Student loan problems
December 20, 2003 8:43 AM   Subscribe

Trying to solve a problem for a dear friend from highschool. She's been ignoring her school loans and came to me out of confidence. They were around 22k about six years ago; She doesn't know how to get herself straightened out. A second job isn't an option (based on her first) as the first job pays well (travel), but is being garnished; She needs a way to get them off her back, but not overwhelm her so much that she drowns trying to deal with them.

I'm ok with money, but I just can't figure out what to tell her.

Are there any counselors who specialize in this that I could send her to? If you're shy about this and dealt with this, please feel free to contact me directly by email.
posted by filmgeek to Work & Money (12 answers total)
Two options spring to mind: file for bankruptcy or leave the country. Neither is very responsible: finding a means of paying it back gradually is probably the best bet. Perhaps the US has an equivalent of the UK's Citizens' Advice Bureaux to help her find a debt counselor.
posted by cbrody at 8:58 AM on December 20, 2003

Are these government loans? I don't believe one can bankrupt out of student loans (I could be totally wrong about that, but I think that's the case.) However, the Department of Education is one of the more understanding branches of the government; I've had to forebear my loans several times for various reasons, renegotiate my monthly payment to a level I could afford. Interest, of course, continues for the life of the loan, but if she really wants to pay it off but just can't afford her current payments, I would suggest that she call the DOE. Not only can they make it easier on her, they probably *will* - they just want their money back.
posted by headspace at 9:04 AM on December 20, 2003

(Addenda: Also, a credit counselor like the CCC, *won't* manage payments for government loans. At least, they won't in Indiana- that may vary by state.)
posted by headspace at 9:05 AM on December 20, 2003

No, you can't bankrupt out of student loans.

I would second the advice to contact the DOE or whoever is holding the loan at the moment, and try to negotiate better terms. They are very likely to agree to anything reasonable, because as headspace said, they just want the money. However, it's good to know your rights and to be prepared in case they try to psych you out, which sometimes happens. (I've had friends describe incredible meanness on the part of these people, but an equal number have had good experiences.)

Some law firms do a "phone in questions" day once in a while as part of their pro bono work. I needed to clean up my credit report--due, in large part, to being too afraid about my student loans and credit cards to contact the lenders and try to work something out--and I got some great advice this way. I just called up on the appointed day, and spoke directly to a lawyer who had no vested interest in the outcome.

If your friend belongs to any unions or professional/community organizations, that might be one place to start looking for this "ask a real lawyer" type of thing. In my case it was something they did through the musicians' union.
posted by Tholian at 9:28 AM on December 20, 2003

Spend some time on Bankrate's website, which offers straightforward advice on all things debt- and money-related. I was able to find an article that seems to address your friend's situation. Anothe article advises how to avoid bogus debt-elimination schemes. There are plenty of other article son there, updated regularly. (No I don't work for them...) Your friend has options, and there are plenty of legitimate groups that can help her, even if it's just advice. Whatever she chooses, it will be difficult--but possible--to dig out from under her loans.
posted by arco at 9:35 AM on December 20, 2003

22k isn't that bad, close to what I finished college owing. I think my payments were around $300/month, which was painful at first when I made like 1200 a month after taxes, but got easier eventually.

Given current interest rates, if she's paying more than a few percent, you might want to look into refinancing them with new lower-interest loans. That'd cut the monthly payments down somewhat.
posted by mathowie at 9:58 AM on December 20, 2003

The lenders all have rehab programs. Call them and ask about getting on them. They are pretty reasonable. You make relatively small monthly payments for a year, and then you're in the lengers good graces -- AND they remove negative stuff from your credit report.
posted by grumblebee at 10:58 AM on December 20, 2003

Tell her to try working something out with her lenders. She'll be surprised how willing many will be to make it work for her somehow.

Also, I'd recommend the Debt Relief Clearinghouse as a great one-stop source that works as an advocate for people with large amounts of debt. They seem to have some leverage with lenders and have a near spotless track record.
posted by marcusb at 11:07 AM on December 20, 2003

I'm concerned about the fact her wages are being garnished. Who is garnishing her wages -- the government or a corporation that bought her debt? How much do they take every month (i.e., how fast will she pay off her loans at this rate)? Is she paying any sort of penalty? She should, at the very least, figure out who and how much she's paying (i.e., principal, interest, fees, etc.) so she can wrap her head around how flexible they may be.

Obviously, she'd have a lot more leverage if her wages were not being garnished. But they may still want to (or have to) play ball.
posted by subgenius at 11:36 AM on December 20, 2003

"Tell her to try working something out with her lenders. She'll be surprised how willing many will be to make it work for her somehow."

That's excellent advice. My wife hadn't paid on her student loan in many years, and when we tried to buy our house they showed up on her credit report. Our lender was going to bail on the financing until I called the student loan lender, asked them how much it would take to pay them off that day, and they offered to knock off all the interest and penalties that had accrued since her last payment. It took a $6K debt down to a manageable $1800, which I paid by taking a loan against my 401(k).
posted by mr_crash_davis at 3:38 PM on December 20, 2003

Is the issue that she has heavy fines or something as a result of the six years?

I ask because I graduated in May, and have $25,000 in loans due- Stafford and Perkins combined. I find it very weird to hear that she's having trouble with them, as my minimum monthly payments are only about $200 a month.

Federal loans have a cap on the interest, and I'm not sure about incremantal late fees, so I guess my question would really be if there's more information about this. Because as one who faces nearly the same amount as her due and doesn't even have the "good job" she does, I'm hard-pressed to see much plight.

I'm not trying to be mean or unsympathetic here, so apologies if it sounds that way. I guess I'm just not sure what the definition of "good" is for her job and her other cost-of-living expenses. From my point of view, it seems the issue for someone with a job and that small a loan (compared to a lot of other friends of mine who graduated) is more about what OTHER things she's got to be paying for, not the loan. And we haven't been told what those are. Have you?

At a minimum, if she's being told to pay much more than I am then e-mail me and I can give you my loan service's contact information and maybe she can call them.
posted by XQUZYPHYR at 6:13 PM on December 20, 2003

Nolo press has a good overview of student loan collections. There are certain ways it's more trouble for the debtor -- holders of student loans don't have to sue you before garnishment, for example, and it isn't discharged by bankruptcy -- but there are also many more wholly legal options available such as a deferment or forbearance. Not so much a get-out-of-jail-free card, they're more like free parking (without the jackpot house rule!). A new feature since my days of student loans, deferments (yes), forbearances (yes) and even garnishment (horrorshow*) is the student loan consolidation [official site].

Basically, garnishment is as much a humiliation as it is an inconvenience. This is a signal (feedback mechanism) to you that you are handling the situation in a suboptimal manner. It turns out that ignoring this problem isn't very good. They can seize your IRS refunds as well as things like a Social Security death benefit. Garnishment isn't something they like to do -- you can avoid it just by quitting, and they have to go through months of restarting the process. Loans in default are a black mark against the agency, the school, and the lender, and people are quite happy to talk with you about other options if you're proactive with them.

This is the best advice about any collections process is that the hammer falls hardest on those who wait for it. The people who call the lender first are seemingly rare enough that they're delighted to work with you.

* The job was crappy enough as it was: $10/hr to sit in a closet "toning" LAN connections, with a certified moron on the other end of a walkie-talkie doing the legwork. No! Put it in port 75, not 57! Then the agency misunderstood garnishment instructions and began withholding 65 percent of my earnings (I've since found this is illegal), leaving me with about $1.25/hr. I quit before I could work it out.
posted by dhartung at 10:54 PM on December 20, 2003

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