they asked for my employer phone number -- I refused to give it to them.

They said they will just get it from the Department of Labor and Industry.

Was that a mistake to refuse? Would such insubordination encourage them to seek out my wages to garnish?

Also, on garnishment -- is it true that you must work for a place for a year before garnishing can begin? And, since I make less than $1,000 per month, is that still garnishable, with $400 rent?

These PA folks said that I would need to pay on-time for 9 months before getting the account reviewed, and finding a lender -- is this shorter consolidation option (offered by the below lender) still possible too?

2) Diversified Collection Services - $15,000 - ~4% interest

These folks really interrogated me. I was wary from the first call, so these people I lied to and told that I was unemployed.

They then said I could pay $50 right away, and then $50 next month, and that would be enough time for me to qualify for the Direct Loan DOE consolidation program.

Will this lie get me into trouble? Would they find out my fib before it went into consolidation?

Since I was unemployed I just told them the little cash I have available -- less than a couple thousand -- then asked what bank I used -- I lied again and said I have no bank.

They said I would need to use a checking account to make the payment.

Should I be worried about giving them my bank account information? From what I understand they can't freeze monies in my account or take them, but I can't risk that currently.

They said they are sending out the consolidation papers for me to sign immediately.

Is this that Direct Loan route you were speaking of? It sounds almost too good to be true with the low payment -- but that's based upon no employment, which isn't true.

They said that within a day or two I was up for account review and then further collection contemplated -- and then they said it was good I called it -- so maybe even if I choose not to pay the $50 right away I will avoid garnishment?

I also asked if this Direct Loan consolidation would include my other loan (described above) -- she had no awareness of the loan, so couldn't say anything.

Can just one loan be consolidated? And again, can I find similar good terms to get to consolidation with the first lender -- and would it be best in your opinion?

I am willing to seek out full-time labor and begin paying these -- but I don't have it yet, so, I am wary of committing to begin paying without a steady income.

One other thing -- the loan original amount prior to default and collections was $11,000 -- now it's $15,000 -- and I asked how it got so big, and she couldn't tell me, told me to call back to talk to a supervisor. Which I will do.

She said that when the loan gets consolidated, that much of the collection fees will drop off -- is this true? If so, it sounds like the $50/$50 consolidation plan is a good bargain indeed.

I thank you SoapLady for your wisdom -- and anyone else who takes the time to help me in my time of need.

Best.
Seeking Relief

your loan balance jumped due to collection fees and capitalized interest. When you consolidate, these fees are NOT waived.

No you do not have to be employed one year to be garnished. The one year rule only comes into pay if you have been involuntarily seperated from your previous employment.

You can be garnished with wages of $680/month or more.

CA# 1 is setting you up for rehabilitation. CA #2 you were discussing consolidation. These are two totally different programs.

It is not a good idea to create hostility with the CA's by witholding information or lying about employment. They can get the information from the guarantor thru the IRS.

Cooperation is very important. Get put in garnishment and you will loose the ability to consolidate and rehab will be much more expensive.

Can I still be garnished if I may a $50 minimum payment?

Say I tell the first CA, that I can only afford $50, and that I want to get set up for Direct Loan consolidation like with the second CA.

Would paying them both $50 per month allow me to avoid garnishment?

Also, since the second CA is operating on the false assumption that I am unemployed -- if they found out after I paid them the $50 we agreed upon, could that botch the deal?

Do I need to coordinate the two CAs to both be tracking me toward a Direct Loan consolidation at the same time? Or can I Direct Loan both of them separately?

I am trying to cooperate best I can -- I wish they would cooperate with the reasonable idea that my very limited funds are beholden towards my ill mother, rather than their profit margins.

Will talking to them consistently on the phone, even if I tell them I can't afford to pay, and don't -- will that help me stay out of garnishment? That is my biggest fear.

Thank you Soap Lady.

Also, did I understand correctly from your original reply that you recommend consolidation in my case for both my loans?

Will I be able to work that out with CA #1?

And also, per your reply, your credit report looks better after rehabilitation rather than consolidation -- is that correct?

If so, why is consolidation better?

Thank you again.

One more bit: if I get both loans conslidated with Direct Loan -- totalling about $30k -- what will my monthly payment options look like?

They are not going to be more than the amount I would be paying in order to consolidate, are they?

Anybody else know the answer to my questions? I have to call these collection agencies on Tuesday, and I would like to go in as prepared as I can.

Thank you, everyone.

If all of your loans are federal loans then yes you can consolidate.

You have to be open and honest with the CA's. Refusing information is a no no.

Consolidation is definately faster....it generally only takes about 60 days to consolidate whereas rehab can take upwards of 10 months. Since both of your loans apear to be ffelp loans, you wont be getting any collection fees waive, so that consideration is moot. The biggest thing with choosing rehab for you would be the guarantors tradeline being removed or at least the negative information.

Are you saying that if someone refuses to give information, then they are more likely to retaliate with wage garnishment?

In your experience, would refusing to give information be worse, from their perspective, than not telling them in the first place that you are employed and then they find out that you actually are?

I guess I am afraid now with the other CA company, that I told I was unemployed, that they will revenge themselves against me for not telling the truth -- also I don't want to lose the $50/month offer, which I could indeed manage.

If I pay them the $50 as agreed on Tuesday, and another $50 in 30 days or so -- is it possible to get by into consolidation without them finding out that I am employed?

As a general rule, honesty is indeed always best -- but here, it seems that dishonesty has saved me money, which is very important for me to be able to continue supporting those reliant upon me, which, unfortunately, the collection agencies, nor the banks, federal or otherwise, seem to respect enough.

I just used the handy-dandy Direct Loan payment calculator -- but I wanted to make sure I did it correct, because the results sound too good to be true.

Both of my loans list on NSDLS as "FFEL Consolidated" -- does that mean I choose "Subsidized Federal Stafford Loans" in the calculator for loan-type?

I did so, and put both, totalling $29,000 at 5% interest each into the calculator -- and put in my gross income for 2008, which was $11,000 -- (at least that's what my 1040 says) -- single -- no dependents.

I also chose to do their Electronic Debiting program.

Then the calculator estimates my first payments will be $13.00! And then final payment will be about $170.

It also says that after 300 months, I will have paid back only $27,000 -- but that seems to be the total.

Would my payments for the entire upcoming year after I consolidate be only $13?

And how is it that the total amount is below the principal?

BTW, was putting in the principal with collection fees attached correct? Because the principal without those fees was only $23,000.

I noticed if I put in that I made $20,000 -- my initial payment is $163.00 per month.

Oh, I see now -- I think that if I make so little, then all I ever make is interest payments, and never pay off the principal at all.

What happens at the end of 300 months then? I presume it would never happen, because I plan on making more than $11,000 a year from now on, Insh'allah.

I bow to you Soap Lady for your generous wisdom.

The entire balance with fees and interest needs to be calculated.

Because you are in default, you will automatically assigned to the ICR or income contingent repayment plan. Each year your payment will be based on your income from the previous year...they will check your taxes. After 25 years in repayment, you remaining balance will be written off and charged bacck to you as taxable income. This is all on the Direct Loan site!!

Thank you again, Soap Lady, for your kind help.

But, in all respect, are you deliberately dodging my question about what happens when you lie to the collection agencies?

I figure thus:

A) If the collection agencies do punish you when they find out that you have lied to them, by initiating garnishment more rapidly, then..

A.1) You yourself think that the practice is wrong, but know that it is done, and since you yourself were a collection agent, you don't want to make yourself look bad because you punished people for lying to you on behalf of your bosses.

A.2) You think I deserve garnishment for the lies that I have told already, and therefore you are withholding what you know in order to see me get punished for my deceit.

B) If the collection agencies will likely not find out that someone has lied to them quickly enough in order to prevent the $50 no-income consolidation offer then..

B.1) You don't want to tell this public here about how it is better for them to lie to the collection agencies about their income -- because you still harbor these loyalties to the collection agency systems, and you don't want to reveal insider information that could help people dodge unnecessary losses.

B.1.a) This last thesis is possibly inconsistent with your apparent generosity in providing your long knowledge free of charge.

B.1.a.1) Along these lines, why is it that you provide information to help people here? Are you in any way compensated for what you do here? Or it is just for the good feeling of helping people with something you are very good at?

C) You see any form of deceit as wrong in principle -- and see the contractual relationships that all these borrowers have entered into as fair -- and therefore the people are responsible for what they signed up for, and then deceit against the collection agency who is just enforcing the loans previsions is unjust, because the collection agency is just following the letter of the law.

C.1) This thesis is contradicted by the pattern, which I have seen you identify, of the collection agencies coercing people into not "reasonable and fair" payments which they are entitled to by law -- but instead, only providing the best rights allowed to the borrower when they are forced to by a threat from a loan ombudsman.

C.1.a) If you yourself as a collection agent did this practice, of preying on people's ignorance, and thereby profited from it yourself in commissions -- then your participation in such coercion would indeed make actions you did as bad as those practiced by unprincipled collection agencies -- which would contradict, in some respects, some of the thanks and praise that you receive from these suffering debtors.

If I found that someone was lying about employment, as a general rule I shot that account over to garnishment. Why? Because that account would be too high a maintainance....that would be the account that would lie "the check is in the mail". Being a top collector, I had a huge portfolio with a huge goal each month . Working DOE accounts, we regularly got employment information via the IRS and there was always the possiblity that my accounts would be audited for accuracy. You have to understand that I was one of the easiest collectors to get along with...I could get blood out of a turnip so to speak. So if people took advantage of my good nature, yup I got rid of the account to garnishment. I had a job to do and a family to support. I never preyed on peoples ignorance....I made sure they understood how I could help resolve their default and what it took to do that...I educated my debtors. Yet it was a two way streak...if they didnt want to work with me, I would not work with them. I moved onto the next account. I was not their to coddle anyone.

Why do I do this now? To keep my skills up to date. I left the financial aid field over 6 years ago to run my own business and should the necessity arise that I need to return to the workforce, I know a job at the university is always there. In fact my old officemate and immediate supervisor will still call me or IM me for information. Due to the university chain of command, information and changes in the law take forever to make it down the pipeline. With the number of boards I visit, I am on top of changes as soon as they happen whereas my old coworkers they may not get the "memo" for several weeks.

I also get points here like everyone else.

Also, a borrower is only entitled to reasonable and affordable payments IF they are attempting the rehab program. If they are not being streamed for rehab, balance in full on demand was the requirement, or the highest payment I could get.

I greatly appreciate your candor, and all your help.

I'm probably going to give up all my info to the collection agencies now.

It sounds like the policy to deal with deceit was left up to the individual decision of the collection agent.

Did other agents have different policies regarding how to deal with somebody who is lying to them? Did you disagree with how they did there work? Did you express that disagreement to them?

I am also curious what the official recommended policy was about dealing with people who lied to the collection agency.

Given that your former supervisors still ask your for technical advice, I wonder if there is even such an official policy. Probably not in writing, I would imagine, but I presume the question must arise rather frequently in practice.

May I inquire about the nature of the business that you currently run?

I will be as forthright as you and say that, in my opinion, the entire system of financial "aid", while having as I understand a principled origin -- probably out of the New Deal, I would guess -- has been taken over by the highest level financial groups, and then deliberately designed in order to exploit people.

It appears this process began most severely in the 1980s, the Reagan presidency, although perhaps you can offer some more accurate historical insight.

The provisions that defend the debtors, such as "reasonable and affordable payments", I imagine were wrung out of the finance groups and their agents in the US legislature -- Republicans, in the majority, I presume -- and each of those victories on behalf of the people were hard fought and resisted tooth and nail by the banks and their lobbyists.

This exploitive system of shackling people with debt has grown simultaneously with the take-over of the boards of trustees, and other owning and controlling powers of universities in the United States.

It is obvious to me that universities nowadays are essentially run by banks in order to churn through millions of debt victims each year. As this exploitation has risen in severity, the quality and principle contained in education has declined -- because the actual purpose of education has been removed, and now in fact, mostly serves the purpose of ripping people off.

Not qualifying people for any well-paying jobs is incentivized by the this bank/university complex -- then students are more likely not to finish school, choose not to pay back their loans, and thus enter naively into this spiralling nightmare of debt that so many people on this site have described.

Upon careful scrutiny of your posts, my dear lady, I have been rather shocked to see the total lack of sympathy that you show for some of these heart rending tales of mothers supporting children and unable to pay what the collection agencies demand.

Dismissing such pleas, even if deserved according to the letter of the law, reveals a hardening of the heart in the service of these predatory banks that I both fear and pity.

Wisdom can be a stern teacher -- and I do see how your straight, curt advice, cutting through these long, helpless, and useless wails could be an antidote to the ineffectual cries of injustice and desperation -- and maybe help people sober up to hard reality and better deal with their situation.

But, in my judgment, the only rational overall verdict you can make regarding the system of debt in the United States as a whole -- is that the entire system has now been designed and operated in deliberate hostility towards the people who borrow from it -- and thereby, government, in letter written to be on behalf of the the people (though never so practiced), should forcibly seize all the ill-gotten gains of these predatory financial institutions, and permanently cease their exploitation.

You wrote that student debt will never receive amnesty. I appreciate the keen insight this shows to the entrenched nature of the financial system.

I will add, that were such amnesty taken seriously, these banks would then eagerly resort to the worst forms of violence in order to destroy whatever organizations would dare attempt to rouse people from their slavery and enact justice.

This is the history of US foreign policy since the death of Roosevelt.

I left collections in 1999 to go work as a financial aid officer at a major public university. I have been out collections for a decade...I spent my last years in financial aid giving it out and counselling people on how not to default and how to get out of default so they could get back to school. My university coworkers know even to this day I can point them to official DOE policy that they do not have the time or resourses to find.

When I was in collections, my job was not to offer sympathy....it was to collect. As harsh as that might sound , I was working for the guarantors to recover their funds....they were my client, not the borrow/debtor. I guided those I could to the consolidation loan programs and the rehabs to resolve the defaults. But quite frankly , "I have children to support" or "I am pregnant" was not my concern.I remember sitting on the phone days away from my daughters due date listening to women tell me they could not work cause they were pregnant. Or mothers choosing to stay at home with their babies. I sat on the phone and listened to excuse after excuse after excuse....and lots of lies. Caught people in big ones.....like people calling from their jobs telling me they were unemployed or that they couldnt afford to pay and finding a brand new car payment on their credit reports. My job was to service my client. However I often did go to bat for by debtors, going above the call of duty. I fought my clients on closed school decisions where clearly the debtor had been wronged by denial.

Universities are institutions of higher learning. For the most part they do not offer career training unless you are in a professional field . What are you qualified to do with most BA's? Nothing. Squat . Students are forking out dough with no career goals in mind, only that they should go on to college. As a whole, the US system sucks.

Funny thing is, as of 2006 the cohort default rate of student loans was only 5.2%. Back when I started collecting it was in the 22% range.

Hello again, SoapLady..

DCS is pressuring me severely to get this consolidation -- with such hustle, I am wary. It sounds like from what you have said that I should just do whatever they want and sign the DirectLoan papers they sent me.

I've told them I can't pay the $50 initial payment that they offered -- and they keep threatening the loan will "move forward" to other forms of collection.

Somehow I get a sense that they aren't going to bother with garnishment, because they think I'm unemployed.

What I'm afraid now is that if I sign this release to the DOE to get my tax returns, and then another release of theirs to get the same info, then they will discover my fib, and then begin garnishment.

I'm afraid to sign up with DirectLoan because I don't want to default there -- but it seems that I'd be able to work out something with them, and based on my last year's income, I might only pay $5 per month.

I don't like getting coerced into anything -- but it's probably in my best interest.

Can't I just do all the DirectLoan application entirely apart from the collection agencies?

I was unable to get a straight answer out of DirectLoan or the collection agency -- whether I had to make a payment in order to consolidate -- both told me to ask the other.

Do I need to make any payment? Or can I consolidate with no ability to repay at all?

Thank you again.

Hey guest, I see your predicament, but lying always comes back to bite you in the butt threefold. It is better to be honest with them, or just refuse to give them any information at all. Like soaplady said, all they have to do is find out your wages from the federal government. :lol:

My husband had to get the entire debt paid off to get additional loans approved. We had no choice. But the one default loan we had to pay was sent to court and was in the stage of wage garnishment, so it was SEVERELY defaulted. We had no trouble getting loans before this particular case even with massive student debt. We live in NY. (NY state laws might apply.)

Federal laws always apply with student loans.

With federal student loans, they do not have to take you to court to garnish wages...it is authorized by congress. They do however, withhold all further aid until either 6 payments are made or the loan is taken out of default.

No such thing as severely defaulted. It is like being pregnant...you are or you or not. The same rules apply whether you are 6 days in default or 6 years.