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Wednesday, May 23, 2012
Ask Jonathan - Student Loan Debts
by Jonathan Stein, published on July 5, 2010 at 7:57 PM
Storyline: Ask the lawyer
Community Tags
bankruptcy
debt
deferment
discharge
levy
payment plan
settlement
student loan
wage garnishment
Q: I didn’t pay my student loans. My $20,000 in student loans is now up to $90,000. I am on unemployment. What is going to happen?
A: This is a tough situation for people. You go to school and borrow money with the expectation that you will be able to pay it back when you get a job. And when the economy goes south, many people lose the ability to pay their student loans. So, what do you do?
Unlike credit cards or personal loans, student loans generally are not dischargable in bankruptcy. That means you cannot get rid of the debt solely by filing for bankruptcy and moving on with life. You are going to have to pay them back.
Your first shot should be a deferment. If you are not working, most student loans can be deferred for six months until you get a job. Contact the lender and ask for the hardship forms.
If you do not qualify for a deferment, then you need to start talking settlement. You may have an inheritance or 401(k) that you can use to get a lump sum and pay off the loans. Raiding your retirement to pay off a debt is not the best idea, but it is better than ignoring the problem.
A payment plan can also be set up. You need to talk to the lender and set up a reasonable payment plan. Generally, you have to sign an agreement to get this done. The agreement should be reviewed by an attorney. However, if they ask you to sign a stipulated judgment, be very wary and make sure an attorney reviews it carefully.
If you have tried all of that, they will probably sue you. If they get a judgment, they can put a lien on your real property. This means they could, at least in theory, sell your home. They could also levy your bank account or garnish your wages. If you are behind on your student loans and you live in Sacramento County, you can check the court’s website to see if a lawsuit has been filed.
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Wait out the student loan bankruptcy fairness act to play out. You aren't alone.
I owe over 80k in private sallie mae loans. I am watching the news like a hawk, waiting for a spark of hope.
Be careful with federal, they can garnish you without a court proceeding. Sallie Mae and other lenders will hunt you for the private ones, but if they're already getting you for the federal ones, they don't really speak up much about them.
Just wait for the bankruptcy laws to change, You are not alone. We all got suckered into the college trap that is now leading to the student loan bubble.
I did not go to college, so I do not know what this means. Can you give more information?
Translation: Ran up student loans for 4 years but never took the 5 minutes to google the earning potential for his degree.
A common "the system is corrupt" argument used to justify having other borrowers and taxpayers pay one's debt obligations.
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Mark <----------------- didn't finish college , is dumb as brick, and needs things spelled out to him :)
I am under the impression that deferment of loans is not available b/c of the Income Based Repayment plan. Under that plan, if you're unemployed--thus, having no income--your payment would be set at zero.
Keep in mind, unpaid interest continues to accrue. However, any unpaid balance is forgiven after 25 years of payments.
Jonathan does not include advertising/soliciting within his postings, nor would we allow that. He does include his background in his profile so that readers know his experience and that he is a credible lawyer answering their questions.
He works closely with our editorial department on a weekly basis and his column is always reviewed before it is posted. We invite anyone who is knowledgeable about a specific area to do the same.
Thanks for your concern and keeping an eye out!
1. Rehabilitation: A rehabilitation plan allows your loan to return to good standing after making 9 reasonable and affordable consecutive on-time payments. It also removes the default line from your credit report.
2. Consolidation: The other option is to consolidate your loan back into good standing. You would need to either agree to repay your loan under an income-contingent or income-based repayment plan, or make 3 reasonable and affordable on-time payments to your loan holder to become eligible. The good news is that it is quicker than rehabilitation, but the bad news is that it does not remove the default lines from your credit report.
Once your loan returns to good standing, your repayment benefits will become available again. The first benefit you should consider is an Income-based Repayment (IBR) plan. This plan will base your loan payments on your income, to be more exact – 15% of what is considered to be your “discretionary income.” There is no minimum payment requirement for this plan, so depending on your situation (family size, income) your payment could be $0. There are many websites that provide calculators, like www.asa.org, for you to see what your payments could be. Also, after 25 years of eligible payments, whatever is left over is forgiven. You should talk to the holder of your student loans immediately to talk about your options.