How do I keep a delinquent student loan from ruining my life?

March 2, 2006 4:15 PM

One of my private student loans ended up as delinquent (I disputed the repayment status with the lender). Finally, I was forced to settle, because the lender charged off the loan to a law firm who filed suit. (Please read on.)

I settled with the firm, because I plan to take a bar in the near future and do not want to have a judgment in court against me, because it is bad enough to have a delinquent student loan (I hope that was the right decision, but that is another story). At any rate, other than that, my credit is generally good (a couple of late car payments, but that should be it). But I absolutely hate having this stigma of delinquent loan on my credit history; it causes me extreme amounts of anxiety. Further, it is crappy that there is nothing I can do, because, it turns out, the loan was ineligible for deferrment because it was private. What is worse is that the lender should have told me that outright so I would have stopped the dispute and forked up the cash -- instead they were hard to get ahold of and ambiguous in their responses.

But all of the crucial documents get sent to my parents' house, which, now I know is not a safe place for my important things to be sent. My questions are (a) what does this delinquent loan status mean for my future credit potential (i.e. when will I be approved for a house loan and can I consolodate my loans), and (b) how do I stop feeling so anxious all the time about money and creditors, and (c) is a delinquent student loan grounds for denial to take a bar examination? Please help.

posted by orangeshoe to work & money (12 comments total)

It'll depend on the state, but the delinquent loan probably won't stop you from being able to take the bar now that it's settled. You'll need to provide an explanation on your bar application, though.
posted by dilettante at 4:24 PM on March 2, 2006

That's what I hoped...it is generally issues dealing with bad moral character that count as grounds for denial, correct? I would assume many students are unable to pay loans back while in school, in which case it would be entirely evil to preclude them from taking the bar -- so they could find a way to get their finances back in order.
posted by orangeshoe at 4:27 PM on March 2, 2006

Haven't you already completed Character & Fitness, or the equivalent in your state? In Illinois, we're encouraged to do that the first year of law school. The sooner you do that, the sooner you'll know how it affects your eligibility for the bar - but read through the application and all the addendums to find out if/how delinquency affects your eligibility. I doubt it will; I have a friend with more than 50 unpaid parking tickets who was still able to take the bar (though she failed, but that of course was unrelated to the tickets).

If you tell me what state you're in, I can help you do some research and find more information. It's a crappy position to be in, but you should be able to explain everything away. It's not like you murdered someone and are now trying to become a member of the bar.
posted by MeetMegan at 4:29 PM on March 2, 2006

it causes me extreme amounts of anxiety.

Step 1, get over it. In seven years, the record will be gone, regardless of what you do.

Step 2, don't create a pattern of credit issues, and a single problem won't hurt you deeply. Address the issue as well as you can now, and if you have a legal career up and running well down the road, and a student loan is your only issue, you'll have very little future trouble, if any.

And I would venture a guess that a significant number of lawyers start their careers with student loan issues out the wazoo.
posted by frogan at 4:33 PM on March 2, 2006

sorry for the double post ... browser hiccup
posted by frogan at 4:33 PM on March 2, 2006

Does the settlement state what status this will be reported as? If it's "paid/satisfied" or some other neutral/positive, then hopefully it'll only take 2 years (from the month you were last overdue) for the negative to disappear.
posted by nakedcodemonkey at 4:52 PM on March 2, 2006

You have the right to place a statement of 25 words or less on your credit report to dispute or explain any delinquency or bad mark.
posted by lambchop1 at 6:46 PM on March 2, 2006

Take a second and consider these two things you said:

I absolutely hate having this stigma of delinquent loan on my credit history; it causes me extreme amounts of anxiety.

and

there is nothing I can do

Do you see the logical disconnect in your anxiety over something that you are powerless to control? Make a conscious decision to stop obsessing over things you can't control and start worrying about things you can.

I'd advise against making a statement for your report. Nobody gives a damn about them and they don't impact the FICO score that is pretty much all anybody cares about. When you get to the point where you're going to buy a house, the only time an actual human will pay any attention to your report, you'll have all the opportunity you want to make statements. Not that they'll matter.

If you don't have any remaining unpaid entries on your report it's pretty likely you could walk out the door right now and get a loan, presuming you have an income. The impact is going to be on the interest rate you get and the more time that passes with no problems on your report the better your situation will get. As frogan says, in 7 years it's gone completely (or theoretically anyway, the credit reporting agencies don't always follow the rules about removing derogatory info without being prodded).

Depending on what really happened with your debt here (was that law firm acting on behalf of the original creditor or were they a junk debt buyer or working for one?) you may have more to deal with in the future. You should hie on over to Art of Credit and read some of the posts by FlyingIFR on the difference between creditors and JDBs, charge-offs etc etc. There's even a few threads in there from someone dealing with a much worse situation than yours and having to not only negotiate the travails of collection agencies but do so in a way that wouldn't cause him issues with the bar committee.

Just don't beat yourself up over this. It's not a brain tumor, it's a bad mark in a computer somewhere and there's lots of ways to deal with it, particularly for an attorney. People with way worse situations and prospects manage to go out and live happy lives and own homes.
posted by phearlez at 7:56 AM on March 3, 2006

Some of your posts are really making me feel better. Thanks.

Does the settlement state what status this will be reported as? If it's "paid/satisfied" or some other neutral/positive, then hopefully it'll only take 2 years (from the month you were last overdue) for the negative to disappear.

Is the above really true? I'm not sure, I have not gotten the settlement as of yet, but I think it should indicate that it is being taken care of. If so, I might be able to remove the mark from my credit report sooner? Any information would be highly appreciated.

Oh, one more thing...how do you even figure out if you have unpaid parking tickets? I feel like I might have some somewhere that I don't even know about! Geez, this bar application is going to kick my butt.
posted by orangeshoe at 3:07 PM on March 3, 2006

That art of credit website is not working, by the way.
posted by orangeshoe at 3:10 PM on March 3, 2006

I might be able to remove the mark from my credit report sooner?

No. You have no power to remove correct information. It sounds like you have an exaggerated sense of the power of a credit report over you, and your power over it. If you haven't read yours before, that may be the most illustrative action you can take. It's free.

There are different parts of the credit report; for each account, there's info that rolls off after 24 months; info that rolls off after 5, 7, and 10 years; and some that can be reported pretty much indefinitely. Ideally, you want any formerly-overdue account to be marked as "Paid in Full" or "Satisfied" as a condition of your settlement. Or if one can get it to that status before it hits collections, then as the overdues drop off the 24 month history, it's virtually invisible. Once a debt goes to collection or charge off status, though, it's 7 year info. But don't let that scare you! Because that clock started at the date of last activity, likely when you last paid.

The mere existence of a negative on your report is less important than how old the negative is. A bankruptcy shows for 7-10 years, but even then a person's score rebounds after 2 or so years and they can usually get a mortgage within 4 years.

Your debt is old, and settled. Points in your favor! Check your reports -- if any are not yet reporting that payoff or have moved up the "last activity" date, just request a correction. When all 3 list it as paid/satisfied, pull your FICO score. Betcha it's a lot higher than you're imagining.

Debt collection is all about intimidation, preying on your ignorance and especially your fear. The more informed you become, the less scary this will be. I've been in your shoes. Fear is their weapon. You've already paid this debt, and are still turning their weapon on yourself. Hon, stop torturing yourself. You don't deserve it.

Big hug.

-ncm
posted by nakedcodemonkey at 7:20 PM on March 3, 2006

I admit I am not knowledgeable about credit matters, but I do not like being party to a suit, even one that was settled. I just hope things look up from here. I guess one good thing that comes from this is learning my credit lesson early in life, so I can prevent future ones from occuring. Thanks so much for all of your advice. If anyone has any other information, I remain open to it.
posted by orangeshoe at 9:08 PM on March 6, 2006