Student Loan default for the second time
March 18, 2014 5:51 PM   Subscribe

I'm 38 and I graduated in 1997. I've defaulted on my student loans twice. Maybe three times? They're direct student loans. I consolidated my loans in circa 2001 and paid on them responsibly for maybe 10 years. I think I messed up again about a year ago and rehabilitated them and got out of default. But now I've failed on that rehabilitation and my loans have been sent to a recovery agency.

I really suck at this. I get scared and overwhelmed and then I panic and avoid the whole thing. It's a nightmare of a vicious cycle.

I understand that loan rehabilitation is a one shot deal. So that's not an option. What does that leave? Working with the collection agency? Those guys really scare me.

Right now, I'm supporting myself and my partner on a modest income and I don't see how I can make payments until my partner finds a job.

I work in social services and currently work for a non profit. I've been here 6 months. My previous job was 5 years at a for profit service provider agency. The ten years previous to that, I worked for non profit agencies. I don't know if that matters. I know that there is a kind of student loan forgiveness for social service employees but since I'm in default again, it probably doesn't matter.

Do you know where I should start? I'm afraid to call the collection agency but if that's the only starting point, I will make myself. How do I get them to work with me instead of just insisting that I pay them money I can't afford? How long until they garnish my wages?

I don't think I'll ever be able to get on top of this and trying to always feels shameful and hopeless. But I'm not looking for emotional support or suggestions for therapy. I've addressed this issue in therapy before and I really just need someone to sort out the details and help me make an action plan to prevent garnishment or legal action.
posted by dchrssyr to Work & Money (8 answers total) 5 users marked this as a favorite
Response by poster: Oh. Yeah. My student loan debt is somewhere around 28,000. I got it down to 20,000 once but since default it has increased again.
posted by dchrssyr at 5:55 PM on March 18, 2014

The student loan forgiveness is only for people who graduated in the late 2000 and beyond (I'm unsure of the year).

You can probably work with the agency to pay the principle... but student loans aren't dischargeable so they may want you to pay everything. I would try to find someone who has experience dealing with this kind of debt for the best advice and to help you follow through.
posted by AlexiaSky at 6:48 PM on March 18, 2014 [1 favorite]

Ignoring the problem isn't going to make it go away, ignoring the problem is only going to make it worse.

You may find this essay helpful. Note particularly the last lines: "This experience has taught me that we—myself and the roughly 6.8 million student borrowers who have found themselves in default—have options. All we have to do is make a decision to do something about it, and then, simply pick up the phone."

I do not know for certain given your second default, but federal loans in default are generally eligible for consolidation. Once you consolidate, you may be able to potentially work to do income-based/income-sensitive repayment plans. (Regardless, once you have things back on the right path, I'd recommend you set up some sort of automatic payment if you can manage--that way your payment comes out automatically and you won't be skipping months and getting into a bad spiral again.)

Is it possible you get a rude and mean person at the collection agency? Sure. But it's also possible you get someone who is polite and helpful and will let you know what you can do with your account. Rude or polite, neither is going to be worse than the agony of uncertainty. This call is going to be nowhere near as scary as it has become in your head, and it will only grow scarier the longer you put it off.

Your action plan to avoid garnishment or legal action is to pick up the phone and call whomever holds your loans. You can try the Department of Education first to have a sense of your options, but likely they will tell you to contact the outfit that holds your loans as they are the ones who can go over your options, they are the ones who can offer a path forward. The sooner you call, the sooner you start getting this under control again. Good luck.

(I am neither a lawyer nor a debt counselor and this is neither legal nor debt counseling advice.)
posted by HonoriaGlossop at 6:56 PM on March 18, 2014 [1 favorite]

While I don't think it is worthwhile to file bankruptcy over this amount of debt, student loans are indeed able to be discharged via bankruptcy if you had other debts that would make this a fiscally responsible choice.
posted by Brent Parker at 7:37 PM on March 18, 2014

How do I get them to work with me instead of just insisting that I pay them money I can't afford? How long until they garnish my wages?

I'm in much the same situation: struggling to pay back student loans, hit-or-miss whether I actually can get my payments in. Here's my experience, so take it with a grain of salt:

On #1: there's not much you can do but stick to your guns regarding how much you can pay. One key piece of terminology that has actual bearing on your loan status is "willingness to pay". If they ask you to pay an amount, and you say no, they write down "unwilling to pay", which puts you further down the bad path that you're already on. Start sending them payments that you're willing to pay, now; underpayment and nonpayment are two different things, the second one is worser. It won't fix anything, but it will slow down how worse it gets. If they see payments are coming in, you might soften somebody's heart.

On #2: It might be a ways off, especially if you're still on speaking terms with them. You'll get notice of it happening, but Student Loans aren't like a personal loan garnishment; the law says student loans can simply decide to garnish you without a court's order, so there's not that much notice. I was garnished for a while, it sucked. In my case, the garnishment amount was lower than what they were asking for as a monthly payment, given my low income at the time. I believe it *is* possible to dispute the garnishment amount based on your expenses, but it's not a slam dunk.

Collection people can be major assholes, making personal jabs and generally being unhelpful jerks. The problem is, if you just hang up on them, they mark you down as refusing to cooperate and things get worse, which is probably their objective because just garnishing you is easier than negotiating. Build a hard shell and ignore their meanness, and/or ask to speak to someone else about setting up payments, and/or ask to speak to a supervisor about how unhelpful they are in getting payments set up, or otherwise focus on setting up payments you can afford. Focus on that goal of getting payment arrangements set up, make it your only goal, let everything else that you're afraid of roll off your back. It might not succeed 100%, but it at least puts you on the offensive, rather than feeling defensive and like a loser, and it might end up working in your favor. I'll admit, it hasn't worked 100% for me, but for a couple years I was at 0% success, and that sucked.
posted by AzraelBrown at 7:40 PM on March 18, 2014

That thing about bankruptcy is... misleading, to say the least. Yes, it's possible to get them discharged. It is, however, something that generally requires them to find that you have no chance of ever paying them back. The amounts involved are usually at least six figures and the debtors are often disabled. It's not really applicable to your situation. What may be applicable is that if you have other debt that is making it hard to keep up on your student loans, getting rid of THAT might still help you.

If it's really just your income, I agree, make sure you're at least paying them something immediately. Good faith effort. Do you have a budget? Make a budget. Be ruthless about your budget. Where are you falling short, and exactly how much can you possibly find to go towards this? You need to know specifics. Details are what's going to help you get out of this. If you can be ruthless with your budget enough to find some amount of money to send them now, as soon as your partner is working again then you'll be able to make serious progress on it.

Even if they garnish you, that will not be the end of the world. You won't die of it. So just take some deep breaths, get your info together, and actually figure out down to the dollar what your situation actually is. Pay what you can, communicate to them the limitations of your current situation, and once you have more money coming in, be aggressive about not just catching it up but paying it off.
posted by Sequence at 8:19 PM on March 18, 2014 [2 favorites]

Echoing Sequence's advice: it is highly unlikely that you could discharge your loans in bankruptcy. $28,000 is really not that bad. Talk to the servicer and work out a payment plan that you can meet.
posted by ewiar at 6:35 AM on March 19, 2014

Having just spoken to the collection agency that has my ~70k in defaulted loans, I can say that they are very willing to work with you. There have been some changes in laws regarding credit collection, as well as a better way to get on an income-based repayment plan. I was like you too, always just avoiding. I feel a million times better since they've set me up with something entirely reasonable.
posted by waitangi at 9:39 AM on March 19, 2014 [1 favorite]

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