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  1. #1
    Join Date
    Apr 2008

    Unhappy Rehabilitating A Defaulted Student Loan- What's A "Reasonable And Acceptable Payment"

    My question involves collection proceedings in the State of: NEW YORK

    Hello everyone,

    I need some help with my student loan nightmare:

    I have a total of $28,500 in student loans (4 separate Direct Stafford loans) that are in default.

    I officially withdrew from grad school in early 2001. I moved a few times after that, and was irresponsible until the beginning of 2003, when I finally contacted the Dept of Ed. to update my address information, so that I could begin making payments on my loans.

    (Unfortunately, when I left school, I had no idea of the swift, harsh actions that are taken against borrowers who do not begin repaying within 6 months of leaving school. Today, I am well aware of the consequences.)

    When I contacted the Dept of Ed, who told me that my loans were in default and had been assigned to a collection agency. I contacted the collection agency to arrange payment, and update my information.

    After giving them my new address and my employer's information (stupid me) I was told that the only payment arrangement they would accept was an immediate payment of $8500, and nothing less.

    I was also informed that the total of my loans were $30,000. I know that was an incorrect amount, since my tuition was no more than $5000/semester. My total loans should be no more than $15,000, but I'll get to that later. (I am aware of the HUGE % charged by the collection agency, but that's not it.)

    At the time, I was working for a non-profit agency, teaching mentally retarded adults in a day treatment center. My take home pay was $700 every other week ($350 per week), so of course I did not have $8500, or any way to get that kind of money. They didn't care and didn't want to discuss it further.

    My next paycheck was garnished by 15%.

    There was no hearing and no letter from anyone, after my initial phone call with them. I was making so little money that $200+ per month was literally starving me. I worked overtime to make up that money, but soon found out that my overtime is garnished as well. I had no choice, and continued to work 65+ hours a week, just so I could eat and pay my rent.

    One person from the collection agency told me that my wages would be garnished for a year, and then my loan would be considered "rehabilitated" and then I could begin making 'regular' payments. That was a huge lie, but I didn't find that out until much later. (I now know that I have to make payments for 12 months in addition to the wage garnishment, for my loan to be considered rehabilitated, stop the wage garnishment, and be allowed to make voluntary, regular payments.)

    I continued to call to try to work out some kind of arrangement that I could afford, and was treated rudely, ridiculed, hung-up on, you name it... One person even called me a "stupid bitch" and said I was getting what I deserved.

    I filed complaints with the Dept of Ed, which went nowhere. But I did get papers from them and requested a 'hardship hearing'. Six months after sending in all the information they requested, I actually got my garnishment lowered to a flat rate of $230/month which is about 10%, and my overtime would no longer be affected. (Doesn't sound like much, but to me it was the difference between eating or not eating.) I was also told that I had the legal right to ask in writing that the collection agency not contact me anymore... which I did, happily.

    My wages have been garnished for 4 years now. Every year or so, I get up the nerve to call this collection agency, to find out what I can do to get my loan rehabilitated. Each time, they tell me that in addition to my garnishment ($230/month) I would have to make voluntary payments of $450/month for 12 months. I explained there was no way I could do that and offered to pay an extra $100/month. The only way they would rehabilitate my loan was with the additional payment of $450 per month, so I gave up.

    I've been doing some research and on this again and found that the law says that a "borrower is obligated to pay only what is reasonable and affordable" (in addition to the garnishment for 12 consecutive months) to rehabilitate a loan.

    How does this collection agency figure that an additional $450/month is affordable? Is there some kind of formula? Do they decide that or does the Dept of Ed?

    I'm not sure if I can call this collection agency again to ask them that. They are so rude each time that I'm usually in tears for hours afterwards. I really want to rehabilitate this loan, get out of this mess, and feel like a normal person. I'll be working 70 hours a week for a year, but it's worth it.

    Any help with any of this would be appreciated!!!

    (As far as the amount of the loans, according to the Federal Student Aid website, 2 of my loans show up as disbursed, but also canceled. The same page says that these loans have an outstanding balance. How can a loan be disbursed for the full amount, AND canceled (full amount), AND still be outstanding for the full amount? I'm almost afraid to ask...)

  2. #2
    Join Date
    Apr 2008

    Default Re: Rehabilitating A Defaulted Student Loan- What Is A "Reasonable And Acceptable Pmt

    OK, I realized that I left a post that was way too long... sorry, folks.

    Short version of the question:

    How do I find a 'reasonable and affordable' payment (in addition to the wage garnishment) to get out of default?

    The collection agency insists that $450/month is reasonable, even though I've had a hardship hearing (they have all of my financial data) and had my garnishment reduced...

    Am I at the mercy of the collection agency forever?

    Should I just consolidate my loans instead?

    (I was trying to rehabilitate the loans to build my credit rating back up (from zero), but if, whatever payments over/above my garnishment are not worth the benefit to my credit score, then I should probably consolidate- right?)


  3. #3
    Join Date
    Mar 2005

    Default Re: Rehabilitating A Defaulted Student Loan- What Is A "Reasonable And Acceptable Pmt

    You can find a brief overview of loan rehabilitation here. If the collection agency is not being reasonable, try contacting the Federal Student Aid Ombudsman of the Department of Education.

  4. #4
    Join Date
    Apr 2008

    Default Re: Rehabilitating A Defaulted Student Loan- What's A "Reasonable And Acceptable Paym

    Thanks aaron!

    I've already complained to the Ombudsman's office about the abusive treatment from the collection agency, to no avail. (Who really cares when I'm $28,000 in debt, not the people that I owe the money too, right?)

    And yess, I've been all over the Student Financial Aid website, which is what brought me to this question:

    Who decides what a "reasonable and affordable" payment is?

    The collection agency insists that it is $450 more per month, in addition to the $250 being garnished from my paycheck. I only take home $2000 per month, so $700/ month is not reasonable

    Thanks for any suggestions!

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