Real help for Private Defaulted Student Loan
I'm posting this for anyone who would like to go back to college but
can't get student aid because of a defaulted student loan from the past.
This will help those who are interested in going back, but cant
afford to pay the defaulted loan off at this time.
I fould a site where you can apply for a "Consolidation Loan", and can
be approved, regardless of current income, credit report and even if
you have a student loan that is in default!
For more info, Go to:
http://loanconsolidation.ed.gov/faq.shtml#default
To apply, go to:
https://loanconsolidation.ed.gov/appentry/appindex.html
I know it sounds impossible, but I did it and will be starting college
on Jan. 8th.
I searched for a long time for this info and hope it helps someone else.
thanks for this information. Apparently this is part of an
effort by the Clinton administration to make college more affordable
and save students $600 million over a five-year period. Major banks
have sued the administration to stop the program, on grounds that this
places the banks at a competitive disadvantage vis-a-vis the
government. See http://www.ed.gov/News/001215.html.
My first regret is that plan has only become available relatively
recently. There would seem to be some risk that the new Bush
administration will wipe it out. I don't know that they will; I only
know I heard some talk about eliminating the Department of Education,
in which case it seems unlikely that this plan would survive.
After reading this site, I had some questions, so I clicked on "Contact
Us." The site popped up a little note, which I appreciated, indicating
that the information I was about to provide might not be secure on the
Internet. The note said that I could instead call the Department of
Education at 800-557-7392. Of course, some people might be reluctant
to call an 800 number, knowing that the company paying the bill for
those 800 calls (in this case, the DoE) can then review the list of
phone numbers from which these calls are made and could perhaps provide
those numbers to bill collectors or lawyers.
According to the site, if you presently have defaulted loans, you can
qualify for a consolidation loan by making a "satisfactory" repayment
agreement with your current loan holder or by agreeing to repay the
loan under the Income Contingent Repayment Plan. Since most struggling
borrowers are well aware that everything would be fine if only they
could maintain a "satisfactory" repayment plan, the Income Contingent
Repayment alternative may be especially interesting for some readers of
this newsgroup.
One of the questions I had was this: am I correct in reading this
website as saying that collection costs will be capped at 18.5% of the
outstanding principal and interest on the loans being consolidated? If
so, that could go far toward meeting the objections of borrowers whose
loan amounts have increased by 50% or more solely because of inflated,
bogus collection fees.
On the other hand, it appears that signing a consolidation loan
agreement might eliminate any future option to challenge your
collection fees. This matters if (a) you think your actual collection
fees should be less than that 18.5% figure or (b) your loans are not
Direct Loans or FFEL Loans, in which case there is no 18.5% cap.
Under the Income Contingent Repayment Plan, your maximum repayment
period is 25 years, starting now. After that, any portion remaining
unpaid will be discharged. Interest continues to accumulate right up
until the end of that 25 years or until the loan is repaid, whichever
comes first. You (and your spouse, if married) agree to let the IRS
inform the DoE of your (and your spouse's) income. Apparently the DoE
will then decide how much you can afford to pay. The maximum payment
will be 20% of your combined discretionary income.
Discretionary income is defined as the difference between your Adjusted
Gross Income and the poverty level for your family size. Adjusted
Gross Income on an ordinary tax return is basically your gross income
minus (a) your deductible contributions to an IRA, (b) student loan
interest deduction, (c) medical savings account deduction, (d) moving
expenses, (e) certain self-employment expenses, and (f) alimony.
There are different poverty levels, and I'm not sure which one they
use. For purposes of discussion, I will use the one in table 762 of
the 1999 Statistical Abstract (see
http://www.census.gov/prod/99pubs/99statab/sec14.pdf). If you are a
family of one under age 65, your poverty level was $8,350 in 1997, and
was increasing at a rate of around 2-3% per year, so let's say it will
be somewhere around $9,000 this coming year. The poverty level for a
two-person household might be around $11,700; I'd guess $13,800 for
three people, and $17,700 for four.
Now, there are many interesting people who earn less than $20,000 per
year. I believe Ralph Nader's salary may still be less than that, as
are the salaries of certain lawyers, medical professionals,
schoolteachers, ministers, and others who could not have gotten their
jobs without a college degree. I appreciate the Income Contingent
thing as a well-intentioned first step; I am just not sure how far it
goes toward the actual situations of people who are struggling with
their student loans. As you say, it did work for you, and I certainly
hope it works for others.
On the other hand, if a person's reason for not being able to keep up
with their student loans is that they didn't obtain a marketable skill
from their college education, or if you're in bad health or for some
other reason aren't having much luck finding and holding a steady job,
presumably you would not have to make any payments if your own income
keeps you down around the poverty level and/or if you are homeless or
are supported by parents or some other person.
Exception: if the person supporting you is your spouse, as is the case
with some people I have talked to, then you run into a whole new kind
of marriage penalty. Basically, your spouse faces a choice. If s/he
has student loans, s/he doesn't have to consolidate them with yours,
but the fact that s/he is making payments on his/her own student loans
will not alter the fact that 20% of his/her discretionary income will
still be required for your student loans. If the combined burden of
two sets of student loans would be too much, s/he could include his/her
student loans in the consolidation plan. This would limit his/her
total student loan payments to the ceiling of 20% of discretionary
income. Problem: if you do this, each of you will then be responsible
for repaying the full amount of the combined consolidation loan, even
if you become separated or divorced or if one spouse dies. This
creates a market for divorce insurance (if there is such a thing). Or
perhaps it just creates a market for divorce.
At this point, I'm thinking of a guy I was talking with a little while
back. His student loans, with fees and penalties and interest, are
over $100,000. He has a job paying approximately minimum wage. But
his wife has a decent job. I don't know her Adjusted Gross Income, but
let's say it's $35,000. I don't know if he has kids, but let's assume
not. $35K minus a $12K poverty level equals $23K; therefore the wife
would be tapped for about $4,500 per year if they agree to a
consolidation loan for him. So in addition to feeling useless for
making no money and having mental health issues, he makes his wife pay
$400/month for his student loans? I don't think so!
I can see the benefit of getting out of default status, if you want to
be able to go back to school and qualify for more federal loans, and if
you think that more schooling will help you pay for all this. But if
you're just a working person, or a wannabe working person, I'm not
entirely sure this consolidation thing is better than having your wages
garnished. Probably depends on your income, and on the laws of your
state covering garnishment. I guess it may also depend on whether your
payments will ultimately fail even to keep up with the interest on your
loans.