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Need help with federal loan in default

Date: Thu, 02/04/2010 - 15:35

Submitted by yami_no_hikaru
on Thu, 02/04/2010 - 15:35

Posts: 3 Credits: [Donate]

Total Replies: 6

Need help with federal loan in default


Hi! I have read a lot of posts on this forum and found a lot of valuable information about how to manage and get out of debt. But I really need some advice on my problem which is really haunting me badly. I got out of college around 2006 and hasn't had a stable job since. I didn't handle my loan situation correctly and now I have a federal loan in default! Earlier this week I received a call from West Asset Management about the money that I owe. The guy asked me about my financial status and I told him that I am unemployed, I don't have a car nor a house and I get $200 from my parents each month. Then he told me that I have 2 options to pay off this debt(~$14,000): 1. a lump sum of $12,000 2. $3000 upfront and then about $150 a month(I am guessing it's a rehab program?) until I pay it off. I just want to know what is my best options here. I actually have couple questions that I need help on as well: 1. I just checked the free credit report from Experian last night but I only saw the negative listing from DOE. Does that mean I can still work things out with DOE without dealing with West Asset Management? 2. Should I send a request for DV to West Asset Management just to make sure they are legitimate? 3. How long will the negative listing from DOE last on my credit report? It says the case opened in 2005 on my credit report. 4. Can I still apply for a student loan while in default? What if I get out of default status? 5. Can I renegotiate the default status to maybe a forbearance or deferment? 6. The person that I talked to from West Asset Management said if I paid it off this will be off the record, he seems to be referring to the negative listing on my credit report. But the problem is I don't see any listings from West Asset Management on my credit report. Would they be able to delete the DOE entry on my credit report? Is it a good idea to send in a pay-for-delete letter to them? I am really confused about this. 7. Paying the lump sum($12,000) isn't entirely out of the question if I ask around and borrow money from relative. But I read somewhere that it comes with a hefty tax. Should I do that or work out a rehab program instead? Sorry for the long post. I was down on my luck and I am really trying to get back on my feet now. Since I don't know much about money and finance, I would really appreciate any inputs you guys can give me. Thank you!


1. West is the CA hired third party by the DOE. You do not have the option to work with the DOE instead of west.....they are hired under contract.
2. Yes they are legit...you can call the DOE and they will refer you.
3. 7 years from the date of default
4. While in default, you are no longer eligible for any federal aid, which includes loans and pell grants.
5. No....once you default, you are no longer eligible for deferments or forebearances. The only way to get out of default is to resolve it thru payments, payment in full, rehab or consolidation.
6.West doesnt report. However if you pay it off in full, the negative tradeline will not go away.
7. You will be sent a 1099 for whatever portion of the debt is written off. How hefty the tax liablity will be will depend on your tax bracket.


lrhall41

Submitted by SOAPLADY on Thu, 02/04/2010 - 16:05

( Posts: 17315 | Credits: )


Thanks so much for the reply, SOAPLADY!!! I have read a lot of your posts on this forum and they are all very enlightening! I actually have a few follow-up questions:

1. If I get out of default, would I be able eligible for student loans?
2. If I don't pay it off in full but enroll in a rehab program instead, would the negative tradeline go away?
3. So 7 years from the date of default my credit report will be clean again?
4. I read somewhere that they won't take you to court for federal loan, is that true?
5. Would consolidation be an option for me? What would be the pros and cons?
6. Could you give me the pros and cons of paying the lump sum vs. a rehab program? I am really at a loss of ideas here. What would be your suggestion?
7. Should I request some kind of written documents from West once we have worked out a repayment plan?

Again I am very grateful for your professional opinions. Thank you so much for taking your time to read my post!


lrhall41

Submitted by yami_no_hikaru on Thu, 02/04/2010 - 16:46

( Posts: 3 | Credits: )


1. Yes, once paid off you regain financial eligibility
2. Yes
3. Yes
4. They dont normally take federal loans to court unless the balance is super high or you refuse to pay and are self employed.
5. Yes ...consolidation is an option. It is recommended that most people consolidate immeidately after rehabbing as well.
6. Paying in full or settling doesnt remove the negative tradeline.
7. Nope. They cannot send anything that would contradict your original prom note in which you agreed to balance in full on demand. They will send out a settlement letter and some will send a vague rehab agreement.


lrhall41

Submitted by SOAPLADY on Thu, 02/04/2010 - 18:02

( Posts: 17315 | Credits: )


Thanks again for the replies! I still have a few more questions:

1. I remembered consolidating my loans back in 2005 when the interest rate was low(not sure if that went through properly). Does the rate go up as a penalty after I went into default? If I consolidate again would I get the interest rate in 2005 or a new one?
2. Given my unemployed status would it be difficult for me to consolidate or enroll in a rehab program?
3. I read some posts in this forum that rehab programs are being suspended, is that true?
4. If the rehab program still applies, do I contact West Asset Management or DOE about it?
5. Would the "Paid-in-full/Settled" status last permanently or the seven years rule still applies?
6. From my understanding of this, DOE hired CA because my loan went into default. Once I update my status to "current" through a rehab program, DOE will call off the CA and I will be dealing with them directly. And then they will be able to remove the negative listings on my credit report. Is my logic correct?
7. Does DOE(or any federal agency) remove negative listings from peoples' credit reports, if at all? Or my only option is to wait until it expires?

I know I threw a fistful of questions out there. Thank you for your patience to read through my problems!


lrhall41

Submitted by yami_no_hikaru on Thu, 02/04/2010 - 19:07

( Posts: 3 | Credits: )


1. your interest rate would be a weighted average of what you have now
2. no
3. Some guarantors have had trouble getting lenders. This is not an issue with the DOE.
4. West
5. Tradeline will still drop off at the 7 year post default mark.
6. If you complete the rehab, your loan would no longer be in default. You loan funds and is transfered. Negative info is removed.
7. Only with rehab is the negative info removed immediately. Consolidation or paid in full, the 7 year rule applies.


lrhall41

Submitted by SOAPLADY on Sat, 02/06/2010 - 07:44

( Posts: 17315 | Credits: )


I am in loan modification with bank of America My payments i am paying them is not being credit yet and they do not know where my money is!!! they say they are waiting for money to be sent to them from FHA, since my loan isa a DHA on my condo. I am afriad they will foreclose. I had good credit until last year when I got laid off. Was behind in Assoc Due too and they tried to foreclose too. Still owe the m 3 more payments to be up to date. My credit score os 457 now and was 657. Can't even get a car loan now and paid off 3 BMW's Last year gave up My car to volunteer Repossession and purchased a cluncker for 2000 cash. Working 2 full time jobs one day and all night at walmart just to pay my monthly bill I sleep 4 hrs a day and do it all again . Every day I work one job or the other. I am tired and At 59 years of age I just want it to all go away. My life is just work. Can't seem to go to church on Sundays any more because I have o be at work at 10pm. the only day I can sleep in. HELP
what can I do I have given up all I can. My payments on MTG is $867..00 Dues 256.00 and have 2 jobs low income.


lrhall41

Submitted by anonymous on Tue, 02/09/2010 - 18:33

( Posts: 202330 | Credits: )