In a financial spot--advice appreciated

Miscellaneous and Personal Stuff I Must Share
1

My wife was unemployed for the last half of last year, since we moved to NC. (We got married in December.) She had a student loan that she was paying $70/month on, so she sent in paperwork to get this deferred. (We were not married then, and she never told me about this debt.)

Fast forward to now. We were expecting a sizable tax refund, but I got a letter today informing me that the entire refund was being held up as an attempt to collect on this student loan.

She called to find that they never received the paperwork for the deferrment, and that as such, they also didn’t have our new address, so they hadn’t been able to tell us that she has been in collections on this loan.

The people on the phone were not helpful at all. First, they insisted on a “good faith” payment over the phone. They also told her that she needed to apply for an outside loan for the full amount, and that they couldn’t help her until she had been turned down for this. (She almost certainly will be.) They also said she would need to come up with a down payment of 1/3 of the loan amount ($4500) before she could start payments on it through them.

She was not helpful in telling me what those payments would be, or what would happen if she couldn’t come up with the $4500 (a distinct possibility). What she did tell me was that the $4500 could not include the $3500 they already seized from our tax refund.

Anyone have any experience with a situation like this? What will they work out for us? What will we do if we can’t come up with the $4500? I’ve already filed for “injured spouse” status, so that we can get my portion of the tax refund back; we could then apply that to the compulsory part of it, but I won’t see any of that for two months. Will any of the “student loan consolidation” services help us?

Thanks in advance.
Dr. J

2

Were the “people on the phone” a collection agency or the student loan people themselves?

3

When in trouble through the fault of a Federal bureaucracy, one avenue you should try is to contact your Congressperson.

One of the standard ways they all keep voters happy is through “constituent services”, i.e. straightening things out for constituents when the bureaucracy has fucked up. They do this sort of thing for lots of other people each year; why not you?

Good luck!

4

What? That’s crazy. I don’t know what to tell you, but there were a couple of years in there (young, crazy, impetuous, stupid years) where I didn’t pay a dime on my undergrad student loan (it wasn’t that I didn’t WANT to pay, it was just that I was poor and had better things to spend my money on, like beer).

Then one day about 3 years after graduation, I decided to be a grownup about it and start giving them what I could. I still wasn’t making very much money, though, so I started giving them $50 a month. Not through any agreement with them–just started sending checks, and they started cashing them.

A few months later, I got into grad school, but had no money to go, so I had to apply for more loans. I thought surely that defaulted (?) undergrad loan would bite me on the ass at this point, but it didn’t–I got loans for grad school with little problem (and was told that I was able to do so because I’d paid consistently on the previous school loan for a mere SIX MONTHS).

After grad school, I got a home loan. Last fall, I got a loan for a (used) car when Old Faithful went kaput.

But I think I’m still technically in default on that undergrad loan, even though I’ve now been paying on it for years (now I give them $125 per month, but we still have never talked about any payment arrangements) because every once in awhile, someone calls me from there to try to convince me to participate in their Consolidation Loan Program, which will, according to them, clean up my credit in case I’d like to someday get a loan for further schooling, a car, or a house.

To be honest, the person I’m talking to usually expresses surprise when I tell them I’ve done ALL of these things already (nope, no cosigners). Then they go on to say, “Hey, since you have such good credit, maybe you should get a loan from your own bank to pay this off!” :rolleyes:

But my point is, not ONCE have I had my tax return seized, even after two years of DELIBERATE non-payment, so it doesn’t seem to me like you guys should be getting the hard-ass treatment after less than a year, especially when you’re making efforts to work with them! I know there are strict rules governing what collection agencies can and can’t say to you on the phone, but this sounds to me like bullshit. I’m not encouraging you to blow them off or anything, but I’m wondering if they’d come up with a more reasonable offer if you refused this one. :confused:

5

A very similar thing happened to my husband - over $400. Not having the $400, he declared bankruptcy.

I suggest doing something different.

6

These appear to be the student loan people themselves.

So CrazyCatLady did as they asked, and went to apply for a loan, for which she was turned down. She applied on her own, without any of my info (I make about 2/3 of the household income), and they said her chances would be better if she included my info, but she needed my OK to do so. She came back and told me that, and I had her just call up the loan people and tell them she got turned down for a loan like they asked, so what now.

They came back with a little more reasonable offer–$2000 now ($500 of which was the “good faith payment” we already made) and then something on the order of $150/month. Still not great, but definitely do-able. We’ll probably go that route unless we can figure out something better.

Dr. J

7

Doc, (can I call you Doc) that smacks of professional collections, not the student loan folks.

Also, if they’re bargaining down that quickly they’ll negotiate down more. Student loans tend to be pretty ‘high-risk’ in terms of default. I’m sure they don’t want to have you just get away and bail on the payments.

I’d first absolutely confirm that the people she’s talking to are actually employed by the student loan firm (whomever that might be). Do that by calling them outside of your discussions with the collections folks.

Then see what you can do to work with them. You acknowledge the debt and you’re willing to pay it off. If they’re rude to you after you’ve made that clear go over their heads.

8

Sounds to me like the collection people are using good old scare tactics—demanding a sizeable, immediate payment. Tell them you don’t have it, can’t get it, and will pay some token amount. If that ain’t good enough, tell them its too bad, but you can’t do better. But document your offer of payment, no matter how small it might be. If you make a good faith attempt to work with them, they can’t do much to you. Further attempts to extort more money can be harrasment and they are barred from doing that.

As to the tax refund, I don’t think they can grab it without having a court order giving them the right. If they got a court order without you being notified, I believe you can contest it.

In short, I wouldn’t pay or agree to pay any exorbitant payment and I would demand to know by what authority they plan to grab your tax refund. From my own experience, if the debt is your spouse’s and it predates your marriage, they CANNOT sieze your share of any tax refunds. Or that is the way it was twenty years ago, anyway.

9

Dave Ramsey has some good info on how to deal with collections people, which, as others have said, these folks smell like. Actually, I’m not sure he has this info online, but try his web site anyway. If I remember correctly, his methods would be similar to what louisB is advising, but he has lots of cites to back it all up.

Good luck.

10

I find it almost impossible to believe they are being this hardassed, especially given the circumstances (that they apparently never received the deferral papers because of the move, etc.) Does she have proof she sent the deferral papers?

Also, if she only missed 6 months of $70 payments, why all of the sudden are they demanding so much money upfront? I’ve never heard of such a thing; maybe asking for the amount in arrears might make sense, but $3500? That’s nuts! It doesn’t make any sense. I once got behind because of surgery and uninsured medical expenses, and they were downright friendly about it. Doesn’t sound at all like the loan originators, unless you’re missing part of the story.

If I were you guys, I’d write them a letter explaining the circumstances and ask for some kind of reasonable payment arrangements. And send it certified mail.

11

I simply cannot understand how they were able to seize your income tax return without a)you knowing about it beforehand and b)allowing you to use it as a down payment.

12

The letter lists the creditor as the US Department of Education Federal Offset Unit. They answer the phone as the US Department of Education.

Our refund has apparently been “offset” as a nontax debt owed to the government. This is the same setup they use to take one’s tax refund to pay back child support or the like.

The whole thing is rather fishy. I intend to pry further.

Dr. J

13

Call your congressperson’s office. Tell them the US Department of Education is harassing you, and ask if there’s anything they can do for you.

Give it a shot, really. They can lean on the bureaucrats. You can’t; they’re leaning on you.

14

I have no advice, but also urge you to pry further into this.

I fell behind on a student loan that was issued by my school - not by any federal or state agency. They hired a collection agency, and I made small monthly payments (my loan was only $450, and I was paying $20 a month when they sent collections after me.) UNTIL, after missing a payment, the collection agency telephoned me and used this lovely sentence: “Well, I’d be real careful leaving the house, then. You never know when someone will be watching you.” Mind you, I was 19 years old at the time and completely unused to dealing with this sort of thing. My mother called the school itself, and related my tale. The school official was shocked and as an apology for the harrassment I’d had, cancelled my loan completely. They also stopped using that particular collection agency.

15

I went through personal bankruptcy some years back and I learned a lot on the way. Some collectors cross the line as a matter of course, hoping to bluff a chunk of money out of you. I suspect the intitial payment is about what their fee is going to be and that is the reason they demanded the large chunk of money. Tell them you haven’t got it, can’t get it, and have no intention of being harassed—I’ll bet they back off.