my life is in default
December 30, 2005 11:08 AM   Subscribe

I'm in (defaulted) student-loan hell.

I have three lenders. I'm in default with all three. (This is 100% due to terrible decisions and denial on my part. Please feel free to chastise me, but note that I'm well aware of my foolishness).

Recently, one of the lenders tracked me down and I started a rehab program. Then another lender tracked me down, and I started another rehab program. While I was glad to finally be on the road out of hell, my finances couldn't stand the strain. I currently have to borrow money from friends just to pay the monthly rehab fees.

I realized that it was only a matter of time before the third lender found me, and at that point I would be totally screwed. So I took some advice and found a company willing to work with me to get my loans consolidated. I'm in this process now, and once it happens, I will be making one monthly payment that I can afford.

But today, the third lender found me. He left me a message and told me to call back ASAP. I don't know what to do. The consolidation won't go through for 30-60 days. I am totally out of funds. I don't have credit cards. I'm sure I can't get a loan. I don't have anything to sell. If I could just somehow hide out for 60 days, I'd be fine. I'm really scared that if I try this, the lender will garnish my wages, in which case I will not be able to pay the other two lenders, and I will be in double default. Once that happens, I won't be able to consolidate.

Any ideas?
posted by anonymous to Work & Money (18 answers total) 2 users marked this as a favorite
Call him back and explain the situation exactly as you've written it above. If you give him the contact information for the consolidation company and he can call them and verify that your consolidation is being pushed through, he'll probably back off. The consolidation company will pay off your loans in full, so he'll be happy to hear you're consolidating and they'll finally get their money.

Honestly, yeah, you've made some stupid decisions. A lot of people do that. Loan companies are used to dealing with stupid people, and it's a lot better to be a stupid person and be up front about it than to be a stupid person trying to scam them and run away. The third lender will really appreciate you calling him back and being honest and saving him the time it would take to call you 20 more times, send you letters, and take you to collections.
posted by booknerd at 11:20 AM on December 30, 2005

I would call one of the non profit credit counseling services. Check here for ones NOT to call...

From that page is a helpful link about not making a bad situation worse, which recommends

I know this is just telling you where to ask for help, rather than giving you help directly, but I think it's better you listen to an organization that deals with this sort of thing specifically than hear suggestions from a bunch of MeFiers.

At the end of the day, the creditors want to get your money somehow. The goal is to craft a solution that allows you to pay off the debt in a safe and equitable manner that allows you to live and eat (even if it's nothing but Ramen for a while). SOME solution is better than no solution -- nobody wants chargeoff. If your debt is not secured (i.e. you haven't signed your house or something as collateral) - there isn't much they can do aside from ruining your credit rating (which does suck greatly for you) and/or take you to court. They still aren't going to get their money until you give it to them somehow, and if you don't have it.. well.. they get nothing and you become what's called "chargeoff".

So, because your debt is likely unsecured, you can probably come up with an equitable solution through the help of one of these organizations.

Best of luck to you, and it's good that you're acknowledging fault here and taking responsibility. Most people don't.
posted by twiggy at 11:24 AM on December 30, 2005

Time for another job? Seriously. If a paycheck works on a two-week lag, that's at least 28 days before you'll get one. If you get paid bi-weekly, that's three paychecks in hand between now and then. Claim three dependents or whatever to minimize the tax cut.

40 hrs/wk @ $6/hr (McDonalds?) = $480 pre-tax * 3 checks = $1440 pre-tax.

Will they need more than that?
posted by unixrat at 11:24 AM on December 30, 2005

follow the advice of the person who told you to call the third lender back and be completely honest. the lenders will totally work with you to figure out a payment schedule, they just want their money back, they don't really care how long it takes. in fact, the longer it takes you to pay them back, the more money they end up making off of you in the long run, so trust me, they'll work with you.
posted by echo0720 at 11:29 AM on December 30, 2005

Like unixrat said, what are you doing for work? There are tons of extra things that one can do, even with a 9-5 job.

You obviously have a degree - if you have a masters, you can teach in the evenings at community colleges.

Not within your reach? Try working a retail job... not too tiring, like waiting tables can be... but it pays upwards of $10/hour.

It sucks working 60-70 hours a week, but it is doable, especially if you don't have kids to tend to. I did it for years. All of my non 9-5 money went toward debt payoff and it was pretty easy.
posted by k8t at 11:30 AM on December 30, 2005

What you're going to be looking at is a consolidation loan. It will pay off all three lenders, and you will have one(!) payment each month. The c-loan will probably end up with a lower interest rate than the debts you currently have.

Now, you have two choices...find that c-loan yourself or contact a debt-counselling service. Both have their pros and cons. Doing it yourself will mean that your record doesn't have a debt-counselling service's name associated with it, which is a minor tarnish. However, a debt-counselling service may be able to get the capital+interest of the debts you current have reduced (often just reducing the interest that you've accumulated), so you have to pay less in total.

Yes, it sucks. It's not the end of the world, and having gone through it myself, I now have a slightly better-than-average credit rating because I was smart enough to not get myself into that kind of trouble again.
posted by Kickstart70 at 11:34 AM on December 30, 2005

Basic advice: don't dig yourself deeper. Consolidation loans, with their extra fees and higher rates, are probably not the way to go. Be very careful about what exactly you're signing and how much it is *adding* to your debt load.

You can consider bankruptcy. Student loans are hard to discharge (special rules), you have to be really hurting to get rid of them in bankruptcy, but you can try it.

Otherwise, you can negotiate with the three lenders. Don't make agreements with them you can't keep. If you can only afford $20/month, don't make agreements to pay more than that.

You didn't mention your state, but wage garnishments are generally limited to about 25% of disposable income (after food and rent and taxes). So that's the worst that can happen if you're subjected to a garnishment order. (Your credit is already shot for a while, so don't worry about that.) You should probably try to work out a deal with the lenders that involves you paying, say, 30% of your disposable income to them (total). That should be manageable, and it's more than they could get from pursuing garnishment. The problem comes if that amount does not cover the interest on the loans, in which case you're well and truly screwed.
posted by jellicle at 11:37 AM on December 30, 2005

Consolidation loans, with their extra fees and higher rates, are probably not the way to go.

In my experience, my consolidation loan was considerably cheaper than the interest on my existing debts, and there were no additional fees.
posted by Kickstart70 at 11:48 AM on December 30, 2005

get the sept. of ed to buy back your loans...
posted by ewkpates at 12:08 PM on December 30, 2005

Not within your reach? Try working a retail job... not too tiring, like waiting tables can be... but it pays upwards of $10/hour. - k8t

Where the hell do you live that retail jobs pay upwards of $10/hour? Geez. Around here only management makes that much in retail, and you won't get a retail management job as a second job. Maybe it's different where you live, but wow you just blew my mind.

That said - if you have looked carefully at the consolidation loan and are sure it will be a better deal for you, call Creditor # 3 and be completely honest as outlined above. Creditors are more cooperative when you are making an honest attempt to cooperate and be honest with them.
posted by raedyn at 12:11 PM on December 30, 2005

Sounds like you're bankrupt. You should file for bankruptcy.
posted by delmoi at 12:17 PM on December 30, 2005

(at least that's my experience working in a tax collections office. YMMV depending on the creditor I suppose)
posted by raedyn at 12:17 PM on December 30, 2005

Where the hell do you live that retail jobs pay upwards of $10/hour? Geez. Around here only management makes that much in retail and you won't get a retail management job as a second job. Maybe it's different where you live, but wow you just blew my mind.

Even Wal-Mart pays $9.50 in Chicago and other big cities, it's not that rare. Around here you would expect a low-paying crap job to pay at least $7.

And what about industrial work? They'll pay between $10 and $15 for factory work, check with Manpower if you want another job, although they probably won't have too much in the 5-11 timeslot. It's worth a shot if you're up for it.
posted by delmoi at 12:24 PM on December 30, 2005

Like Kickstart, I've found that consolidating student loans was exactly the thing to do. Anon, I was in pretty much the same boat as you about 9 or 10 years ago (plus had fucked up on several credit cards and other loans too!). But once I was able to get the Dept. of Ed. to buy them all and set up a new payment plan, I finally got on the road to financial responsibility. I would strongly suggest you NOT declare bankruptcy (it's really, really a choice of last resort, and the new bankruptcy laws are pretty harsh) and do NOT try to negotiate new rates with the original lenders in lieu of consolidating -- if things are as bad as you desribe, it's likely entirely too late for that, and you may very well spend extra years paying interest on top of late fees on top of interest.

So, yes, you are on the right track with consolidating Loans 1 and 2 (provided, of course, you've consolidated them with a reputable company at a decent interest rate). In the meantime, I absolutely concur with the advice to call back the folks on Loan 3 immediately and tell them exactly what you're doing in terms of Loans 1 and 2 AND how they can contact the consolidation company to verify this AND that you intend to consolidate Loan 3 as well. They will see that you are finally showing good faith in repaying, and may very well take any payment you can make in the meantime or even grant you another grace period until Loan 3 gets consolidated too.

And yes, I'd suggest getting a second (or third?) job, even if just for a few months, to start getting a little more cash in hand; I worked three jobs at one point after grad school to get out the hole I was digging, and while it sucks for awhile, it certainly sucks less than the fear and anxiety you're feeling now.

Best of luck. You'll get this taken care of soon, from the sounds of it. And yeah, your credit's probably shot for awhile, but believe me: if *I* can eventually earn excellent credit again after fucking up my finances so bad after grad school, then there's hope for you. ;) Email's in profile if you'd like to chat more.
posted by scody at 12:25 PM on December 30, 2005

delmoi it's nearly impossible to discharge student loans from bankruptcy. Slate or some online magazine did an article a while back about a man working several jobs, living in very spartan conditions and the judge ruling that his cat was a luxury and he could be using that money to pay back loans.
posted by geoff. at 12:25 PM on December 30, 2005

My retail job that paid about $10/hour was in Vermont at a mall... normal clothing store. No comission.
posted by k8t at 1:47 PM on December 30, 2005

If your consolidation on the first two loans hasn't gone through yet, look into the William D. Ford Direct Loan program through the U.S. Department of Education. They used to offer an income-contingent repayment plan in some circumstances, and that seems to be very unusual. I'm not sure what the eligibility requirements are now, though, and the website is not that great. Maybe a credit counseling service or someone at the US Dept. of Education can let you know how this will work with your current application for consolidation.
posted by dilettante at 3:37 PM on December 30, 2005

I read your post as indicating that you are consolidating all three loans, correct? In that case, yes, just call them back and tell them you are consolidating, and give them the dates and info about when they will be paid. Probably that will do the trick.
posted by litlnemo at 5:09 PM on December 30, 2005

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