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.
What site did you log into?? NSLDS?? How much does it currently say you owe??? How did you ask ECMC for proof? Verbally or in writing??? You actually borrowed GSL and SLS loans….Stafford loans did not come into being until 1992. Interest rates back then were as high as 14%
Student loans have been non dischargeable in BK since 1998 so it appears that effort was a waste of time and money. $30K those higher rates of interest plus capitalization of the interest plus collection fees and more than likely subrogation fees can very easily increase your loan balance by 10’s of thousands. You paying $19k is only a drop in the hat…probably doesnt cover collection fees ! A word of advise….quit wasting money on a bankrutcy attorney who probably doesnt know about student loans…very few understand them.. And if he took your money to file them in bankruptcy, he is a crook at that! Do your own research, figure out what and when you borrowed. Who the lender was, who the guarantor was. If you borrowed $20k and were in default by 1998, you proably owed in excess of $50k or more then. Did you ever consolidate??? Rehab???
I graduated in 1988 . Ecmc did respond but all they had was 1,2,3,4,5 with the amounted owed in each line. So i had the bankruptcy lawyer contact them but he did not respond to them in time which i am not happy .
I log in the nslds and it said I owed stafford loan from 1982 to 1987 of 31228 and interest of 41144.
I borrowed 30000 with rule of 78 which the interest rate was 7 %. When I graduated I did pay for about 2 years until my office got destroyed in 1990 and 1991. I could not pay the loan at that time and Iost the information and after many years . I did not consolidate or rehab.
I just got garnished from the new York and Massachusetts. I thought that after that I was done. I was told by the second garnisher( western district attorney of nc) that ecmc tried to get some money from them also. I asked the district attorney if I had any outstanding federal loan. She looked up my social ( a national website )and said that I had no federal loans outstanding.
Now since I know what I borrowed and I paid both states how can I stop the garnishment? It was the same loan since you mention that it get assigned and that is why I was confused on what they were asking for.
I do not have the first release from the first garnishment because it was a collection agency or the student marketing ?? But it was satisfied. Do I go to the bank where I borrowed the money from ?? I do have the copy of the loan paper but I do not know who ended up with it. I do have record of the garnishment from paycheck . Would it be in the judgement in new York court?
I believed all monies have been paid ( 60000) already. If I was garnished it would only have been from student loan and I don’t think they can keep Collecting money that is not owe or can they keep collecting?
Is there an attorney that can help me get them to stop this and get my money back?
This sounds like a difficult situation. There actually have been some federal loan discharges after 1998 unlike the previous poster said. But it’s very difficult.
One attorney who has recently discharged federal loans is Christine Kingston in California.
Attorney Joshua Cohen of CT also has experience with discharging student loans and even has a training program for attorneys in other states, and he may be able to recommend an attorney in your state.
Lastly, I would say that it’s possible that your wage garnishment was from a state based agency like NYHESC which would explain why it’s not showing up on your federal loan database. But to get to the bottom of this it sounds like a comprehensive evaluation would be needed by either a federal loan specialist or an attorney with experience in federal student loans.
Can any tell me what I have to do to get ecmc to stop my garnishment? I was garnished in 1998 and was it was completed and was told i have finished paying the new York higher education loan( stafford) and then I went into agreement with north carolina district attorney office to pay the Massachusetts higher education loan that I owe. After that was done I receive some letters from ecmc saying I owe 90,000 . I asked for proof and they never send it. So I went into bankruptcy and put them into hoping it would take care of them . But after the bankruptcy was paid the ecmc sent a letter stating that student loan was not dischargeable in the bankruptcy after they have collected 19,000 and they said I owe 90,000 . Now I went to the site where you see if you owe any thing it stated 5 stafford loan . I asked a lawyer in California if I have any outstanding federal student loan owe and they said I did not have any outstanding loan. So now I went to my bankruptcy lawyer and told him that I don’t owe any student loans because I have payed them through the garnishment. He sent the letter and have not gotten any reply. They are garnishing me $500.00 every 2 weeks . I only borrowed the 5 guarantee student loans ( under the 78 rule) total 30,000 in 1978 to 1988. How can I get them to give me back my 19,000 that I paid in the bankruptcy and the unjust garnishment ?
Please see below response.. with so many loans and agencies involved here it would be difficult to provide a complete answer here. Feel free to call into the debt relief hotline and press option 4 for a further evaluation. If you’re in California I’d strongly recommend contacting bankruptcy attorney Christine Kingston in Orange County, she has been able to get federal loans discharged and may be able to get to the bottom of your situation.
Student loans seems so much like government sponsored debt slavery. This easy money is given to people from low income families who were never taught anything about the money system by the school system. The same school system indoctrinates them into thinking that the only way to succeed is to purchase a degree for an absorbent amount in hopes that they will be able to pay off this debt later. They are old enough and smart enough to sign but, not able to understand the compound interest or what happens when you don’t pay.
Even given that circumstance, compassion seems to be intolerable by everyone speaking on the subject. It seems perfectly acceptable to say that these people are undeserving. Everything sounds like generations of people simply did this to themselves. It is even being advised that these people don’t need any help from anyone and should deal with this as part of a tough love lesson. Their is a reason that 18 year old, let’s be honest, children, are being approached for these huge loans. This country’s approach to education is stiffing the country’s economy, families, and innovation.
It is being said, that you should talk to your lender. Where is your independent information outside of those that are threatening you. Where is the clear information without the shaming? I’d like to see the laws on the books and also speak to an advocate who’s secondary goal isn’t to make sure that I know this is all my fault. “Oh you should have…” is the equivalent of “I told you so” and really is completely unhelpful. After the fact you are pushed to sign whatever, contractual agreement in order to be able to feed yourself or generally resign yourself to poverty.
If this system isn’t broken where are all the comments from people on the other side who are easily paying off their student loans and moving forward into a economically prosperous futures. I will not be advising my children to go to college, just like cable, it isn’t really worth it anymore…
The easy student loan money does not just target those with low income, far from it. The student loan issues we have as a nation reaches into a huge swath of middle class America. And just because the majority of new college students recently left high school, I see a huge lack of understanding at all age levels, of the value and the rate and size of return that can result from taking out student debt (in our current economy and job market).
As far as resources for dealing with student loan debt that are not overly biased or judgmental, there are more and more available for government loans (which represent the bulk of student debt). There are also reforms that are ongoing. The DOE just fired 5 collection agencies last week. For those who do not know it, that is a very big deal, and one that would not have occurred just a few years ago.
There is a much larger picture to what today’s student loan affordability does to the nations economy. There are improvements that can be made at an individual level, no doubt about it. But individual responsibility can only go so far.
The administration announced some policy developments around student loans today: https://getoutofdebt.org/86772/student-aid-bill-of-rights-to-assist-federal-student-loan-debtors
I expect some good will come from the servicing and collection pilot programs.
Hi
My loan had been in default for over 20 years , I started paying and I stopped , and for the past 15 years they have kept my tax refund , my balance was 6000 something , I filled ch13 and for 5 years they did not collect from my taxes I just you received a bill for 29000$ as if they never received a dime ……… WHAT is my next step , this is outrageous. Opinions please
That’s quite a bit for the loan to increase, but with a CH13, unless you are pursuing a discharge through an Adversary Proceeding, the Dept. of Ed will just put your loan into a forbearance which causes additional interest to accrue.
Also, interest and fees would have been accruing for the entire 20 year period that you were in default. I understand that borrowers want their loan to be the same balance that it was decades ago, but this is just not realistic for a federal loan that’s been in default for so long.
The good news is you may be able to settle it for a reduction in the accumulated interest. Federal loan settlements are rare, but the lowest federal loan settlements I’ve seen occurred in situations like yours, where the loan had been in default for a long time and racked up a lot of interest and fees.
The tax refund was probably not doing much to dent the loan even if they took it every 15 years, because a large part of any payment goes towards late fees and interest when loans are in default. Another way to deal with this would be to use the free Direct Consolidation program and get out of default and onto payments related to your income, but the downside is they would be going off of the current balance. Trying to settle with the guarantor may be the only way to have a significant portion of the accrued interest removed.
Hi Lynn. I hope you can answer my questions or provide some guidance. I have 4 Subsidized Federal Stafford Loans: (to attend community college starting fall of ’03. Graduated fall of ’08)
loan #1: $2,625
loan #2: $1,969
loan #3: $2,625
loan #4: $1,750
TOTAL: $8,969
I began paying on the loans after the deferment period – never late.
January 2010 – filed chapter 13
April 2010 – loans transferred to ECMC and in forbearance due to CH13. Stopped making payments, per CH13 agreement. TOTAL transferred: $7,243.31
September 2010 – enrolled part-time in state university to complete bachelor’s degree (most of tuition paid by employer but did obtain a Direct Subsidized Loan for ~$5500)
May 2014 – Graduated – began paying on direct student Loan
August 28, 2014 – CH13 paid and discharged
I thought that as soon as my CH13 was completed, I would be contacted by ECMC to resume payments. I also have read that the loan gets bought or transferred to another company. I have made 5 payments voluntarily. Total balance as of today is $7,864.85.
Q. 1: Because I was enrolled in college at least part-time during most of the CH13 time, should most of the accrued interest be waived?
Q. 2: Because I was not in default prior to the CH13, will I be assessed collection fees and a higher interst rate by ECMC?
Q. 3: is it unusual to not be contacted yet?
I have sent 3 emails to ECMC asking about deferred interest but I have never received a reply.
Please advise. Thank you Lynn!
I have not spoke with anyone at ECMC because I cannot get through to anyone by calling and none of my emails have been returned. But yes, I have made voluntary payments the last couple months. I’m not even sure what the minimum should be so I pay around $75.
Thanks for your reply.
Hi, it is common for interest to accrue when federal loans are placed into CH13 – most servicers just put them on forbearance. It would be tough to get that waived. Your federal loans should not have gone into default while in CH13 because they should have been on a deferment.
It’s better to call ECMC than email them, I’ve found. Lenders and loan servicers aren’t always the most proactive in getting back to borrowers once a CH13 is done, so it’s probably a good idea to reach out to them.
I received a loan in 1986 when I was 18 in New York. I attended a school that is now closed and had to drop out to care for my mother who was dying. I moved to North Carolina in 1997. I was contacted by a collection agency in 2008 regarding payment arrangements. I paid as specified until 2011 when I made my last payment. A total of $6200.This show up on my credit report accurately. I just received a notice from IRS saying refund was taken to pay this student loan. I pulled my credit report to find 6 other open accounts for this loan. All open on the same day as the one that I paid. I cannot remember the initial amount of loan or the type of loan. I am so confused as to where to start to fix this. Can you make a suggestion?
I think the best place to begin would be the National Student Loan Database at http://www.nslds.ed.gov. You will need to create an FSA ID (available on the same site) to be able to log into your federal loan database report.
Credit reports can often show duplicate listings when federal loans are transferred, so that may have been what happened here.
If your tax refund is being seized, it means that the loans have gone into default. Was the $6200 you paid the total balance of the loan? It sounds like there may have been some other federal loans as well outside of what you were paying to the collection agency. The NSLDS would be a good place to start, but to get to the bottom of this would require a more thorough evaluation. Feel free to call in to the debt relief hotline and press option 4 if you’d like to talk further.
Thanks Lynn.
Lynn,
I have a group of future questions for you that I need to organize prior to presenting them. However I first wanted to convey my thanks to you for offering your insight and advice to others here who benefit greatly from it. My guess is this counseling is pro-bono as well. I respect greatly your values of personal responsibility and commitment, as a younger person it was the lack of these values that have created my need to post queries to you on this forum. I disagree with the few detractors you have had. Many of us have had the opportunity to handle this debt initially in a mature way but did not. I most certainly did not.
Thanks in advance,
TyrellRD
I have $7380 bal on direct loans @ 2.08% int. I completed rehab in Oct. As of 10/11 my loans were transferred to FedLoans. I’ve been making 2 payments per month since the began servicing my loans. One is $4.97 that they setup on autodebit so I can get the interest rate reduction. ( this was the reasonable and affordable payment set up with the CA). I’VE applied for IBR, which based on my income should be $0
The problem is I made a payment that posted 12/19. $3 of which went to interest, and the rest went to principal. 4 days later after my payment posted they say I have $14.91 in accrued interest. In the 73 days they have had my loans $52 has been interest. After spending an hour on the phone with them, a supervisor told me the extra interest is from before when the loans were in default.
My monthly interest should be roughly $12.50 month and I’ve already pd 4x that. If payments are applied first to fees, then, interest, then principal how is it that portions of my payments are applied to principal, and then they say there is still interest from default?
Wouldn’t all interest have been capitalized when the loan was rehabbed and then transferred? My understanding is that the interest should be paid by the government when my IBR pymt is less than accrued interest. (Subsidized loans).
Thanks so much for your help.
There may have still been accrued interest after the Rehab program, it is not all capitalized like it would be on a Direct Consolidation loan. I think that may be the source of the issue, but I think the best source to answer this question would be the loan servicers or Department of Ed who can access your loan history and see exactly how your payments were allocated.
Lynn. I have currently $26k in federal backed Student loans that Default. Tried to paid but when the economy went to the tank around 2008 lost my job and stop paying around 2010 I Stop paying Since then it’s gone into collections. I’m trying to be realistic as possible on what I can do now that I have decent job and finically I almost back to stable, I would like to negotiate it where I only owe the original amount which is $20k since $6k are in collection fees. Should I contact ECMC directly to rolling or the debit collection firm in charge currently in trying to get the monies? What advice can you offer to approach this matter so I can achieve this type of settlement? And if they do agree I like to pay money order/check since I don’t want them having access to any of my personal accounts how would I go about requesting that option only. Thanks in advance.
Hi Lynn C – Maybe you can help me
I was attending Grad School in 2010 and receiving student loans. It was an executive MBA program, and I left for a bit in 2011 when I got a new job. Classes were Fri + Sat, every month and each class was $2540.00
I tried to go back, but the school said I owed them for a class I took in Oct 2010. On Oct 19, 2010, my school received $9500 in Federal Loans, totaling just over $19,000 for the year. I told them they were paid, and they said that money was for other classes I took. They sued me, (I was away the date of the trial) and got a default judgment issued against me. Their lawyer refuses to tell me how the loan money was disbursed. I have applied for loan forgiveness, but it’s tough, because I technically owe the government the $$.
Each month I have to pay my student loan bill + my tuition bill to my school + their lawyer tacked on 40% interest or legal fees + an additional 6% interest for post judgment fees. I don’t think it’s fair that colleges/universities aren’t held accountable for how loan money is applied. They were paid for this class, they applied the money to something else. Why am I responsible for that? This is sooo wrong. I can’t get my degree until I finish paying them. I’m paying for the same class twice. I’ve contacted everyone under the sun and no one will help me. Any advice?
Since there is a judgment involved here, I think that a lawyer with student loan experience would be the best to handle this type of case. Joshua Cohen is a skilled student loan attorney who may also be able to recommend a student loan attorney in your state. He runs workshops for attorneys related to student loan legal issues.
This website is very educating. Learned a lot in a short amount of time.
Although I didn’t ask any questions, I enjoyed reading every last one of them.
Lynn,
You’re a hot ticket! Certainly wouldn’t want you on my bad side 😉
Many thanks for being so informative.
Hi Lynn,
Thanks so much for all of your help on this forum! Brief History: I took out 2 subsidized Stafford loans ($8,500) and 2 unsubsidized Stafford loans ($12,000) , a total of $20,500, for graduate school in 2007. My repayment for these loans began in November 2008 and went into default December 2010. ( I was not able to pay at the time of repayment as I had started a new business and did not receive any income the first three years, until it failed in 2010 once it was defrauded and cleaned out by an overseas investor. I began a salaried position in MA halfway through 2011 where I am still currently employed. My 2011 federal tax return refund ($5,172) was garnished in 2012 by Collection Technology Inc who is the collector handling my defaulted loan. Spring 2013, I worked out a payment plan with them and successfully made nine payments to them as required to rehabilitate my loan before the end of 2013 ($3,220). I kept calling the tax offset hotline following my completion of rehabilitation and my name had not yet been removed as of January 2014. That same month, I broke my leg and fractured 4 bones in my foot. I was not able to contact CTI until late February 2014. I asked them why they had not yet updated the US Dept of Edu and the IRS of my rehab completion. They said, “sorry but you were supposed to sign and send back the rehab loan agreement…so you will have to start over a new 9 month payment plan.” But I sent them this form August 2013, just a few months into my payment plan with them! I spent endless hours speaking to different people at CTI begging them to work something out with me. But bottom line- They did not have this agreement on file and it was my word against theirs…end of story. I was very upset but I understand I did this myself and could have avoided it all had I simply requested forbearance or worked out a payment plan long before my loan went into default. So, in March 2014 I spoke to CTI and discussed a potential settlement with them but since I now had two years of future tax refunds on returns I hadn’t yet filed (I was waiting to do this until my name had been removed from the federal tax offset list at rehab completion) it made sense that I would contact them to discuss a settlement once my returns were filed. *CTI garnished $8, 026 from my 2013 federal refund this past August and I am still finishing by hand my 2012. After garnishing my tax refund, last month CTI began garnishing 15% of my wages! Bottom Line here: CTI has taken a TOTAL $16,808.81 since July 2012…27 months to be exact….in tax refunds, a 9 month payment plan they never credited me for, and now my paychecks. I am still drowning in debt from my failed business venture in 2010 and CTI literally is taking every extra penny I have to my name yet my balance is now the same plus over $5k in fees …..The total principle paid down on my loan total is only $698! I am so overwhelmed with this right now, and I just need guidance on where I go from here to straighten this out. Based on my research, these numbers do not make sense to me. My loan balance should not be $25,000ish considering $16k has been applied to this loan over the course of 27 months?????
What?? I rehabbed my student loans in 2011. I never signed anything, it was recorded on the phone. I’ll be honest, I can’t remember what company rehabbed them. I made 9 payments, and then my loan was sold to Fed Loan Servicing. If you’re making your payments, they shouldn’t be garnishing your tax refunds. Call the Department of Education. Wait call this number 1-800-621-3115. If you’re not comfortable talking on the phone to them you can send them an email, https://www.myeddebt.com/borrower/contactusSubLinks
I definitely don’t have any expertise in this area, just my own experience, but I hope this helps. Good luck with everything!
Hi Lynne,
Thanks for your candor..I am hoping you can help me.
I have an 18k PLUS loan that has been in default since 1996. I have been unemployed and underemployed for several years and i have paid very little taxes due to my low, no income and living overseas and earning less than the minimum for dual taxation. I kept offering to make 100 dollar monthly payments but they refused, so I gave up. I have been living overseas for 17 years or so and I recently moved overseas again and it is likely that I won’t go back to the US now. I may be able to borrow money from family and friends to negotiate a lump sum payment. You mentioned I may be able to negotiate a deal with them. Do you think they would accept $8,ooo assuming I won’t come back to the US? Can they get any kind of judgement seeing as I don’t even live in the US?
Thanks in advance!
Mk
Nc
Hi Lynn, I’d very much appreciate some help answering the question I posed on sept 4th. Am traveling to the US soon and would like to call the collection agency and make an offer. Any guidance with what leverage I might have would be great.
I am going to radiology technology school ( i plan on paying cash for this school) soon and its been years but I checked my annual credit report and found that I had defaulted on two wells fargo student loans in 2009. This is by no means an excuse or a question to get out of any obligation to the debt ( I will pay it off but it depends on what is the best thing to do and I need some professional advice please.) My father was really sick and passed away and lets just say i wasnt feeling too good about life and I managed to keep up on my other student loans but apparently this one slipped through the cracks. Its already charged off …approx $5800 total. Transunion Note says to clear off records by 2016. Should I contact wells fargo to talk to them? Or wait till I get out of school in 2.5 yrs? Is there a way to rehabilitate this loan? I just dont want to open a can of worms here? Ive got enough saved to where I could pay it off but that would take my savings up almost all so im not really wanting to do that now. My preferance is to pay it off my first year out of radiological tech school. Help please. Thanks in advance.
I live in NC.
Like I said I know I owe the money and I wish I had not lost track of it but I cant roll back time.
as I only found out about this default a few days ago when I tried to check my free credit report online and saw them. Should I maybe pay one off and then wait a while longer and then pay the other off?
Thabks for help in advance
Thank you for your reply,
I had one more class to finish when the school closed. I had to start working full time before I finished with only 3 classes to go but it was difficult to schedule them around work. I was not diligent regarding change of address and completion elsewhere was not offered. The information from the department of education printout says that I never attended the school so it will be hard to prove.
The printout had no information about address telephone number etc. Is there a difference between notification a debtor of a potential offset vs. notification of the actual offset? Who handles the notification, the Dept. of Education or Treasury?
I have no problem paying back the loan if I can’t prove my attendance. I completed 90% of the curriculum. I just would have liked the opportunity to negotiate before paying in full or setting up payments. Lastly, the database shows that the loan is still active even after the offset? The balances are very low but still present.
thanks for your time..
J.
I recently received a death benefit for my Dad from the Veterans Administration. The check was offset by the Treasury offset program for a defaulted student loan. I found out about it when I received my award in the mail. The amount offset was nearly 3 times the amount of the original loan. I was under the impression that death benefits, inheritance etc were exempt. I knew I had outstanding debt but the school closed before I completed the curriculum. I assumed the debt would not be collectible. The loan originated in 1994 and I received no offset notices from the dept. of education or treasury. The last 3 years I have been traveling in an RV so my address changed frequently. I do have paperwork that i am completing to attempt to have the loan discharged due to the closure of the school.
I also have called various offices to inquire about my unique situation. I feel as though I am getting a raw deal especially if the are able to keep all of what I paid . I was not notified of the offset or given an opportunity to make payment arrangements. One representative said that they mail notices it to the last available address. The last available address was known to them had to be the the residence where I received the award. I would have worked out some type of deal and not get gouged for triple the amount owed. The reps I spoke with say they will call back to discuss the matter but so far nothing. How do I go about proving lack of diligence and due process on the part of the treasury dept. in finding me when the obviously knew where I was.
J.Allen
Hey Lynn are you able to respond to my question I posted on September 10, I never got a response and would like to know what are my options, Thanks!