Question:
Dear Steve,
My son attended a university in Scotland and although the university was eligible for federal student loans, we needed to take out private loans to cover most of the cost. One loan per year, four years, and now he has $191K in debt, and his payments begin January 1.
Parents are married and father is co-signer. We anticipate a difficult time making payments. Sallie Mae is the lender… only one willing to lend for an overseas school.
Predatory interest rates (in our opinion), but we went with them anyway. We did not fully understand how fast the interest would compound. Original balance is about $160K. Still a lot. But the interest over 4 years at average 9% is killing us.
Truly not the brightest move, we acknowledge. Why did we do it, or allow him to do it? The magnitude of the loan repayment situation did not register with us. That’s all I can say.
We applied for the loans because of the attractive 2.3% rate, but were quoted the 9% rate (despite excellent credit… 785). Predatory. Bastards.
Yes, I’m pissed, but more at myself. He went over there to study medieval history because he wanted to be a restoration expert for medieval buildings in Europe. Yes, I see the eyes rolling of your readers. But isn’t that what life is supposed to be about? Live your dreams?
Well, Brexit happened, and now the whole employment situation got really unstable in terms of the industry, and the UK forced US-based graduates to leave immediately. Anyway, please see my question below. Thanks.
If (and it’s a big if, because we want to repay the debts we’ve taken out) my son ends up defaulting and pursuing bankruptcy (along with me because I’m a co-signer), would his Sallie Mae private loans to the University of St Andrews be eligible to be discharged?
Also, how well can the threat of this potential discharge be used as leverage to renegotiate the interest rates, consolidate, and adjust accrued interest based on unreasonable rates? In other words, can we use the realistic threat of bankruptcy and discharge to get them to readjust accrued interest and total amount due? I think I know the answer to this… of course I can use information to try to renegotiate… but is this wise?
Thank you for your consideration
ChangeAgent
Answer:
Dear ChangeAgent,
I’m not sure where to begin. I don’t want to pour more salt into the wound but for anyone who might be thinking about getting into the same situation – DON’T! The easiest way to avoid such debt or foreign private student loans is to not take them out.
I understand the desire to pursue higher education and following your dreams but these things need to be followed within our ability to pay for them. They are neither guaranteed or a right.
In checking with my contacts in the EU, we are not familiar with a Brexit get out requirement. The only thing going at the moment that would require a student to leave would be if their student visa expired. But that was true before Brexit. And the whole Brexit thing is a bit of a misnomer because nothing in the law has changed as of yet. Before the UK can leave the EU they have to invoke Article 50 and then it would be a two year process.
I suspect your son had a sponsored Tier 4 student visa. Under that visa he could stay in the UK/Scotland during his education but only up to four months after the end of the course. – Source
But that was always the case before or after the Brexit referendum.
Another option if your son wanted to stay would be to look at his ability to settle in the UK and be awarded an indefinite leave to remain visa.
Scotland has a generous program for residents there. If your son had lived in Scotland for three years before attending university then he may have been eligible for free tuition, including tuition, fees, and living cost grants. This is just good to know for another reader of this information.
The really bad news here is that as a co-signer you guaranteed to pay the loans if your son could not. The lender is going to come after all of you when this thing blows up. And when the loans default the balances are going to get much bigger, faster. A collection penalty will be added and interest will build and build.
At this point the threat of bankruptcy is not a threat at all. Private lenders fight bankruptcy discharge aggressively and the front line servicers don’t even believe it is a possibility. Denial has been a strong tactic to scare people away from trying.
I looked and did see the University of St. Andrews is a Title IV approved school so the lender is going to first say the loans are protected in bankruptcy even if they are private loans. I’m not sure they were approved for all the time he was in attendance.
In looking at the current University of St Andrews fees I admit I’m a little stumped on how the balance got to $160K when the current foreign student tuition rate is about $27,000 after the exchange. I suspect that some of these loans were used for living expenses.
Another shot is going to be how the private loans were disbursed and what they were used for. Are there balances above the cost of education or were the loans used for expenses not covered? Maybe there is an argument to be made for that part of the loans to be discharged. More information on that is in this article.
When you default on these loans, which it seems you might, you will have some additional options. Read this to understand how it might be a negotiable moment.
I think you need to abandon the predatory arguments about the lenders. That is wasted energy. It’s hard to say they screwed you over when you agreed to the loans. You could have always not moved ahead with them. Instead, use that energy to hunt for a solution while you still have time.
It is hard to find either an attorney who has experience in dealing with these situations and/or a bankruptcy attorney with some experience in private student loan debt.
But just because your search for competent legal representation is going to be difficult, it does not mean it will be impossible. Before bankruptcy you will want to look for an attorney like this one who has experience in dealing with private student loans.
When it comes to bankruptcy attorneys you are just going to have to interview a lot in your area to find one that has experience in dealing with such issues. But be prepared, the attorney is probably going to tell you there will be an additional cost to fight these loans in bankruptcy. You see the lawyer will have to file suit against the lender in an Adversary Proceeding along with your bankruptcy case. I would expect you to be quoted $5,000 to $10,000 for that service. However it is through that process the loans can be legally challenged and either full discharged or partially discharged.
In either case, the attorney you locate must be licensed to practice law in the state you live.
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