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There is no statute of limitation for collection of defaulted student loans. And unless you are totally and permanently disabled, there is no way that you can discharge your student loans in a bankruptcy. What to do? Credit repair expert Jim Kemish offers some insight and a cure.
The Default Story
Legally, a default occurs the first time you fail to make a payment when it is due. But if you fail to make your student loan payment for 180 days, your loan will enter the “official” default status and take on a life of its own. This is the point at which the lender will report your student loan as defaulted to the credit bureaus. It is also the point at which a long list of bad things can start to occur. Your tax refund checks can be seized and your wages can be garnished.
What Happened?
Why are student loans so different from all other debts? Well, prior to 1991 the U.S. Department of Education was empowered to collect delinquent student loans for only six years. But in 1991 an amendment to the Higher U.S. Department of Education Act lifted all time limits for collection. And the amendment was retroactive; student loans that were past the statute of limitation for collection prior to the amendment became collectable again. And to further reinforce the longevity of student loan debt, a 1998 change in federal law made it virtually impossible to discharge student loan debt in a bankruptcy.
The Reason for All This
The theory behind making sure that student loan debt can be collected forever is simple; the cost of student loans can be kept low by minimizing the number of borrowers that don’t repay. And since education, and the availability of low cost education loans, is always a political priority, it was not all that difficult to enact these changes.
The Ultimate Collectors
There is simply no way to escape the U.S. Department of Education and their army of private collection agencies that collect on their behalf. In addition, Sallie Mae, the nation’s largest student loan lender, has been purchasing collection agencies to track you down. So, what if they find you and you say you have no money? Well, the U.S. Department of Education now has the right to garnish wages, grab your tax refunds, and even seize your Social Security Checks (you read that right!), all without a court order. And, although Sallie Mae does not wield the same powers, they have started to turn over hard cases to the U.S. Department of Education to get the job done. Anyone attempting credit repair must realize that student loans must be dealt with head on, and the sooner the better.
Credit Repair Options
There are two great solutions that are designed to solve all of your student loan problems. Both of these options can stop all collection activity, lower your interest rate and payment, and reinstate your right to borrow more money for school (in case you want to go back to school). There are no qualification requirements and you are not punished for having bad credit. Everyone gets the same low interest rate. These two options are consolidation and rehabilitation. Both are a good fit with any credit repair process.
Student Loan Consolidation
Just contact the lender or collector and tell them that you would like to consolidate your defaulted loans. You will be required to make three monthly payments on time. Once you have done this you will qualify for consolidation. If you are attempting credit repair you should note that after consolidation your credit report will be updated to show the consolidated status, but the default notation will remain, like most derogatory information, for seven years. If you are in a rough patch the consolidation program allows for up to three years forbearance. Ask your lender for details. My focus has been on defaulted student loans, but it may be handy to note that you do not need to be in default to enjoy the benefits of consolidation.
Rehabilitation
This is a slightly longer process, but has the extra benefit of removing the default status notation from your credit report. To rehabilitate your loan you need to make nine to twelve consecutive on-time payments (depending on which type of student loan you have). Once you have completed this process your loan is considered “seasoned” and is sold to a new lender, and the default is wiped off of your credit. Once done, it is like it never happened. If you are attempting credit repair you should note that your payment history, including any late payments that you made, will remain, but your credit score will benefit from the removal of the default. Borrowers are allowed to rehabilitate a defaulted student loan one time only. As always, contact your lender to discuss the details.
Copyright © 2007 James W. Kemish. All Content. All Rights Reserved.
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About the Author
Jim Kemish is the president and founder of Power Mortgage, a Florida mortgage company based in Delray Beach, Florida. Power Mortgage Corp was established in 1989 and serves the states of Florida, Georgia, Massachusetts, and Virginia. Jim is also the President of Sky Blue Credit, a national credit repair business.
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Monday, December 1, 2008
Student Loans Yikes!
I read this and had to pass it on. Check it.
What Happens When You Default on your Student Loans? -
This is the story of what happened to an Architecture student (me) who defaulted on his student loans and credit cards. It is the eye opening experience of what can happen to YOU!
I ignored (didn't pay) my student loan for years - many years. This was back in the old days (20 years ago) before the government was so efficient at collecting their (your) money. Nothing much happened.
OK, so one day years later, they found my bank account and froze it. Cost me a few hundred dollars. I'll survive.
And then, they started taking my income tax return money. Damn! That hurt. But Life goes on... Life is good, All is well!
But then one day, years later. Big Brother (your Uncle Sam) Returns!
I had learned not to keep too much money in the bank (didn't have much anyway).
And I learned not to expect any money back from income taxes. I was OK with that.
But I was totally unprepared for what Big Brother did next. He blind sided me…
One day I go to cash my paycheck, and I noticed "Hey, my check is mighty small this week" What happened?
I look closely at my pay stub. The number of hours are correct... the rate is correct. Hey, what's this…
Wage Attachment. 10% of the gross. 10% OF THE GROSS, not net.
10% of the freakin' gross! Damn!
10% of the gross taken off the top. Before you get your check.
10% of the gross gone… Every Week…
No explanation, no one to complain to. No supervisor to override. Your money is gone.
10% GONE. It doesn't matter that you were barely scrapping by in life every week, living paycheck to check.
Now you live with 10% less. Every week. It sucks!
PLUS, they still take your income tax refund. No wonder they call it a re fund becaues they are Re Funding their own pockets with your money.
There's nothing you can do about it. So I learned to live on 10% less for many years.
One day I finally had the good fortune to get a better paying job. Better job, better pay and…
Best of all - the wage attachment stopped. Hurray!
Or so I thought… Life is good. Life goes on. I pay my bills.
Years later, on Friday the 13th, it happened. "Big Brother Returned Again".
One miserable deja vu day the check was small. I check the paystub. Number of hours are correct... the rate is correct…
There it was on the pay stub again… Wage attachment. 10% of the gross.
‘Son of a bitch' found me again. Damn it, damn it, damn it!
You can't win! You can't hide!
Big Brother will find you. It might take weeks. It might take months. In my case it took many, many years… Decades!
But Big Brother will hunt you down and find you. You can't hide forever! And guess what?
Big Brother has Increased the wage attachment withholdings to 15% of the gross.
How much does that hurt?
As an example, let's say you were grossing $1,000 per week. You would pay about $350 in taxes leaving you with $650.
They will take 15% of the $1,000 which is $150 leaving you with only $500.
HALF of your paycheck is GONE!
You just took a $150 a week pay cut. And if you make less than $1,000 it hurts even more.
AND they still take your income tax return!
Trust me on this. You DON'T want this to happen to YOU! Pay your student loans on time.
--------------------------------------------------------------------------------
About the Author
Carl Willoughby has worked as a Licensed Registered Representaive for the Prudential Insurance Company, a Computer Programmer for the New England Telephone Company, and a Computer Sales Consultant for SEARS. He is self-employed as an Internet Marketing Consultant. http://www.MoneyPlus2000.com
--------------------------------------------------------------------------------
Finance Articles powered by Articles Factory
What Happens When You Default on your Student Loans? -
This is the story of what happened to an Architecture student (me) who defaulted on his student loans and credit cards. It is the eye opening experience of what can happen to YOU!
I ignored (didn't pay) my student loan for years - many years. This was back in the old days (20 years ago) before the government was so efficient at collecting their (your) money. Nothing much happened.
OK, so one day years later, they found my bank account and froze it. Cost me a few hundred dollars. I'll survive.
And then, they started taking my income tax return money. Damn! That hurt. But Life goes on... Life is good, All is well!
But then one day, years later. Big Brother (your Uncle Sam) Returns!
I had learned not to keep too much money in the bank (didn't have much anyway).
And I learned not to expect any money back from income taxes. I was OK with that.
But I was totally unprepared for what Big Brother did next. He blind sided me…
One day I go to cash my paycheck, and I noticed "Hey, my check is mighty small this week" What happened?
I look closely at my pay stub. The number of hours are correct... the rate is correct. Hey, what's this…
Wage Attachment. 10% of the gross. 10% OF THE GROSS, not net.
10% of the freakin' gross! Damn!
10% of the gross taken off the top. Before you get your check.
10% of the gross gone… Every Week…
No explanation, no one to complain to. No supervisor to override. Your money is gone.
10% GONE. It doesn't matter that you were barely scrapping by in life every week, living paycheck to check.
Now you live with 10% less. Every week. It sucks!
PLUS, they still take your income tax refund. No wonder they call it a re fund becaues they are Re Funding their own pockets with your money.
There's nothing you can do about it. So I learned to live on 10% less for many years.
One day I finally had the good fortune to get a better paying job. Better job, better pay and…
Best of all - the wage attachment stopped. Hurray!
Or so I thought… Life is good. Life goes on. I pay my bills.
Years later, on Friday the 13th, it happened. "Big Brother Returned Again".
One miserable deja vu day the check was small. I check the paystub. Number of hours are correct... the rate is correct…
There it was on the pay stub again… Wage attachment. 10% of the gross.
‘Son of a bitch' found me again. Damn it, damn it, damn it!
You can't win! You can't hide!
Big Brother will find you. It might take weeks. It might take months. In my case it took many, many years… Decades!
But Big Brother will hunt you down and find you. You can't hide forever! And guess what?
Big Brother has Increased the wage attachment withholdings to 15% of the gross.
How much does that hurt?
As an example, let's say you were grossing $1,000 per week. You would pay about $350 in taxes leaving you with $650.
They will take 15% of the $1,000 which is $150 leaving you with only $500.
HALF of your paycheck is GONE!
You just took a $150 a week pay cut. And if you make less than $1,000 it hurts even more.
AND they still take your income tax return!
Trust me on this. You DON'T want this to happen to YOU! Pay your student loans on time.
--------------------------------------------------------------------------------
About the Author
Carl Willoughby has worked as a Licensed Registered Representaive for the Prudential Insurance Company, a Computer Programmer for the New England Telephone Company, and a Computer Sales Consultant for SEARS. He is self-employed as an Internet Marketing Consultant. http://www.MoneyPlus2000.com
--------------------------------------------------------------------------------
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