Paying off student loans?

Paying off 8 year delinquent student loans?

• I am very good at making budgets and helping friends prioritize and get out of debt. My newest endeavor is a friend who has horrible credit. at least 90 days past due on everything! She left school 8 years ago and has NEVER made a payment on her student loans. This aspect I have never dealt with. Now is the perfect time for her to start a budget and payment plan because she just got a promotion that comes with a 10,000 per year raise! I told her we will pretend she did not get the raise so she can start repairing her credit. Student Loans do not come off your credit after 7 years, so please don't say she need not worry about them! I know this for a fact as I have several student loans myself and have asked student loan/college advisers. I just need to know a good way for her to begin the credit repair journey!! Thanks in advance!!

• Answer:

  You friend did exactly what I did, so I'm giving you advice from my own painful experience. Please give her this info. Her credit record, while important, is the least of her concerns! The FIRST thing your friend needs to know is that federal student loans (e.g., Perkins) are in a class of their own. With most loans, if you default and they go to collections, the delinquencies on you credit drop 7 years after they first went late and once they pass the loan statute of limitations, the lender or collection agency can no longer take legal action against you (i.e., garnishments, court judgements, etc.). SOL's vary by state and are usually 4-10 yrs. Federal SL's however have NO statute of limitations!!!! They can garnish her wages tomorrow, 5 yrs from now, 20 yrs from now. And they can re-report to her credit any time they want! For some reason, they don't initiate garnishments right away, probably because they have all the time in the world to do so (or at least until the person dies.) At this point, the original lenders have filed claims with their guarantor, possibly CHELA. If she took out multiple loans, she's probably got derogatory credit marks from multiple lenders and the guarantor as well. The Dept of Education has or will likely turn this over to SL collection agencies, such as Conserve, and any resulting loan will be handled through Direct Loan or William D. Ford. (I think). WHAT SHE NEEDS TO DO TO SAVE HERSELF: 1) I'm assuming she's ignored all the notices in the mail (like I did!). She needs to contact the Dept of Education or check for any *recent* mailing that indicates who has the loan. Going to the DOE might be the best. She can also register online for the National Student Loan Database. The NSLDB will allow her to see who has charge of the loans now. 2) She wants to enroll in the SL Rehabilitation Program. In short, you make 9 ON-TIME payments and they bring the loans current and take the credit marks out of delinquent status. If she has multiple loans, she can consolidate into one loan (probably under Direct Loan) but she wants to rehabilitate BEFORE she consolidates!!! That's key! Instead, if she consol's before the rehab, the black credit marks from the original lenders won't go completely good. I got screwed on that one. The DOE can give her the details. 3) Prepare her for the shock when she sees the outstanding balance on her loans due to the compounded interest. Mine original loans totalled about $16K, but after defaulting for about 6 yrs, they went to $30K due to the unpaid and compounded interest as well as collection fees that got rolled in. They'll put her on a payment plan she can afford, but it will take a while to pay off depending in how much they are. NOW THE GOOD NEWS: If she takes care of this NOW, she can keep the loans from going any higher and also stop any pending legal action, whenever they decide to take it (and they will at some point!). If she does the rehab correctly (rehab then consolidate), her credit can turn around in about in as little as a year. Mine has taken longer because I did the rehab and the consol in the wrong order. Since she's got an extra $10K/yr now, she needs to throw everything at the loans that she can. With Direct Loans, if she's paying more than the minimum payment, they'll apply it to the principal, but also count it against future payments. Right now, I'm doing an extra $75/mo on mine and I could stop paying for 4 months if I wanted and still be considered "current, never late". Nice option! I REALLY hope she takes care of this now before it becomes more painful than she can imagine. It won't go way...ever...unless she takes steps now to change it.