Bad loan, bad, bad!

April 15, 2010 12:44 PM

I have a judgment against me for a student loan that I never paid off. I want to pay it but I don't have enough to pay it all in a lump sum. If it might help, I'd like to get a private debt negotiator to help me.

The student loan was for about $30K and the judgement against me happen in around 2005 so there's going to be some interest on top of that now I think. The loan was with the federal government but I believe they sold it to a private collection agency who sued me.

I only found out about the lawsuit after it happened because I live out of the country. Nothing bad has happened to me due to all this - yet. I don't have any assets in the US and don't earn any money there, but I'd like to have the option of moving back someday and I don't want this hanging over my head forever.

So what's the next step? I'd rather not divulge my current address to the collection agency. And I would be willing to pay a lump sum of 30-40% of the amount I owe if that would satisfy the debt and make this go away. Is this idea reasonable? If so, are there any legitimate debt negotiation services out there who could help me? Or is there a better way to go about this?

posted by anonymous to Work & Money (6 answers total)

You should be able to identify the loan servicer on the Federal Direct Loans website. You'll need to remember or apply for a pin number to get access. Then you can call the loan servicer and ask about "Rehabilitation." That's a 12 month payment plan that would bring the loan back to a current state as if you hadn't defaulted. There's a minimum percentage that will need to be paid by the end of your 12 months, but I'd guess it's just a few hundred dollars per month. Once it's rehabilitated it's possible to pay at a lower rate, if necessary.

I'm less certain of this route, but it's possible that you could attempt to "Consolidate" this loan. This is usually something you do if you have multiple student loans and want to consolidate the payments. At one point it was possible to Consolidate a single loan, even if it had been defaulted upon, and resume payments as if nothing had ever happened.
posted by putzface_dickman at 12:55 PM on April 15, 2010 [1 favorite]

IAAL, but not yours, and you're going to want to get a lawyer of your own.

It sounds like a default judgment has been entered against you, i.e. you didn't show up and the court have the plaintiff what it wanted.

Well, default judgments are subject to being set aside if you can demonstrate that you did not receive adequate service of process, i.e. you didn't hear about the case until it was over. But only a lawyer is going to be able to help you figure that out and file the appropriate motions.

The reason this is going to be important is because once the judgment is set aside, the lender/collection agency will have an incentive to negotiate about a repayment plan again, either as a discounted lump-sum or a periodic payment. Your lawyer will be able to help you deal with this too. Negotiation is something we do.

putzface_dickman's advice is generally okay for loans which are, as he indicated, not in default. Yours has gone beyond default to a judgment against you, so none of those tools are likely to work. Just call a lawyer and see what you can work out.
posted by valkyryn at 1:16 PM on April 15, 2010 [2 favorites]

es, you can generally negotiate a settlement for student loan debts. It'll be lower if you can do a lump sum payment and higher if you request a payment plan, but both options are usually available. 30-40% is a low offer, but who knows? It'll really depend on the full details of your case.

Assuming it's a federal loan and not a private one - typically, the DOJ (by their private law firm representatives or otherwise) will ask that you fill out their standard financial disclosure form, and they'll use that info as context in determining whether or not to accept your settlement offer.

putzface's comment above is really great advice for a loan that's in default, but I believe it's irrelevant now that there's already a judgment against you. Unless you can vacate the default judgment, that is. Which, well - it depends!

IANYL, and this is not legal advice, of course. Go talk to a lawyer and tell them your full story if you want useful advice that actually applies to your case. They can help you negotiate a settlement, if appropriate.
posted by Eshkol at 1:23 PM on April 15, 2010

After defaulting on my loans, then working with the servicing agency to make low monthly payments for a couple of years, I finally negotiated a lump sum payment. I owed $50k in loans, penalties, and interest, and I was able to get that lowered to $35k. I never got an attorney, just did it myself. They basically just made me pay the principal. Student loan companies seem to be the most willing to work with you.

The caveat is that I was working with the state servicing agency held the loans, not a collection agency.
posted by kimdog at 2:02 PM on April 15, 2010

The other caveat to kimdog's anecdote is that while she had defaulted on her loans, she had not had a default judgment entered against her by a court. Such a judgment would significantly lower any creditor's incentive to negotiate or be flexible, as they've already got a court order giving them what they want.

I say again, dealing with this default judgment has probably got to be the first step if you want to do anything other than pay off the debt in full. Hence the need for a lawyer.
posted by valkyryn at 6:36 AM on April 16, 2010

An addendum to valkyryn's comment - creditors regularly do negotiate settlements even after judgments are entered. So if the default can't be vacated, you're not entirely out of luck. A judgment is meaningless unless they can actually get some money out of you, and some is better than none.
posted by Eshkol at 6:39 AM on April 16, 2010