My tax returns are being sucked up by unpaid Stafford Loans that have long disappeared from my credit report. If I offer to pay the whole thing off, what can I expect?

May 17, 2007 6:24 PM

Repaying Stafford college loans that disappeared from my credit report (due to age), but still collect all tax refunds - what kind of hit might I expect on my credit, reactivating the account by a full-payoff? More importantly, what kind of deal can I propose to avoid all the interest? Anyone have experience with this?

I've completely blown these people off, so I'd be popping up, after over ten years, offering to close the account. I received an offer about two years ago to repay half of the entire debt to completely close it out. Considering the amount of interest over the years (over 15 years of interest has accrued), I'm afraid if I offer to pay it off, they'll want WAY more cash than I can pay.

My goal is to get debt out of my life, even debt that has disappeared from my credit report. But I don't want to go through more and more years of bad credit due to reactivating this account with activity.

I don't want to continue to lose my tax refunds to this account, which can sometimes be over $5,000/yr. What should I do?

posted by ValveAnnex to Work & Money (4 answers total)

I don't think they add an item to your credit report for paying it. You would have to request that. At least that's true in Canada. I paid off my student loans a year and a half ago and when I checked my credit report recently all that was noted was that they had requested my credit report a couple of years ago (when it was handed off to them from another agency.)

IANAAmerican
posted by loiseau at 6:34 PM on May 17, 2007

Hmmm. A few points of advice:

1) They already have your number - your SSN, that is - so there's essentially no escaping this debt without leaving the U.S.A. or dying. In fact, I would suppose that the Feds have already paid off the original lender, so your debt is actually to the Federal government (Department of Education) now? For most types of debt, you would be free and clear now - the debt would be null and void by the time that has passed. But the Dept. of Education can keep taking your tax refunds forever, I believe.

2) You might as well talk to them and see what sort of deal they're willing to offer. A negotiation is a negotiation - there's no right or wrong answer. Offer them 10% of the amount - can you pay that much? If they agree to accept $X in full satisfaction of the debt, then that's it, you're both happy and the debt is discharged. (Bad debt is often sold for only a few cents on the dollar, so if you offer to repay ten cents on the dollar, that may well be acceptable against an otherwise uncollectable account.)

3) Failing that, you might as well make sure you don't have any refunds coming in the future. Put in a new W4 form with your employer and request less withholding (i.e., more exemptions on the form). This will cut down your tax refund, and thus cut down the amount that the student loan people can seize.

4) If you were to agree to a payment plan, and then not keep to the plan, that would reopen the debt - essentially you'd be creating a new debt by agreeing to the payment plan. But otherwise I don't think it can reappear on your credit report.
posted by jellicle at 7:08 PM on May 17, 2007 [1 favorite]

i had outstanding student loans for years and years... playing the keep moving game. i finally had a real job, and when they caught up with me i told them to send me something in writing via regular mail.... they did, and i paid them.

fast forward to a couple of years later... when i went to buy a car, i fell into the 'you have no credit history' type situation, i gave them like %50 in cash and they ignored the non-credit situation. nothing bad happened. and still a few years later when buying another new car, the only thing on my credit report was my previous car loan.

at least in my situation, after more than 10 years of not being in a positon to pay off student loans.. when i finally became able to pay, and they caught up with me, i paid them and i've not noticed any negative repercussions. only the positive outcome that they're no longer looking for me...
posted by zengargoyle at 8:57 PM on May 17, 2007 [1 favorite]

Response by poster: These are just the types of things I was hoping to hear about. I think I'll offer them a settlement of 10-20 %, all cash upfront, more if I run into dialog about credit report dinging.

I sure hope others spot this question soon, and pipe in.
posted by ValveAnnex at 1:30 PM on May 18, 2007