Student loan nightmare. Will a Lawyer help?
July 14, 2016 8:24 AM Subscribe
I'm an American Millennial and I have about 110k in student loan debt (mostly private loans, but some federal). About seven years ago the recession pretty much destroyed any financial stability I had so I threw my hands up in the air and went pretty much off the grid. Now they've found me, and my husband, and my work... etc.
So, lawyer?
We found a law firm with incredible reviews and who seems pretty legit. They've asked for 3500 for the private and 3500 for the federal. It seems reasonable, but they of course can't promise anything. We have some money we can throw at the loans (maybe 50K if we could kill it), but even today I could never make the $1300 monthly payments I was scraping together for the first few years after school.
So I ask the following questions:
1. They said they probably won't be able to settle the federal (because federal loans don't settle) so should we bother paying them to handle it? Should we just try to negotiate a payment plan alone? Should we/could we ask for a reduction in cost for the lawyer fee for the federal side? The federal side of the loan debt is maybe 20k- would it be better to throw that 3500 at the debt instead?
2. $3500 sounds reasonable. $7000 total. Is it pretty reasonable?
3. Does anyone have personal experience with this?
4. Every time I've talked to anyone about this the answer has been pretty much "there is no relief, poverty forever!" If paying a lawyer is a way to make this less absolutely depressing and horrible, I would love to hear it. If paying a lawyer isn't going to do me any favors... then I'd like to know before I pay a lawyer.
We found a law firm with incredible reviews and who seems pretty legit. They've asked for 3500 for the private and 3500 for the federal. It seems reasonable, but they of course can't promise anything. We have some money we can throw at the loans (maybe 50K if we could kill it), but even today I could never make the $1300 monthly payments I was scraping together for the first few years after school.
So I ask the following questions:
1. They said they probably won't be able to settle the federal (because federal loans don't settle) so should we bother paying them to handle it? Should we just try to negotiate a payment plan alone? Should we/could we ask for a reduction in cost for the lawyer fee for the federal side? The federal side of the loan debt is maybe 20k- would it be better to throw that 3500 at the debt instead?
2. $3500 sounds reasonable. $7000 total. Is it pretty reasonable?
3. Does anyone have personal experience with this?
4. Every time I've talked to anyone about this the answer has been pretty much "there is no relief, poverty forever!" If paying a lawyer is a way to make this less absolutely depressing and horrible, I would love to hear it. If paying a lawyer isn't going to do me any favors... then I'd like to know before I pay a lawyer.
Also, confused about how you have $50k available to pay these down, presumably in cash or another fairly liquid format, but think that you'll be living in poverty for your entire life. $50k is almost half of your loans! If you drop that cash on them your monthly payments will be much smaller. Can you clarify?
posted by schroedingersgirl at 8:38 AM on July 14, 2016 [18 favorites]
posted by schroedingersgirl at 8:38 AM on July 14, 2016 [18 favorites]
As a partially responsive comment, it's not obvious to me what you expect a lawyer to do for you. It's never a good idea to hire a lawyer when you don't have any idea what the lawyer is going to do. Are you planning to file for bankruptcy?
You really need to look into Income-Based Repayment (IBR). This doesn't require a lawyer to do and sounds exactly what you need.
You should also ponder whether it is worth doing anything about these loans. If you have no money, there is no money for the debt owners to collect from. You might look into the notion of being "judgement-proof".
posted by saeculorum at 8:38 AM on July 14, 2016
You really need to look into Income-Based Repayment (IBR). This doesn't require a lawyer to do and sounds exactly what you need.
You should also ponder whether it is worth doing anything about these loans. If you have no money, there is no money for the debt owners to collect from. You might look into the notion of being "judgement-proof".
posted by saeculorum at 8:38 AM on July 14, 2016
Pay your loans. You're not going to get your responsibilities discharged through a magical legal incantation.
You made this mess, but you can turn it around. Contact the servicers, get some personal finance guidance, look into income based repayment or consolidation options.
Also, yeah. You don't have 50k cash anymore, because you're immediately going to apply that to your loans.
posted by so fucking future at 8:38 AM on July 14, 2016 [23 favorites]
You made this mess, but you can turn it around. Contact the servicers, get some personal finance guidance, look into income based repayment or consolidation options.
Also, yeah. You don't have 50k cash anymore, because you're immediately going to apply that to your loans.
posted by so fucking future at 8:38 AM on July 14, 2016 [23 favorites]
I'm not sure what you want. Are you trying to avoid paying your loans altogether? That probably isn't going to happen.
For the federal loans, contact StudentLoan.gov and get on an income-contingent plan. If you really can't pay anything, you may be able to get a forbearance, but interest will continue to accrue. Do not pay a lawyer to handle these. The federal government will work with you.
For the private loans, what are they saying they can do for the $3500? IANAL, but I would not trust these people if they are willing to charge you anything to deal with the federal loans. There's nothing they can do about those. I would find out specifically what they think they can do about the private loans and then I'd research whether what they say is actually possible.
If you have $50,000, you can make a lot of payments before that runs out.
posted by FencingGal at 8:40 AM on July 14, 2016 [4 favorites]
For the federal loans, contact StudentLoan.gov and get on an income-contingent plan. If you really can't pay anything, you may be able to get a forbearance, but interest will continue to accrue. Do not pay a lawyer to handle these. The federal government will work with you.
For the private loans, what are they saying they can do for the $3500? IANAL, but I would not trust these people if they are willing to charge you anything to deal with the federal loans. There's nothing they can do about those. I would find out specifically what they think they can do about the private loans and then I'd research whether what they say is actually possible.
If you have $50,000, you can make a lot of payments before that runs out.
posted by FencingGal at 8:40 AM on July 14, 2016 [4 favorites]
I think this is one of those times you should try to manage this first without a lawyer. Why pay a lawyer $7k when you could put that toward these loans? The lawyer is not going to be able to get you out of paying these. The most they can do is get you on a different payment plan, which you can do yourself.
1. Are you in default on these loans? If so, you may not be able to switch to IBR on your federal loans. If you haven't defaulted, get on IBR.
2. Call the company who owns your private loans and ask them in good faith to work out a plan with you to make monthly payments that you can manage.
3. The problem with paying less than the required amount on the loans is that you will likely not be paying anything toward principle, and so you'll be paying each month but your debt will continue to grow. If you can get $50k together to put toward these loans do it. $60k is an extremely manageable loan amount and will make your monthly payments going forward doable.
posted by Lutoslawski at 8:41 AM on July 14, 2016 [3 favorites]
1. Are you in default on these loans? If so, you may not be able to switch to IBR on your federal loans. If you haven't defaulted, get on IBR.
2. Call the company who owns your private loans and ask them in good faith to work out a plan with you to make monthly payments that you can manage.
3. The problem with paying less than the required amount on the loans is that you will likely not be paying anything toward principle, and so you'll be paying each month but your debt will continue to grow. If you can get $50k together to put toward these loans do it. $60k is an extremely manageable loan amount and will make your monthly payments going forward doable.
posted by Lutoslawski at 8:41 AM on July 14, 2016 [3 favorites]
One more thing: you need to contact them sooner than later, as they are likely to start garnishing your wages at this point, and your credit will also take a hit, which is going to limit a lot of your options going forward. Bite the bullet. I know it sucks, but running isn't the answer here.
posted by Lutoslawski at 8:44 AM on July 14, 2016 [3 favorites]
posted by Lutoslawski at 8:44 AM on July 14, 2016 [3 favorites]
To Lutoslawski's point - if you're in default on your Federal loans, you can't switch to IBR *right away*. You'll need to go through a "rehabilitation" program first, which is an income-based flat monthly amount. You must make all of those payments on time (it can take up to 6 months; for me it took 3.) Once that's done, they'll send you a boatload of paperwork, and at that time you can move to a standard repayment schedule or IBR.
posted by okayokayigive at 8:56 AM on July 14, 2016 [1 favorite]
posted by okayokayigive at 8:56 AM on July 14, 2016 [1 favorite]
OMG do not pay a lawyer that much money; that's crazy.
Go to the Student Loan Lawyer website and read it. It gives you a very clear idea of why a person would need a lawyer for student loan repayment; you may NOT need one. The man who runs the site is a lawyer and he specializes in student loan repayment.
posted by yes I said yes I will Yes at 9:16 AM on July 14, 2016 [8 favorites]
Go to the Student Loan Lawyer website and read it. It gives you a very clear idea of why a person would need a lawyer for student loan repayment; you may NOT need one. The man who runs the site is a lawyer and he specializes in student loan repayment.
posted by yes I said yes I will Yes at 9:16 AM on July 14, 2016 [8 favorites]
I'm not sure how good a bunch of lecturing does, so I'm going to actually try to help. I'm not a lawyer or your lawyer, but I have reasonable knowledge of student loans. However, I have almost no knowledge about loans in default.
I think people's questions about your goals and the lawyer's history are relevant. What are you trying to accomplish? What does the lawyer say they can do for you? Have they done this successfully for other clients?
Be aware that you're not going to get student loans discharged in bankruptcy. People say that it can be done, and outside of permanent disability that leaves you completely unable to work, it's not going to happen. Also, if they were your loans before you were married, your spouse is likely not responsible for those loans.
Federal Student loans have various Income Driven Repayment (IDR) plans available, and these are great. They are based solely on your income and not your debt. You don't say how much in Federal loans you have, but depending on your income, it's possible the income driven plan is more than your full repayment amount would be. There's an IDR calculator here. Be aware that the newest version of the PAYE plan counts both your income and your spouse's income in your monthly payment, which increases the payment by three to four times for most middle class people who work. Avoid that plan in favor of an older version of PAYE, IBR or ICR, with ICR being the worst of the other plans. There are effectively no IDR plans for Private loans.
A lot of the negotiation depends on where your loans are, and this is where my knowledge gets hazy. If both loans are in collections, then for the private loans, you might be able to negotiate them down to a lesser amount. I've heard that Federal loans in collections/default prevent you from enrolling in IDR programs, so you have to get them out of collections/default first, and then you might be able to enroll in an IDR plan. But again, if you have $10K in Federal loans, IDR plans aren't going to help you.
I would call my Federal loan servicer before paying a lawyer and see what my balance and options are. If the Federal government is not your servicer (and they probably aren't) you're fairly likely to get bad information, as the other servicers aren't paid much, so they're generally terrible. I would call twice on different days and ask the same series of questions to see if you get the same answers.
Your private loan company is eventually going to sue you. Depending on your situation, you may actually want this to happen, as it might open up the possibility of negotating a lower amount, or wage garnishment that may be better than paying the full amount. If your lawyer doesn't know the particulars of how this works and the strategies to employ, get another lawyer.
Your $1,300 payment is higher than it should be. I know folks with substantially more loans than you who pay significantly less, largely due to Federal IDR plans. If your private loan interest rates are high, you can look at refinancing them at a lower rate, though your spouse MUST be a co-signer and will need impeccable credit, and even then, you may be turned down. This puts your spouse on the hook for your loans, which they may not currently be, depending on whether you took out loans before you were married.
The Federal government is tenacious about recovering student loans, so in all likelihood, you're better off paying those. They're also more willing to work with you on IDR, forbearance, etc. though you may have exhausted that temporarily by being in default. Again, my guess is you get them out of default, and if it makes sense and you need to do it, get on an IDR plan. Avoid the newest version of PAYE.
Private loan companies are not going to work with you or make things easier on you. They won't give you IDR plans, or extend your term or give you meaningful forbearance. My (very weak) understanding there is that collections/lawsuit is a possibility for getting them reduced.
Good luck. I would agree that if you can pay the loans, you should. If you have $50K in cash, it certainly seems like you may have the means to do so. Other people I know with loans like yours or bigger couldn't dream of having that much money. I don't agree with the idea that "you took out these loans, so pay them back, starve and screw you."
So, to answer your question: I would call my Federal loan servicer myself before paying anything to a lawyer. Evaluate the lawyer's promises, experience and your goals, and then decide whether to pay for the Private loans.
Finally, Heather Jarvis is an authority in this area, and she may have some resources or a reference for you.
posted by cnc at 9:25 AM on July 14, 2016 [12 favorites]
I think people's questions about your goals and the lawyer's history are relevant. What are you trying to accomplish? What does the lawyer say they can do for you? Have they done this successfully for other clients?
Be aware that you're not going to get student loans discharged in bankruptcy. People say that it can be done, and outside of permanent disability that leaves you completely unable to work, it's not going to happen. Also, if they were your loans before you were married, your spouse is likely not responsible for those loans.
Federal Student loans have various Income Driven Repayment (IDR) plans available, and these are great. They are based solely on your income and not your debt. You don't say how much in Federal loans you have, but depending on your income, it's possible the income driven plan is more than your full repayment amount would be. There's an IDR calculator here. Be aware that the newest version of the PAYE plan counts both your income and your spouse's income in your monthly payment, which increases the payment by three to four times for most middle class people who work. Avoid that plan in favor of an older version of PAYE, IBR or ICR, with ICR being the worst of the other plans. There are effectively no IDR plans for Private loans.
A lot of the negotiation depends on where your loans are, and this is where my knowledge gets hazy. If both loans are in collections, then for the private loans, you might be able to negotiate them down to a lesser amount. I've heard that Federal loans in collections/default prevent you from enrolling in IDR programs, so you have to get them out of collections/default first, and then you might be able to enroll in an IDR plan. But again, if you have $10K in Federal loans, IDR plans aren't going to help you.
I would call my Federal loan servicer before paying a lawyer and see what my balance and options are. If the Federal government is not your servicer (and they probably aren't) you're fairly likely to get bad information, as the other servicers aren't paid much, so they're generally terrible. I would call twice on different days and ask the same series of questions to see if you get the same answers.
Your private loan company is eventually going to sue you. Depending on your situation, you may actually want this to happen, as it might open up the possibility of negotating a lower amount, or wage garnishment that may be better than paying the full amount. If your lawyer doesn't know the particulars of how this works and the strategies to employ, get another lawyer.
Your $1,300 payment is higher than it should be. I know folks with substantially more loans than you who pay significantly less, largely due to Federal IDR plans. If your private loan interest rates are high, you can look at refinancing them at a lower rate, though your spouse MUST be a co-signer and will need impeccable credit, and even then, you may be turned down. This puts your spouse on the hook for your loans, which they may not currently be, depending on whether you took out loans before you were married.
The Federal government is tenacious about recovering student loans, so in all likelihood, you're better off paying those. They're also more willing to work with you on IDR, forbearance, etc. though you may have exhausted that temporarily by being in default. Again, my guess is you get them out of default, and if it makes sense and you need to do it, get on an IDR plan. Avoid the newest version of PAYE.
Private loan companies are not going to work with you or make things easier on you. They won't give you IDR plans, or extend your term or give you meaningful forbearance. My (very weak) understanding there is that collections/lawsuit is a possibility for getting them reduced.
Good luck. I would agree that if you can pay the loans, you should. If you have $50K in cash, it certainly seems like you may have the means to do so. Other people I know with loans like yours or bigger couldn't dream of having that much money. I don't agree with the idea that "you took out these loans, so pay them back, starve and screw you."
So, to answer your question: I would call my Federal loan servicer myself before paying anything to a lawyer. Evaluate the lawyer's promises, experience and your goals, and then decide whether to pay for the Private loans.
Finally, Heather Jarvis is an authority in this area, and she may have some resources or a reference for you.
posted by cnc at 9:25 AM on July 14, 2016 [12 favorites]
Could you clarify: do you mean that you have defaulted, are in collections, unsure?
By 50k to "kill it," do you mean pay a lump sum and have the rest forgiven? I don't know how likely that is for private loans. But I don't think the government does that.
Definitely work directly with the feds on your fed loan. It won't go away but you can work out a payment plan. (Don't offer them 50k. Say you can pay x per month. Negotiate that.)
posted by kapers at 9:54 AM on July 14, 2016
By 50k to "kill it," do you mean pay a lump sum and have the rest forgiven? I don't know how likely that is for private loans. But I don't think the government does that.
Definitely work directly with the feds on your fed loan. It won't go away but you can work out a payment plan. (Don't offer them 50k. Say you can pay x per month. Negotiate that.)
posted by kapers at 9:54 AM on July 14, 2016
To Lutoslawski's point - if you're in default on your Federal loans, you can't switch to IBR *right away*. You'll need to go through a "rehabilitation" program first, which is an income-based flat monthly amount. You must make all of those payments on time (it can take up to 6 months; for me it took 3.)
[first, sorry for the wall of text coming up!]
Not accurate. If you are in default you can go into what is known as "forced IDR"--basically you agree in advance to enter into a particular IDR plan and then you "consolidate out of default," getting a new loan to pay off the old defaulted one, with the new loan starting on IDR terms (that is, based on your current income, with the remainder forgiven after 20-25 years of payments). Servicers hate explaining this to you, but it's true.
Now, the issue here is the relative fees for each. Regulation entitles the feds to take a fairly whopping percentage (high teens) of the outstanding amount in fees when you either rehab the loan or consolidate out of default. Currently, the feds are waiving the fees w/r/t rehabbed loans and charging smaller fees w/r/t consolidation out of default, but attempting to learn the relative fees involved is a fricking nightmare. I mean that literally I was working in a government office on a project involving student loans and we could not obtain formal statements of the current federal practices.
What I would recommend that you do for your federal loans is call your local attorney general's office. Several states now have people dedicated to student borrower assistance, so find out if you can get that help in figuring out your options first. If yours doesn't, you can also consult the materials put together by NCLC's Student Loan Borrower Assistance Project. But ultimately you need to, and will in the long improve your position by, getting out of default. So you will have to consider whether circumventing the relatively finicky rehab process is worth paying a bit more in fees. Do your best to extract from your servicer what fees you would pay for each, but you may be left with imperfect information before you decide. But don't put off the process. You can bring these payments down! (Why are the feds willing to waive the fees for one route and not the other? Ed, at least the post-secondary part, is a tire fire. That's why.)
With the private loans, it's not clear to me what a lawyer can do for you that's worth $3500 (or, really, about $6000, since they're worth very little on the federal side). On the one hand, they can help insulate you from direct contact with the high-pressure tactics of the special servicers and/or debt collectors while negotiating, and there's some value to that. On the other hand, the private lenders don't negotiate very much. They don't have to. No lawyer can make the debt go away. At a certain point, all you can do is pay them what you can pay them and, if that's not enough, hope that they don't think it's worth suing over. Since the feds do not require lump payments to get out of default, I would prioritize using what cash you have available (leaving yourself an emergency fund! Student loans are more negotiable than your rent!) to reduce the amount owed on your private loans. See if you can get yourself current with what you have and push for the lowest payment they'll settle for. You should explicitly state that you cannot make your current payment and that you expect this inability to be permanent, as this is supposed to affect what you are offered. Note that, upon hearing this, the private loan servicer may offer you forbearance, where you don't have to pay at all. Don't take it (unless it's just a brief administrative forbearance of a month or two while they are setting up your payment plan). Your interest will just accrue and you will come out worse than you would have before. Given your situation, if you prefer to have a lawyer handling these negotiations, for negotiating only the private loans I would maybe offer the lawyers $2500.
Exception one to gloomy paragraph above: based on your description of events, and depending on where you live, it's possible that the statute of limitations on collecting on your private loans may have run. This would require that you not have made any payments at all, or agreements to pay, for several years--anywhere from three to seven and maybe more in some states. This is a point on which you could definitely use good legal advice, because there are a lot of technical issues involved, but, if the statute of limitations has run, then the private lender cannot sue you to collect the money, which means that they are effectively powerless and you can tell them to go whistle. (The defaults on the loans will stay on your credit report until they age off naturally, but they'll do that anyway.) So I would ask them very specifically if they believe that you could assert this defense. If they tell you that they believe you have a good case for doing so, then pay them the $3500 to make sure and to handle the servicer contact, because they are liable to go mad with hate and tell you all kinds of untrue things to try to get you to pay anyway. (I am assuming that this law firm is not a complete scam and would not openly lie to you about what it is reasonably possible to do in your case.)
Exception two to the rather gloomy prospect in the paragraph above is if you got these loans at a shady for-profit school like Corinthian. There has been some relief available to such borrowers and there may be more, if you can demonstrate you were defrauded by the school. But that is a special case and I don't want to write a lot about it unless you are indeed in that position.
posted by praemunire at 11:32 AM on July 14, 2016 [8 favorites]
[first, sorry for the wall of text coming up!]
Not accurate. If you are in default you can go into what is known as "forced IDR"--basically you agree in advance to enter into a particular IDR plan and then you "consolidate out of default," getting a new loan to pay off the old defaulted one, with the new loan starting on IDR terms (that is, based on your current income, with the remainder forgiven after 20-25 years of payments). Servicers hate explaining this to you, but it's true.
Now, the issue here is the relative fees for each. Regulation entitles the feds to take a fairly whopping percentage (high teens) of the outstanding amount in fees when you either rehab the loan or consolidate out of default. Currently, the feds are waiving the fees w/r/t rehabbed loans and charging smaller fees w/r/t consolidation out of default, but attempting to learn the relative fees involved is a fricking nightmare. I mean that literally I was working in a government office on a project involving student loans and we could not obtain formal statements of the current federal practices.
What I would recommend that you do for your federal loans is call your local attorney general's office. Several states now have people dedicated to student borrower assistance, so find out if you can get that help in figuring out your options first. If yours doesn't, you can also consult the materials put together by NCLC's Student Loan Borrower Assistance Project. But ultimately you need to, and will in the long improve your position by, getting out of default. So you will have to consider whether circumventing the relatively finicky rehab process is worth paying a bit more in fees. Do your best to extract from your servicer what fees you would pay for each, but you may be left with imperfect information before you decide. But don't put off the process. You can bring these payments down! (Why are the feds willing to waive the fees for one route and not the other? Ed, at least the post-secondary part, is a tire fire. That's why.)
With the private loans, it's not clear to me what a lawyer can do for you that's worth $3500 (or, really, about $6000, since they're worth very little on the federal side). On the one hand, they can help insulate you from direct contact with the high-pressure tactics of the special servicers and/or debt collectors while negotiating, and there's some value to that. On the other hand, the private lenders don't negotiate very much. They don't have to. No lawyer can make the debt go away. At a certain point, all you can do is pay them what you can pay them and, if that's not enough, hope that they don't think it's worth suing over. Since the feds do not require lump payments to get out of default, I would prioritize using what cash you have available (leaving yourself an emergency fund! Student loans are more negotiable than your rent!) to reduce the amount owed on your private loans. See if you can get yourself current with what you have and push for the lowest payment they'll settle for. You should explicitly state that you cannot make your current payment and that you expect this inability to be permanent, as this is supposed to affect what you are offered. Note that, upon hearing this, the private loan servicer may offer you forbearance, where you don't have to pay at all. Don't take it (unless it's just a brief administrative forbearance of a month or two while they are setting up your payment plan). Your interest will just accrue and you will come out worse than you would have before. Given your situation, if you prefer to have a lawyer handling these negotiations, for negotiating only the private loans I would maybe offer the lawyers $2500.
Exception one to gloomy paragraph above: based on your description of events, and depending on where you live, it's possible that the statute of limitations on collecting on your private loans may have run. This would require that you not have made any payments at all, or agreements to pay, for several years--anywhere from three to seven and maybe more in some states. This is a point on which you could definitely use good legal advice, because there are a lot of technical issues involved, but, if the statute of limitations has run, then the private lender cannot sue you to collect the money, which means that they are effectively powerless and you can tell them to go whistle. (The defaults on the loans will stay on your credit report until they age off naturally, but they'll do that anyway.) So I would ask them very specifically if they believe that you could assert this defense. If they tell you that they believe you have a good case for doing so, then pay them the $3500 to make sure and to handle the servicer contact, because they are liable to go mad with hate and tell you all kinds of untrue things to try to get you to pay anyway. (I am assuming that this law firm is not a complete scam and would not openly lie to you about what it is reasonably possible to do in your case.)
Exception two to the rather gloomy prospect in the paragraph above is if you got these loans at a shady for-profit school like Corinthian. There has been some relief available to such borrowers and there may be more, if you can demonstrate you were defrauded by the school. But that is a special case and I don't want to write a lot about it unless you are indeed in that position.
posted by praemunire at 11:32 AM on July 14, 2016 [8 favorites]
The Billfold ran a really helpful article about what one person did to get out of default with their student loans. There is a follow up one year later too, that covers the relief the author felt having faced the situation. I think it's really helpful because it puts a human face on the process and also maps out that it is generally much, much less scary than we often believe. They will work with you, but you have to open that conversation.
posted by goggie at 11:33 AM on July 14, 2016 [2 favorites]
posted by goggie at 11:33 AM on July 14, 2016 [2 favorites]
(Sorry, I should be clear that telling a servicer that you expect your inability to pay to be permanent is not some magic words that will get you a better offer to settle. Just that there are options, like forbearance, that are really only intended for temporary problems and make matters worse in the long run, and so you need to be clear that your situation is not temporary. People tend to hedge and hem about whether they can make payments or not, and that's not helpful.)
posted by praemunire at 11:52 AM on July 14, 2016
posted by praemunire at 11:52 AM on July 14, 2016
You don't have 50k cash anymore, because you're immediately going to apply that to your loans.
This is awful advice.
If you do throw $50k right at your loans, you'll still have $50k in debt and (presumably) no savings or safety net. You're putting yourself in a very precarious situation. Why would you do this?
posted by paulcole at 12:13 PM on July 14, 2016 [12 favorites]
This is awful advice.
If you do throw $50k right at your loans, you'll still have $50k in debt and (presumably) no savings or safety net. You're putting yourself in a very precarious situation. Why would you do this?
posted by paulcole at 12:13 PM on July 14, 2016 [12 favorites]
One more point: The Consumer Finance Protection Bureau is helpful in getting student loan companies to do stuff. They're not going to help you get out of paying your loans, but they can encourage your servicer or private lender to listen to you and do the things they're legally required to do.
posted by cnc at 12:32 PM on July 14, 2016 [1 favorite]
posted by cnc at 12:32 PM on July 14, 2016 [1 favorite]
A friend of a friend used to service student loans and we were just talking about this the other day!
This person tells EVERBODY WHO WILL LISTEN that the way to go is to pay some small amount monthly and forever. Apparently as long as you are paying monthly, even if it's like $20, they can't go after you in court or send you to collections.
This is not legal advice and I am not a lawyer. I'm telling you what someone who works in the industry advises. You should find out how to legally do this, if it is possible.
I'm just passing this on. YMMV. IANAL. ETC..
posted by jbenben at 12:50 PM on July 14, 2016 [2 favorites]
This person tells EVERBODY WHO WILL LISTEN that the way to go is to pay some small amount monthly and forever. Apparently as long as you are paying monthly, even if it's like $20, they can't go after you in court or send you to collections.
This is not legal advice and I am not a lawyer. I'm telling you what someone who works in the industry advises. You should find out how to legally do this, if it is possible.
I'm just passing this on. YMMV. IANAL. ETC..
posted by jbenben at 12:50 PM on July 14, 2016 [2 favorites]
I had so I threw my hands up in the air and went pretty much off the grid. Now they've found me, and my husband, and my work... etc.
They will ALWAYS find you. Sorry. They're the mob. That's how trying to fund your own education in the US works, if you're poor or lower middle class. I know this from painful experience, and from reading about the experiences of others, some of whom are driven to suicide because they can't escape it. The burden is real, but it's not forever.
I feel your pain. My debt is a lot higher than yours, both private and federal. I gave up the career I went to school for and took on a second career so I could pay them. Can you clarify - what are you looking to get out of this? You have $50K in the bank (good for you!) - would it make sense to pay part of that toward the highest-interest loan, and keep the rest for savings, as paulecole points out above?
This is a life lesson that's really hard, and sometimes life just sucks. I learned the hard way that being an adult means reconciling the seemed-like-a-good-idea-at-the-time decision of your youth ("Yay! Money for education! It's OK, I'll live the American Dream and just work hard and everything will be OK!") with the realities that your life in the present demands. Did you feel entitled then? Do you feel entitled now? My decision to create a mountain of debt partially came from entitlement, because I believed that I was "better" or "smarter" and "deserved" to go to a school with a high price tag. I bought into many foolish ideas about class and success, and made my decisions accordingly. In the end, my loans taught me that my effort to deal with the lower-class hand I was dealt by trying to buy my way out with a high-class education was foolish and immature. Don't get me wrong - I wouldn't trade the education I got and the experiences it afforded me (including moving on from dysfunction and abuse). However, I've learned the hard way that the only way "out" is "through" and I manage my past mistakes by being practical and responsible, which means paying my loans instead of trying to bend reality to match my feelings of being screwed over. And yes, I do feel screwed over. And I don't mean to lecture you. But there are psychological realities behind our decisions, which can rear their ugly heads when managing the consequences of those decisions.
So. Back to your question.
1. Take a look at your motivations before you spend $7K on a lawyer only to find you're now $117 in debt.
My understanding is that you cannot (even in death!) discharge private student loans. I wonder if this lawyer is taking you for a ride? Honestly, I've never heard of people being able to discharge private loans. Ever. I've heard of people settling, but only extreme cases. Certainly not folks who have $50K in the bank.
2. I'm asking the same questions others are - what, exactly, are you looking to accomplish? If you're simply looking for financial direction, a lawyer is not the way to go. A financial advisor who specializes in student loans may be a better bet. And a cheaper one.
3. You identify as an American Millenial, and I'm curious about this. Why would the "Millenial" label matter? What does this mean to you? Your post reminded me of this Dear Sugar question, which may be of interest.
4. On preview - If you do throw $50k right at your loans, you'll still have $50k in debt and (presumably) no savings or safety net. You're putting yourself in a very precarious situation. Why would you do this? The OP would do this to pay down her debt. Which, some would argue that she rightfully should do this, because there are plenty of people who live hand to mouth and don't have any savings to speak of (let alone $50K!) and pay their loans faithfully every month. I'm one of them - and I have significantly more debt than that. Honestly if she settles, part of the settlement would likely be to take every liquid asset she has and apply them to the student loans, which would be the entire $50K.
OP, my apologies if any of the above isn't true or doesn't apply to you, but please clarify so we can all better address your question. Good luck.
posted by onecircleaday at 1:00 PM on July 14, 2016 [4 favorites]
They will ALWAYS find you. Sorry. They're the mob. That's how trying to fund your own education in the US works, if you're poor or lower middle class. I know this from painful experience, and from reading about the experiences of others, some of whom are driven to suicide because they can't escape it. The burden is real, but it's not forever.
I feel your pain. My debt is a lot higher than yours, both private and federal. I gave up the career I went to school for and took on a second career so I could pay them. Can you clarify - what are you looking to get out of this? You have $50K in the bank (good for you!) - would it make sense to pay part of that toward the highest-interest loan, and keep the rest for savings, as paulecole points out above?
This is a life lesson that's really hard, and sometimes life just sucks. I learned the hard way that being an adult means reconciling the seemed-like-a-good-idea-at-the-time decision of your youth ("Yay! Money for education! It's OK, I'll live the American Dream and just work hard and everything will be OK!") with the realities that your life in the present demands. Did you feel entitled then? Do you feel entitled now? My decision to create a mountain of debt partially came from entitlement, because I believed that I was "better" or "smarter" and "deserved" to go to a school with a high price tag. I bought into many foolish ideas about class and success, and made my decisions accordingly. In the end, my loans taught me that my effort to deal with the lower-class hand I was dealt by trying to buy my way out with a high-class education was foolish and immature. Don't get me wrong - I wouldn't trade the education I got and the experiences it afforded me (including moving on from dysfunction and abuse). However, I've learned the hard way that the only way "out" is "through" and I manage my past mistakes by being practical and responsible, which means paying my loans instead of trying to bend reality to match my feelings of being screwed over. And yes, I do feel screwed over. And I don't mean to lecture you. But there are psychological realities behind our decisions, which can rear their ugly heads when managing the consequences of those decisions.
So. Back to your question.
1. Take a look at your motivations before you spend $7K on a lawyer only to find you're now $117 in debt.
My understanding is that you cannot (even in death!) discharge private student loans. I wonder if this lawyer is taking you for a ride? Honestly, I've never heard of people being able to discharge private loans. Ever. I've heard of people settling, but only extreme cases. Certainly not folks who have $50K in the bank.
2. I'm asking the same questions others are - what, exactly, are you looking to accomplish? If you're simply looking for financial direction, a lawyer is not the way to go. A financial advisor who specializes in student loans may be a better bet. And a cheaper one.
3. You identify as an American Millenial, and I'm curious about this. Why would the "Millenial" label matter? What does this mean to you? Your post reminded me of this Dear Sugar question, which may be of interest.
4. On preview - If you do throw $50k right at your loans, you'll still have $50k in debt and (presumably) no savings or safety net. You're putting yourself in a very precarious situation. Why would you do this? The OP would do this to pay down her debt. Which, some would argue that she rightfully should do this, because there are plenty of people who live hand to mouth and don't have any savings to speak of (let alone $50K!) and pay their loans faithfully every month. I'm one of them - and I have significantly more debt than that. Honestly if she settles, part of the settlement would likely be to take every liquid asset she has and apply them to the student loans, which would be the entire $50K.
OP, my apologies if any of the above isn't true or doesn't apply to you, but please clarify so we can all better address your question. Good luck.
posted by onecircleaday at 1:00 PM on July 14, 2016 [4 favorites]
1. They said they probably won't be able to settle the federal (because federal loans don't settle) so should we bother paying them to handle it?
What exactly ARE they saying they can do? Looks like all they're promising to do is take your money (prolly up front).
2. $3500 sounds reasonable. $7000 total. Is it pretty reasonable?
Reasonable for what? If it will save you $7001 or more, sure. If it will get you on a reasonable payment plan, maybe. If it will get you debt-free for $43,000, probably. But consider the fact that student loans can't be discharged in bankruptcy, there's no hardship provision, and the banks have more than enough money that they don't yet need the cash flow (i.e. it's more sensible for them to keep this asset on their balance sheet than it would be to have to write off more than half of the principal, never mind the interest that they can charge you). So what exactly can this lawyer do to fix your situation?
I am so sorry you got screwed. You more than likely had family members and teachers and all sorts of people giving you well-intended advice, and it's not your fault you didn't have the perspective necessary to be able to say, whoa, you want me to tie how much of a boat anchor around my neck? Hopefully this has provided you with some cautious perspective. Please take some of that caution and look very critically at this law firm and what they'll offer you.
(edited to add "Hopefully... perspective.")
posted by disconnect at 1:41 PM on July 14, 2016
What exactly ARE they saying they can do? Looks like all they're promising to do is take your money (prolly up front).
2. $3500 sounds reasonable. $7000 total. Is it pretty reasonable?
Reasonable for what? If it will save you $7001 or more, sure. If it will get you on a reasonable payment plan, maybe. If it will get you debt-free for $43,000, probably. But consider the fact that student loans can't be discharged in bankruptcy, there's no hardship provision, and the banks have more than enough money that they don't yet need the cash flow (i.e. it's more sensible for them to keep this asset on their balance sheet than it would be to have to write off more than half of the principal, never mind the interest that they can charge you). So what exactly can this lawyer do to fix your situation?
I am so sorry you got screwed. You more than likely had family members and teachers and all sorts of people giving you well-intended advice, and it's not your fault you didn't have the perspective necessary to be able to say, whoa, you want me to tie how much of a boat anchor around my neck? Hopefully this has provided you with some cautious perspective. Please take some of that caution and look very critically at this law firm and what they'll offer you.
(edited to add "Hopefully... perspective.")
posted by disconnect at 1:41 PM on July 14, 2016
I really hope you're able to ignore some of the moralizing and ignorant responses included here -- you aren't a bad person for taking out loans, or for having savings, or for wanting to use your money effectively. You aren't entitled or stupid or inappropriately self-pitying or anything else. Shit happened when you were a minor, and now you're dealing with it as best you can.
I was in exactly your situation with private loans -- big loans but significant liquid assets, in default, they found me, I got a lawyer. I did a ton of research in addition to first-hand experience. I don't have personal experience doing the same thing with federal loans, so I'm focusing on the private loans.
1. You're right, federal loans aren't motivated to settle. Don't pay a lawyer to deal with them. Just pay $3500 since they'll only be handling the private loans. This was also my lawyer's upfront suggestion -- what did yours suggest?
2. Very reasonable in NYC, which is where I did all this. You did a bunch of research to find your lawyer, right? He's worked with those companies before? MeMail me if you need a New York State recommendation.
4. Absolutely. Lawyers specialize in this growing field because they can really help. He was able to settle my private student loans for literally pennies on the dollar, even including his fee. Although I have other smaller loans that aren't yet resolved, crossing off the biggest one has been lifechanging.
Also:
- Check on the statute of limitations as discussed above. If it could apply in your case, probably the lawyer would have mentioned the possibility to you already, but ask anyway.
- Your wages won't be garnished and your assets won't be seized without a court judgment, which is a process that takes time. They may be able to get one, but it sounds like they don't have one yet, so for now you can take a breath. And once your lawyer starts negotiating with them, they should stop pursuing that option. So garnishment probably won't happen to you, and if it does, honestly, it doesn't seem like it would be that bad. They can only take 25% of your disposable earnings -- look up the specific definition and do the math, but I bet that's significantly less than your $1300/month was. For me it was a pretty livable amount, and I believed that if they garnished my wages forever, mathematically that would work out fine for me.
- DO NOT just throw your cash at them. It's a huge secret weapon. Don't let them know you have that cash. Tell your lawyer, obviously, but not the banks. And don't give up the cash unless you're seeing real benefits for it, not just applying it to the principal or making regular payments with it. Collectors are surprisingly willing to compromise when you can offer a lump sum of immediate cash even a fraction of that size. Also obviously don't use the whole thing; you need a cushion and an emergency fund and a way to deal with your federal loans too.
- Tax implications are huge. When you settle, you need the collector not to file a 1099C (reporting the forgiven balance as income to you). Make sure your lawyer knows this is a condition of settling.
- Has your collector done any shady shit while trying to collect on your loan? PROBABLY. Tell your lawyer, and have him tell you what to look for (and look up FDCPA on your own, too). It's not a get-out-of-jail-free card, but it can be a good bargaining chip.
Please feel free to MeMail me for more info or just to talk. It can be so hard to get straight-up advice about loans without moralizing or condescending. My lawyer was amazing at that, which was almost as relieving as the settlement itself. I could be honest with him -- totally honest about my debt for maybe the first time -- and he didn't judge me at all that I could see. I cried at a couple points, and he was just so reassuring the entire time. He didn't just remove an enormous financial burden, he also performed so much emotional labor and A++++++ would do it again. Although not all my loans are squared away yet, for the first time I really feel like my future might be financially okay. I think you can get there too.
posted by booksandlibretti at 3:18 PM on July 14, 2016 [10 favorites]
I was in exactly your situation with private loans -- big loans but significant liquid assets, in default, they found me, I got a lawyer. I did a ton of research in addition to first-hand experience. I don't have personal experience doing the same thing with federal loans, so I'm focusing on the private loans.
1. You're right, federal loans aren't motivated to settle. Don't pay a lawyer to deal with them. Just pay $3500 since they'll only be handling the private loans. This was also my lawyer's upfront suggestion -- what did yours suggest?
2. Very reasonable in NYC, which is where I did all this. You did a bunch of research to find your lawyer, right? He's worked with those companies before? MeMail me if you need a New York State recommendation.
4. Absolutely. Lawyers specialize in this growing field because they can really help. He was able to settle my private student loans for literally pennies on the dollar, even including his fee. Although I have other smaller loans that aren't yet resolved, crossing off the biggest one has been lifechanging.
Also:
- Check on the statute of limitations as discussed above. If it could apply in your case, probably the lawyer would have mentioned the possibility to you already, but ask anyway.
- Your wages won't be garnished and your assets won't be seized without a court judgment, which is a process that takes time. They may be able to get one, but it sounds like they don't have one yet, so for now you can take a breath. And once your lawyer starts negotiating with them, they should stop pursuing that option. So garnishment probably won't happen to you, and if it does, honestly, it doesn't seem like it would be that bad. They can only take 25% of your disposable earnings -- look up the specific definition and do the math, but I bet that's significantly less than your $1300/month was. For me it was a pretty livable amount, and I believed that if they garnished my wages forever, mathematically that would work out fine for me.
- DO NOT just throw your cash at them. It's a huge secret weapon. Don't let them know you have that cash. Tell your lawyer, obviously, but not the banks. And don't give up the cash unless you're seeing real benefits for it, not just applying it to the principal or making regular payments with it. Collectors are surprisingly willing to compromise when you can offer a lump sum of immediate cash even a fraction of that size. Also obviously don't use the whole thing; you need a cushion and an emergency fund and a way to deal with your federal loans too.
- Tax implications are huge. When you settle, you need the collector not to file a 1099C (reporting the forgiven balance as income to you). Make sure your lawyer knows this is a condition of settling.
- Has your collector done any shady shit while trying to collect on your loan? PROBABLY. Tell your lawyer, and have him tell you what to look for (and look up FDCPA on your own, too). It's not a get-out-of-jail-free card, but it can be a good bargaining chip.
Please feel free to MeMail me for more info or just to talk. It can be so hard to get straight-up advice about loans without moralizing or condescending. My lawyer was amazing at that, which was almost as relieving as the settlement itself. I could be honest with him -- totally honest about my debt for maybe the first time -- and he didn't judge me at all that I could see. I cried at a couple points, and he was just so reassuring the entire time. He didn't just remove an enormous financial burden, he also performed so much emotional labor and A++++++ would do it again. Although not all my loans are squared away yet, for the first time I really feel like my future might be financially okay. I think you can get there too.
posted by booksandlibretti at 3:18 PM on July 14, 2016 [10 favorites]
Mod note: One comment deleted. Folks, AskMe isn't a place for back-and-forth discussion among commenters, and the OP didn't ask about the morality of payment arrangements. Please stick to practical constructive information; thanks.
posted by LobsterMitten (staff) at 3:47 PM on July 14, 2016
posted by LobsterMitten (staff) at 3:47 PM on July 14, 2016
When you settle, you need the collector not to file a 1099C (reporting the forgiven balance as income to you). Make sure your lawyer knows this is a condition of settling.
Committing tax fraud to get out from under your student loan debts is such an incredibly bad idea I don't even know where to start. Forgiven debt is income. Not having a 1099-C filed doesn't make it not so. ("Your responsibility to report the taxable amount of canceled debt as income on your tax return for the year when the cancellation occurs does not change whether or not you receive a correct Form 1099-C.") Now, it is possible that a person may not have to pay taxes on some or all of it. For instance, insolvency may affect whether it is taxed; also the deductibility of part or all of the interest. But that must be determined individually.
Unless there's something you didn't mention, I'm seriously concerned that your lawyer thought this was a good plan. I would strongly encourage the OP not to do this.
posted by praemunire at 4:11 PM on July 14, 2016 [4 favorites]
Committing tax fraud to get out from under your student loan debts is such an incredibly bad idea I don't even know where to start. Forgiven debt is income. Not having a 1099-C filed doesn't make it not so. ("Your responsibility to report the taxable amount of canceled debt as income on your tax return for the year when the cancellation occurs does not change whether or not you receive a correct Form 1099-C.") Now, it is possible that a person may not have to pay taxes on some or all of it. For instance, insolvency may affect whether it is taxed; also the deductibility of part or all of the interest. But that must be determined individually.
Unless there's something you didn't mention, I'm seriously concerned that your lawyer thought this was a good plan. I would strongly encourage the OP not to do this.
posted by praemunire at 4:11 PM on July 14, 2016 [4 favorites]
Committing tax fraud to get out from under your student loan debts is such an incredibly bad idea I don't even know where to start. Forgiven debt is income. Not having a 1099-C filed doesn't make it not so.
Forgiven debt may be income, but if it were treated as such in this context and with that much money, it would defeat the purpose of settling in the first place, because she'd have to pay so much in taxes outright. Is it possible that the previous poster worked this out another way? Payment plans to the IRS or something?
That would be something to ask the lawyer, if OP decides to go. Maybe get a second legal opinion as well?
posted by onecircleaday at 5:22 PM on July 14, 2016
Forgiven debt may be income, but if it were treated as such in this context and with that much money, it would defeat the purpose of settling in the first place, because she'd have to pay so much in taxes outright. Is it possible that the previous poster worked this out another way? Payment plans to the IRS or something?
That would be something to ask the lawyer, if OP decides to go. Maybe get a second legal opinion as well?
posted by onecircleaday at 5:22 PM on July 14, 2016
Forgiven debt may be income, but if it were treated as such in this context and with that much money, it would defeat the purpose of settling in the first place, because she'd have to pay so much in taxes outright. Is it possible that the previous poster worked this out another way? Payment plans to the IRS or something?
Whether or not you enter into a payment plan has nothing to do with whether you have to report the income. Obviously, the person giving this advice did not go into detail about his/her own situation, so there may well be something going on with him/her in particular that renders it not bad advice for their individual case, but general advice to avoid having income reported that is almost certainly (at least in part) taxable income is useful for one thing only: tax evasion.
The issue of taxability of even cancelled federal student loan debt under the actual IDR plans designed to allow for cancellation is already anticipated to be a problem once people start reaching the end of their 20-to-25-year plans. (Public Service Loan Forgiveness is a special case and cancellation under that program is explicitly exempted from being treated as income.) I actually don't think this is likely to be a big problem for OP, because I am skeptical that OP will be able to settle for "pennies on the dollar," but, to the extent some debt gets cancelled, OP will need to get good tax advice about how much is actually taxable and should definitely not seek to avoid having the cancellation reported to the IRS.
(As a side note, my general understanding is that a debt on which the statute of limitations has run is not considered cancelled, but that's part of what paying a lawyer to deal with that would address.)
posted by praemunire at 6:24 PM on July 14, 2016
Whether or not you enter into a payment plan has nothing to do with whether you have to report the income. Obviously, the person giving this advice did not go into detail about his/her own situation, so there may well be something going on with him/her in particular that renders it not bad advice for their individual case, but general advice to avoid having income reported that is almost certainly (at least in part) taxable income is useful for one thing only: tax evasion.
The issue of taxability of even cancelled federal student loan debt under the actual IDR plans designed to allow for cancellation is already anticipated to be a problem once people start reaching the end of their 20-to-25-year plans. (Public Service Loan Forgiveness is a special case and cancellation under that program is explicitly exempted from being treated as income.) I actually don't think this is likely to be a big problem for OP, because I am skeptical that OP will be able to settle for "pennies on the dollar," but, to the extent some debt gets cancelled, OP will need to get good tax advice about how much is actually taxable and should definitely not seek to avoid having the cancellation reported to the IRS.
(As a side note, my general understanding is that a debt on which the statute of limitations has run is not considered cancelled, but that's part of what paying a lawyer to deal with that would address.)
posted by praemunire at 6:24 PM on July 14, 2016
Yeah, sorry for being unclear. I didn't mean tax evasion as in "in this situation I deserve a 1099C but I want them not to give me one." In my situation there was a way it could be considered differently so that a 1099C wasn't required/appropriate. My lawyer was fine with it, and the collectors' lawyers were familiar with it; they were actually the ones to put it on the table officially IIRC. I'll have to dig out all the paperwork to figure out how it was handled.
In case it doesn't work for the OP -- again, all aboveboard, lawyers on both sides looking at it and comfortable with it -- then it's a good idea to do all the math for insolvency in advance, before you start having your lawyer negotiate. Your war chest may be significantly smaller plus your debt may not end up decreasing so much.
posted by booksandlibretti at 9:37 PM on July 14, 2016
In case it doesn't work for the OP -- again, all aboveboard, lawyers on both sides looking at it and comfortable with it -- then it's a good idea to do all the math for insolvency in advance, before you start having your lawyer negotiate. Your war chest may be significantly smaller plus your debt may not end up decreasing so much.
posted by booksandlibretti at 9:37 PM on July 14, 2016
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I'm not sure I understand what you're trying to accomplish with the private loans. Do you want to make $n monthly payments on them until they're paid off, even if it takes longer than the private lenders would like? Are you trying to get out of paying them off altogether?
posted by schroedingersgirl at 8:35 AM on July 14, 2016 [3 favorites]