Charged off Student Stafford Loan???
I am having a continuing problem with a set of loans from a local
credit union. I live in Colorado. The loans started off as Subsidized
Stafford Student Loans for the 1994-1996 school years. The credit
union apparently made some sort of violations when filing for the
interest with the Department of Education. Around December 2000 the
credit union was removed from the Federal Family Education Loan
Program(FFELP) and the Guarantor of the student loans ended the
insurance on them.
I have been repeatedly told that at that point the loans were no longer
Federal student loans. They became private bank loans. I have been
refused assistance from the Department of Education Ombudsman and I am
unable to consolidate the loans with the rest of my student loans.
In 1998 I withdrew from Full-Time school and the grace period expired;
the loans should have been in repayment at that time. I later
continued half-time attendance and graduated in May 2001. I should have
immediately entered into repayment after graduation. After graduation
I should have had two deferments for Half-Time attendance. I was not
in financial condition to pay on the loans until late 2004.
I was considerably delinquent with the loans and did not make a payment
until April 2004. At this time I met with the credit union's loan
officer and agreed to make a single $70 monthly payment to service all
the loans. This was all I could afford to pay and I was told that this
payment would be enough to avoid being sent to collection. In this
first meeting with the loan officer I noticed that the interest on
these loans was considerably higher than the interest on my other
Stafford loans. I asked about the interest rates at this time and was
told that the since the loans were "no longer student loans" that the
interest rate was fixed rather than the variable rate specified in the
Promissory Notes. The variable rate that should have been charged at
that time was 4.22% and I was being charged 8.25% on two of the loans
and 8.92% on the other two. The 8.92% actually exceeded the specified
cap on the variable rate.
In early May of 2004 I made a second $70 payment and deposited funds
into checking for the June payment. At the end of May the credit union
closed my checking account and applied all funds from there to the loan
balances. I was never contacted by the credit union that this would
happen or that it did happen. I first became aware it happened when my
Discover Card e-payment had bounced in early June 2004. I went in to
the credit union to discuss the matter with the loan officer.
I again voiced my concerns about the interest rates in the June
meeting. I was told that the $70 payment was not covering the monthly
finance charges("negative amortizing") and this was the reason my funds
were seized. I am positive that if the specified variable rate was
used that the $70 payment would have covered the finance charges and
paid on the principal too. At this time the loan officer agreed that
the funds seized would be considered to be my June payment and I would
not pay again until July.
I made the July 2004 payment in person at the credit union early that
month. I received a statement on July 14, 2004 showing the loans were
charged off on June 8,2004. This account statement was the first I
ever recieved showing the total accrued finance charges. I realized
these finance charges were considerably higher than they should have
been based on the variable interest rates and interest not being
charged while in school. I was never given any statement showing
collection costs or late fees were being charged to the account.
I again met with the loan officer on July 15, 2004. In this meeting I
asked to be supplied with copies of the Promissory Notes. I also asked
for a history of the account showing month-by-month finance charges.
The loan officer would not supply me with a copy of the Promissory Note
and stated that the Credit Union did not possess any copies. I was
also told at this point that it was impossible to obtain a monthly
history of the finance charges since the credit union's computer record
system had been changed over the previous month. The Loan officer did
supply me with a photo copy of all the documents that they had in the
loan file.
I was told at this meeting that the charge off was "internal" and as
long as I continued to make the $70 payment that it would not be
reported to the Credit Bureaus. I have written documentation of this
verbal agreement.
At this point I began researching and documenting the variable interest
rates of Stafford Loans. I contacted the Department of Education at
and was informed the loans were not student loans and the Department of
Education was no longer involved with the matter. I was told the
credit union was removed from the Federal Family Education Loan Program
for reporting violations in 2000.
On July 20, 2004 I wrote the credit union by certified mail requesting
copies of the Promissory Notes; a complete record of all periods of
deferment, forbearance, and repayment; the current status of the
accounts; and a complete history of the finance charges on the loan. I
called to confirm that the letter had been recieved and was told that
the Loan Officer I had met with previously was no longer working there.
I waited seven weeks for a response before writing again to the credit
union. This time I stated that I believed the interest rates used for
the loans were incorrect and that the totals for the finance charges
were calculated incorrectly. I again requested the same information as
in the previous letter. I did not receive any response to these
letters until November 9, 2004.
I finally received a letter from the credit union. This letter
included copies of the Promissory Notes, but did not include a history
of the accounts. The letter stated that further research would be
done on the finance charges, but no account history would be available.
I waited two more months for the additional information to be sent to
me. I contacted the National Credit Union Association for assistance
on January 10, 2005. The credit union manager responded to this
complaint on February 10, 2005 with a letter contending that the fixed
interest rates were correct. Documents actually showing the variable
nature of the interest rates were included with the letter. No
itemized statement was included with this response.
After an additional letter to the NCUA, I received a decision on April
25, 2005 that there were discrepancies with the way interest charges
were calculated. Their decision was that the credit union must supply
an itemized statement and adjust the finance charges that were applied
to the accounts. The decision stated that the response from the credit
union should be made "shortly" but it was left open ended.
After waiting one month, I went to the credit union to check on the
status of their response. I was told that they needed more time to
calculate the interest charge adjustment since their accountant had
open heart surgery. At this time they brought up the subject of
settling the charge off. The Manager also stated that I was "not
legally obligated" to pay the loans.
This last week I received copies of my credit reports. I made a verbal
agreement with the credit union that making a $70 payment monthly would
prevent the charge offs from being reported to the credit bureaus. I
was very upset to discover that the charge offs were reported to
Equifax in September 2004. I made every single $70 monthly payment
for over a year. I have written proof of the agreement in three
separate documents.
I have still not received a written response from the credit union
regarding the NCUA decision two months after the decision was made.
During this same period of time I have rehabilitated two other student
loans and applied for a consolidation loan. I have done my absolute
best to fix my financial situation and these loans are the only place
where I have made no real progress. When applying for the
consolidation loan I was informed that the credit union loans could
never be consolidated with the other student loans since they are not
insured by a guarantor.
I am very fed up with the situation. I have several questions:
Was it legal for the credit union to remove all the funds from my
savings and checking accounts without a judgment or any court
involvement?
I don't trust the people involved here. It seems very strange that the
credit union Manager would suggest that I don't have to pay them. Are
they trying to trick me somehow? Is it possibly true that I am not
legally obligated to pay them? Is this because of the statute of
limitations?
What should I do about the charge offs on my credit report? I met my
end of the agreement but they reported it anyway without telling me.
There is also an extra account listed on the credit report that
shouldn't be there. I understand that a charge off stays on a credit
report seven years from the time I was late or the late payment went
into collection, not from the last time I made a payment on the
account. How would I find out when this date is exactly?
They suggested settling with them. How bad are settled charge offs and
how long would they stay on the credit report? What might a reasonable
settlement offer be?
Probably was, but read your account agreement to be sure.
Many account agreements say the accountholder grants the
bank/CU the right of "set-off", meaning they can unilaterally
use your deposit accounts to pay off any loans you have with
them. I know a number of people who will not keep deposit
accounts and loans at the same bank for that reason.