Federal Direct Student Loan in Default. Can I get settlement from Dept. of Ed., or rehabilitate?
I have a (1) Federal Direct Student Loan it went into default in 1986. It has been in default ever since. There have been no payments made to it nor has it been in any type of forebearence or deferrement. The original loan was for around $7000.00 with interest it now stands at about $17,000. I want to get this out of my life. I have been trying to get information on Debt Settlements I understand that they can take a settlement @ 30%, 50% or 90% of the total acrued interest plus priciple. I have also read that they can rehabilitate the loan at PRE-DEFAULT status if I make 9 payments on time. Acrued interest and collections fees waived.
What would be the best course of action for pursueing a SETTLEMENT, should I go to the CA or directly to the Dept. of ED?. Is the Rehabilitation scenario I described above true or not?
—Shawn
Settling federal government backed student loan debts with the collection agency that the loan is placed with makes a surprising amount of sense. The collector and agency owner is often working on a contingency. This would mean getting paid, or paid better, only when resolving loans. This can make the student loan collector your advocate when settling.
Settling Federally Backed Student Loans
What you know and commented about options and amounts that can be written down when settling fed owned student loan debts, rather than rehabbing, is what I know too. With the Federal Loans, the settlement benefit comes from forgiving fees, interest and penalties – not principal forgiveness.
By working directly with the collector for the Department of Education you have someone whose interests are aligned… somewhat. Some variables may be the collector’s experience.
You should be prepared to discuss some personal financial information, and even provide documentation, to the CA representative.
Rehabilitating Federal Student Loans
You have far better options for rehabbing your federal loans than those who have private student loans. Not only do you have the benefit of rehabilitating payments that can have a positive impact on interest and penalty reduction, once a gov backed student loan debt is rehabbed, you can also gain some credit reporting benefits. With a loan in default as long as yours, the credit reporting benefits of loan rehab may not mean much, but I do want to point this out for any future readers.
Once federally owned loan is brought out of default you can then also qualify for income based repayment options and also seek additional government loan products.
Anyone with federal loans in default, or that are unaffordable, will benefit from watching this recent interview I did with Andrew Weber.
Andrew responds to reader questions and concerns in the comments below.
Anyone with questions or concerns about their federal student loans can post in the comments below for feedback. You can also call in for a consult at 800-939-8357, and choose the options for student loans that applies to you.
About Michael BoveeMichael started CRN in 2004 with a mission to provide people in need with detailed debt and credit help and education. Michael has participated as an expert panelist in federal consumer protection rule making, collaborated on state law changes governing debt consolidation, has worked as an expert witness in court matters related to the debt relief industry. He is available to speak with you about your financial struggle and helps people resolve their debt problems daily.
Thank you, Lynn, for your answer. Why is rehab out of the question? Do you mean that it would be out of the question to rehabilitate the loans without being prepared to pay the accrued interest and fees? Or are there conditions that have to be met to qualify for rehab (aside from making nine consecutive payments) of which I am not aware? The loans are Stafford, so they should qualify for rehab, I though. Thank you again in advance.
Lynn, I would be very grateful for your answer to my question. I have not lived or worked in the US for over 15 years and, given my age, the chances that I return there are remote to say the least. Nevertheless, I’d like to try to clear my credit history and pay off my loans through rehabilitation. My question is: for someone in my position, who has been living outside of the US for almost 20 years, has no US assets, income, nothing — is there a chance that the loan collection agency that has my defaulted Stafford Loans (now totaling almost 18,000$; went into default in 2008) will offer me loan rehabilitation -not a settlement, rehabilitation — but forgive all or part of the accrued interest and all of the collection fees? Under those conditions I would be willing to give over all my liquid cash (ignoring the fact that I have no retirement pension, no husband or help, and massive mortgage debt for an unsaleable apartment in a country where I no longer live) and pay off the principal in full. I understand that normally rehab does not wipe out accrued interested, but I am wondering of those of us who can prove that we have been expats for many years might have a bit more leverage. Your answer would really be appreciated.
Sorry, I meant to write: can they find and harass me here in Europe at my work? At present they don’t have my contact data here but googling my name turns up my work number and address.
Hi, this is a great forum. Lynn, thank you for your extremely informative replies. I am in a similar situation to that of Dave: I live and work in Europe, am going through a divorce and finally have a secure job but a very uncertain financial situation. I would like to negotiate a settlement on my loan, which has been in default for years. My question is: do I have a chance to negotiate a low settlement since I own nothing in the US and declare no taxes there? Can they do anything to hurt me, like phone my work and harass me there or get part of my wages earned here? Any information you can provide would be greatly appreciated.
Ok let me start from the beginning October of last year I started the rehabilitation program with Pioneer Credit recovery, I filed my taxes in April of this year even though I was told since I was in the program my taxes wouldn’t be offset…..WRONG my taxes were still taken and I completed rehabilitation in June, and my loans were transferred to Fed Loan Services. Meanwhile I applied for a hardship with DOE and was refunded $1170 of my taxes back. Well when I tried to get fin aid this semester and contacted DOE to get a fax showing my loans are out of default. I was advised that my loans are in fact out of default but because I applied for the hardship and got a return back for my portion of the taxes I now have to pay DOE the $1170 back before they can send the school the paperwork showing my loans are not in default. My question is are there any alternatives such as consiladating that $1170 with my new lender Fed Loan Servicing because I don’t have the money to pay that back hence the reason I applied for a hardship.
I recently got my loans out of default but applied for a hardship which now shows a balance of $1170 that has to be paid to DOE before they can send a letter showing my loans are out of default, well i applied for a hardship so of course i don’t have $1170 in my pocket, and now im being told that i have to pay that balance first before any letter can be sent to award me Fin Aid, is there any way around this, can my new lender take on that balance as I am still making monthly payments to the dept of edu?
This site is a gem. I appreciate the time that’s went into answer people’s questions here. Hats off.
I moved to Europe some 15 years ago, fully intending to pay off my student loans, but it didn’t work out that way (will spare the details) and they defaulted. They harassed me at first but gave up after a year or so. Fast forward to today. The loan amount grew from 10k to 30k. I do not plan on returning to the US but am considering trying to settle to keep my options open and, well, get rid of it! A few things:
* I’m a dual citizen. Have flirted with the idea of giving up the US one.
* ECMC think I live in the states, but will likely eventually find out that’s not so
* There is no US income, SS, property or anything they can get at. They don’t know i make money.
* I can get a loan here to pay off a settled amount.
I’d really appreciate any advice about how to approach the settlement thing with them. What should I aim for as a reduction, given my situation? Would me not being a citizen anymore change things at all?
Thanks in advance!
Received a letter in the mail from ECMC stating that I have a student loan in default and in 65 days they are going to start the treasury offset process.
Strange part is I have been in repayment status through the Direct Loan Consolidation process since 2006, never missing a payment. I also checked my credit report and there is nothing there. Even checked the loan database and all of my original loans show no default, paid through consolidation.
What am I missing? Is there a recommendation as to who to call first? The group that currently is managing the consolidated loans or ECMC?
Thank you!
Hi,
Can you give me info on who to contact to negotiate settlement on a federal collection debt please?
Hi, been reading all of the past posts with interest. I had I think two student loans back in the 80’s. One got paid off, one was in dispute with the college as I dropped out but not in time according to them. I defaulted (federal loan no clue what type) and never paid on it. Been about 20 plus years. Once a year I get a notice to my PO box about the debt but nothing more. I have been unemployed for a good many years, no wages to garnish at all, no assets. No loans or anything else on my credit reports. they haven’t reported anything on my credit reports either. I actually only owe for this one student loan, not other debt at all. Even my ss benefits in 20 years will only be $640 a month or so, i think too low for them to take from me from what i read.
I could just go on ignoring the one letter a year I guess till i pass away one day.
A close relative would like to pay off the loan since its the only thing I owe out there – doing me a favor. I think the original principle was 7,000 or so, I think 3k or so in interest and another 3k or so in whatever it is they call it – penalties. Not sure if i am considered a hardship case or not. I don’t have anything payroll wise for them to look at for years and I have nothing for them to take or garnish. Probably why they just leave me alone and just let the interest keep going. i have no phone and would be homeless if not for living with a relative for the past few years.
If i contact them to let them know cousin would like to pay off the loan for me, what can i expect from them? I take it if I could offer a lump payment it would be for 100% on the original loan plus some or all of the interest? I assume with a lump sum they will waiv the penalties? What about interest? Like i said I don’t work don’t have any money don’t have any payroll for them to garnish. They could take me to court but there isn’t anything to take. Will they waive some of the ineterst? Also if they waive anything, before I pay I guess I need to get it in writing that the loan will be paid in Full?
I realize what I should have done, again, I wasn’t in a place to do much for myself other than just barely get by. With regard to the being declared independent, I did not assume they considered someone independent on income alone and I was 18 when I started school & 19 when I moved out. There was jail time which ended about when I graduated high school which lead to violence (directed mostly toward me) after that, hence why I left home.
I owe around 25,000 with all of the separate loans. I paid cash for as much as I could of my tuition to not need the loans but I was in a dual degree program which typically takes 5 years.
Question for you all,
I was working full time and paying for school/living on my own. I was able to receive loans but couldn’t get any assistance due to my mother making too much money (I had attempted to petition to be considered independent, since I was, but didnt have the time with everything I was doing). The end of 2008 I was injured at work and spent all of 2009 trying to get better, trying to work but had to withdraw from school when I was put on heavy restrictions for 3 months following my back injury. The job I was at involved working with violent patients and I spent the next year between PT, doc appointments, work, etc. only to end up losing my job. I got depressed and ended up having to live with family and my loans went into default. I was never able to complete my degree and have struggled finding work I am qualified for that doesn’t involve the physical involvement of restraining or having to lift patients. I am now in a much better place and have been working part time for years (making awful money) but recently started working a full time job as well. I am working over 60 hours a week and making decent money and want to get my debt resolved. I realize I should have taken care of this or been in contact with them sooner but I really was just not in a place to be able to deal with things after dealing with a very permanent back injury and subsequently losing my dream job and everything I worked really really hard for from a young age. I am interested in doing a rehabilitation but the bulk of my loans are held by ACT not ECMC anymore. My question is, can I do the rehabilitation through ACT or is it too late for that? and I’ve read through these posts and Lynn you do appear to be very knowledgeable and I appreciate the time you take to answer these questions, however, I have to say the language on these websites is not very clear or as cut and dry as you say. While I may not have finished my dual degree, I do consider myself intelligent and find this entire process overwhelming and confusing. None of the borrower sites mention you can negotiate your collection fees for one. Things like that are what make me apprehensive to do anything without ALL of the facts first, because I would hate to end up paying more than I have to. There is no one to call to get an answer that takes into account MY best interests, not just with loan repayment but with balancing that with what other expense I have personally to survive. The manner in which debt collectors operate makes me not want to call them to discuss anything because everything feels like a trap. Guidance in terms of how to proceed with rehabilitation would be appreciated.
I went back to school as a married mother of 3 wanting to get my teaching degree. With me and my husbands income, we felt we would be able to afford the student loan payments and in the long run, we would be better off with me having my degree. Upon graduation, I applied for a deferment until I received a teaching job. Unfortunately, less than a year after my graduation, my husband was killed in a car accident and I was suddenly a single mother of 3 with enormous debt. Over the next 2 years, I struggled both mentally and financially. I consolidated my loans, deferred, and received a forbearance. In the end, my student loan ended up in default. When I finally received my first teaching job, they received a garnishment order and my superintendent gave me a number to call to try to help. When I called, we discussed the situation, and I was okay with them taking the money our of my paycheck, to ensure I didn’t forget or things didn’t get tight one month and me “opt out’ of paying. So, I thought I was more or less entering into a “agreeable” type of garnishment. I’m positive I was given information to make me believe this was a better situation than what I was already facing. Now, after 8 years of having every paycheck garnished and giving up 5 federal tax returns, I thought I would check to see how close I was to being paid off only to find out that I still owe more than I originally borrowed…quite a bit more. The collection costs are insane, which is what I thought I was avoiding when I ‘agreed’ to the garnishment. I realize that some of this is my fault, as I should have paid more attention along the way, but I seriously, naively believed I had made an agreement to pay….we even agreed on the amount that would be garnished….and just assumed I would receive word when I was paid off. Now I find out that that is will never happen. Never in my lifetime. I called to see what I had to do to get it out of default and was told I would have to pay $600 a month on top of the $300 I’m already paying for 9 months and then continue the $600 a month payments from now on. Now, I’m a school teacher at a very rural, very low-income school and $600 is nearly half of my take home pay. I simply cannot do it. Are there any alternatives out there? How can you pay on a loan for 8 years….whether through garnishment or not…..and come out worse than when you started? I would be eligible for some loan forgiveness due to my career field, but only if I get it out of default….which simply isn’t possible under the conditions given. This isn’t a matter of someone not wanting to pay money they owe….they’re wanting something I simply don’t have to give….especially when I have a 9 year old to house, feed, cloth, educate, etc. Is there ANY form of relief out there? Is there anything that can be done, or does the government just have to wait for me to die to make this go away? I mean I can continue to let them take the $300 garnishment every paycheck….as I no longer even miss it….and continue on this ridiculous endless path until one day I die and they get nothing more out of me…..but I was truly hoping to do something to make this right…..but my getting behind surely seems no more wrong than the ridiculous fees and collection costs that have been added to my debt making it impossible to pay.
Here is an interesting questions:
I had a loan balance of $58,408.00 on which I defaulted about 5 years ago. The loan was rehabilitated and a collection fee of 18.5% was added to the original balance. If I were in a position to write a check for the total outstanding balance do you think that I could negotiate an amount somewhere between the $58,408.00 original balance and the current balance? Does anyone have a similar story whereby a Federal Student Loan lender agreed to accept something less than what they are legally owed?
Hello,
I left the U.S. in 2005 and moved back to Europe, and never paid on my student loans. I recently moved back to the U.S. I ran my credit report and all my students loans are showing as closed, with a balance of $0, and a Date Reported of 12/2008. I’m questioning whether or not these accounts actually closed? There are a total of 8 closed accounts, and a lot of them do have recent history in the 81-Month Payment History summary (i.e. CA as recently as 2013).
I’m wondering when I file taxes in 2015 will that “alert” them I’m back? I’m currently working, but am a bit afraid if I try to remedy this I’ll open up Pandora’s box and will be hounded by collection agencies. It’s not clear who has my account, or what steps I ought to take to clear this up.
Any advice would be greatly appreciated. Thank you in advance.
Hello, question about rehabilitation. So a defaulted loan has a 20 something percent collection fee. After rehabilitation, is that fee lowered or is there an addition percentage added to the fees? Also, is there a way to erase, negotiate away, or make the agency validate these so called collection costs?
Do they give some ridiculous interest rate on the rehab? I would rather rehab, but I also want to save as much money as possible on interest and fees.
The loans are not private. I think they will settle because they have only been able to get a little money from me in the last 20 years. I move a lot and change jobs a lot because I am in the construction industry. And I can explain to them that if they don’t settle they will continue to get squat. My credit is excellent, but there is nothing on my credit but 2 credit cards with a low limit and no balance (no mortgage, no car loan) I pay cash for most everything because my credit was wrecked for so many years. I have access to the money to settle the principal and interest, but obviously I would rather not part with 20 grand in one chunk. If I rehab it will show up on my credit as a default, but then after 9 months the default will be removed from my credit, is that correct? So my credit will just be crappy for 9 months?
I have a defaulted student direct loan of $14000 with interest and collection fees about 24000. I have not paid in so long that it is not reported on my credit score. I actually have an excellent credit rating for a change. I came into enough money to pay a settlement of the principal + interest and feel confident that I could negotiate that. My concern is that when I pay off the settlement that they will report it to the credit agencies and then my credit will be screwed again. I think if I pay the settlement it will be much cheaper than rehabbing my loan, but I understand rehabbing would be better for my credit. Not to mention I wouldn’t have to shell out $20000 at once. What is better for my credit?
Robert – Were these private loans?
Lynn,
I Currently have a federal loan in default. The full balance to pay in full is $10,974.66. The CA has agreed to settle for a lump sum payment of $8,831. The money is coming as a direct gift from a financial resource that isn’t mine, as a one time gift, paid directly to the CA/DoE.. My kind benefactor has agreed to pay the entire amount to the CA (w/settlement terms agreed), but would prefer to negotiate for a lower amount. I am fearful that a settlement, as opposed to paying full amount, will have additional financial ramifications to the blow my credit will take for paying this off while in default. However, I am unaware of what these factor may be…
My question is how “paid in full” and “settled in full, for lesser amount” differ with regard to credit agencies, their reporting and scoring. Is there any difference? What are the major implications of each? How are they looked at by future creditors/lenders.
Thank you in advance for any advice you can offer and shedding light on the differences, which seem to be nuances to me.