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Student Loan Assistance for a Loan in Collections

Started by sganster, August 07, 2015, 09:12:18 pm

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sganster

Hello! I'm currently researching to help a friend with her student loans. I feel somehow she was greatly taken advantage of- how much she's been charged for fees etc.

Her situation:
Years ago she went to an "Executive Secretarial School" in Dallas. She took out loans from the Dept of Education. I can't believe it, but her principal loan balance is $32,752! It seems like a racket considering this is a school to become an office manager, basically. She really doesn't have much financial knowledge and is now paying for it. Needless to say, she met the man of her dreams and didn't finish the program. The school then went out of business and she's stuck w/ this loan. Since she's a single mom, she can barely make ends meet. The loan has been in collections.

Here are the totals:
Principal: 32,752
Interest: 3,416
Fees & Costs: $8,803.37
For a total Balance of $44,971

ACT currently has her debt. She only pays $13/month b/c she only makes $1900/month. I believe they are going to try and garnish her tax return that she desperately needs to get by.

Sadly, she's not in public service, a teacher or anything in the "state forgiveness" area. She works for a title company.
Can anyone give me any ideas? I hate for her to file bankruptcy. It seems like a scam to me that she had to pay so much for this "trade school" but she obviously signed loan documents to get the money.

Thanks for all/any help you can offer!

Shannon

TheCollegeInvestor

Given that her income is so low, if she's on IBR (Income-Based Repayment) or PAYE (Pay As You Earn), her payments could be as low as $13. What makes you think they will garnish her wages or tax refund?

They only garnish if her loan goes into collections, and as long as she is making payments, they won't do that.

Plus, if she's on IBR or PAYE, she will get loan forgiveness after 20 or 25 years. She'll owe taxes on the amount forgiven, but that's still a good deal.

Finally, bankruptcy won't help because you can rarely (i.e. in 99.9% of situations) get student loans discharged because as long as you have any potential to earn income, you'll be able to make some type of student loan payment.

sganster

Thanks for your reply. Her student loan is in collections. ACT currently has her debt and they are trying to take her tax return from her. (maybe she did stop paying and that's why? I will ask her.

Since ACT now holds her loan in collections, does this mean she can't qualify for the IBR or PAYE?

Thank-you for clarifying that bankruptcy won't help!

TheCollegeInvestor

Yes, if her loan is in default and passed to a creditor, then it means she hasn't been paying it. But you said she is paying $13 per month? So a little confused there.

If she wants to get back on track, she needs to rehabilitate her loans. There's a specific process she needs to follow, outlined here: https://studentaid.ed.gov/sa/repay-loans/default/get-out

Once she rehabilitates her loans, she can get back on an income-based payment.