Question:
Dear Steve,
I went to college from 1994-2001 with a break from 1994-1997 for a religious mission. I studied electrical engineering but they kept changing my course requirements and I did an internship I didn't enjoy, and it was 2001, so my final semester was basically 911.
I tried to pay but I have just lost my job every time, sometimes for my fault, sometimes not, but every time I made payments, a year later all those payments were irrelevant and went to interest. So I gave up and became a resister.
I do not believe it is ethical to charge people interest, make money on the financing of the education of the youth, it is a form of vampiric predation that is quite demented. I refuse to be a number on someone's roulette wheel. I refuse to be an acre to be farmed for interest.
That all said, I am concerned more about the practical ramifications of my situation, and how it affects the people around me.
My debts were all federal and they were consolidated, but when I stopped paying around 2009, they were eventually discharged to a private collector, Atlas, and I think they are in Washington. I lived there for about 6 months, but I blocked their number, then changed mine and I am in the midwest now.
I use a different name professionally, and a different name from that on Facebook, but my bank name is the same and of course my Social Security Number.
My initial debt was 20k and the last time I spoke with anyone when they called my mom on Jan 1 2015 was 40k+.
How could they find me? How hard are they trying? What would they do?
I am currently unemployed again, let go from a 30k job for no given reason. I'm an artist I just get these office jobs to get by, I'm good fixing computers but the real issue is I can't make any money with my career in entertainment because I'm perpetually broke and can't get a camera or production budgets for projects.
What can I do to prevent being found? How will they be trying to find me? Can they get employer information from my apartment applications? Do apartment credit applications give away my address and other details? Will I know before something happens to my bank account?
Could I settle for, say, 10k or less? My family might just help me pay that much and I would find that actually pretty fair. Do I need a lawyer to do that?
How come a federal loan became a private loan?
What statutes say how and why I can't file bankruptcy to discharge them?
I'm hoping I get another IT job tomorrow I really like, but it's like the other shoe dropping, I have to think every stranger might be serving me or something?
J
Answer:
Dear J,
Believe me, I understand the frustration and outrage. However I think there is a better way to deal with this.
Rather than spending your life energy to hide from the collector I think it would be more beneficial to come forward with a real plan to deal with the situation.
Federal student loans don't become private. But the Department of Education can have a loan assigned to an outside collector to attempt to recover the money. That sounds like what happened in your situation.
When a loan is sent out for collections, it just explodes the balance due. Not only can the collector add on 20%+ of the balance as a collection fee, but penalties and more interest began to inflate the amount owed as well. I think you've seen that happen with your own loans.
The pragmatic way to handle your situation would be for you to rehabilitate your federal student loans and get on an income-based repayment program. Based on your income your rehabilitation payments might be as low as $5 a month and your income based payment could be $0 (zero) per month and your loan would be considered current and in good standing.
The rehabilitation program will not only restore your defaulted loans to a good status, but it will change the reporting of your loans to current. Rehabilitation is a great strategy to also use if you are being garnished for federal student loans as well.
Now I've been critical about income-based repayment programs for federal loans, and rightly so when people use them without a plan or consideration of their circumstances.
But based on your history and the logical expectation of your future income, getting on an income-based repayment program will help you in two major ways.
The first way is it will get your loans in a good and manageable status which will get you out of collections and avoid more penalties.
But more importantly, it will allow you to convert all of this life energy of hiding, to something that is more productive and helpful for a professional life moving forward.
It's time to step-up and use the available programs to bring yourself out of the dark and into the light so you can move forward as part of the sunlit society and not part of the shadows.
And to address your other two major questions, federal student loans don't settle unless the consumer is sued or through bankruptcy.
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This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.