Question:
Dear Steve,
I took out a large private student loan with Education Finance Partners in 2006 to assist with tuition at an accredited art school. The loan was cosigned by my grandmother who is now deceased. Education Finance Partners was found to be dealing with institutions to essentially receive kickbacks by having said institutions feed students to their private student loan products (myself included). Because of this, the company filed bankruptcy and, unbeknownst to me, my loan was sold to another lender: Loan Science, serviced by ACS.
The life of the loan to this point had spent most of its existence in a state of deferment as I was still pursuing my Bachelors degree. When the loan was sold from EFP to Loan Science/ACS, the terms of my deferment changed and I was left with less than I originally had.
At this time I was just beginning graduate school and realized my loan had changed hands when I called to reinstate another 6 month in-school deferment period on the loan. I was told I had no more deferment time left on the loan and that I had to immediately begin making monthly payments. I did make the payments, although it was always difficult as I was in graduate school, essentially living off of federal loans and a small stipend given to me by my school to get by.
The monthly payment quickly became more than I could handle and my payment history became spotty. I repeatedly called ACS asking if I could enroll in some kind of payment plan that would allow for a lower monthly payment but was refused. I didn’t understand, at that time, that my loans were only being serviced by ACS (I was under the impression that ACS was the new lender) no one at ACS mentioned that I should give Loan Science a call as they were the actual lender. Consequently, I missed many, many payments.
Upon graduating with my Master’s degree, I cobbled together a decent income by working three part time jobs: I simultaneously taught at a University and a College as an adjunct instructor and also waited tables on the weekend.
My payment history became better for some time – it was at this time that I noticed that despite ALL of the payments I had made the amount of the loan only continued to grow. I realized that ACS was putting all of my monthly payments toward the interest on the loan, so I called to request that a portion of my monthly payment be put directly toward the capital of the loan, instead, but ACS refused.
So I watched the loan grow and grow despite my best efforts (three jobs) to make what was already a difficult minimum payment for me. I eventually was unable to keep all three of the jobs going simultaneously due to scheduling conflicts and I missed several consecutive payments as a result.
When I DID have enough money to make a payment, which was in February of this year, I saw that the loan had gone into default. I scrambled to call ACS to see if there was any way I could rehabilitate the loan or come back into their “good graces” but was referred to their collection agency and given a phone number to call.
Upon calling the collection agency, I was told that they “could not find my name in their system” – – I offered alternate spellings of my name but the agent stated that the loan was not visible to her. I was told I would be contacted by their agency if anything “showed up.”
It was not until 5 days ago that I received correspondence from an entirely different collection agency. I am now stuck with an enormous amount of debt ready to hit my credit report. I’ve done a really good job staying on top of all of my other student loan payments through FedLoan and Sallie Mae, as well as my credit cards and other monthly expenditures.
I have worked very hard to rebuild my credit and I have finally secured permanent, full-time employment with hopes of purchasing a home this upcoming Summer. I am so scared to deal with this collection agency and fear wage garnishment. I would like to settle with the collection agency but have read that they usually request half of the total balance: an amount that is far beyond me. I would very much appreciate any help the Bureau might be able to offer me – I am at a total loss at the moment.
Are there any options or precedent to settle for less than 50% of the total amount of the loan?
The collection agency agreed to take monthly payments from me (I guess to avoid wage garnishment?) but also noted that the full amount of the loan will be reported as a collection account to the credit bureaus and that my monthly payments will NOT be reported. Anything I can do?
Alison
Answer:
Dear Alison,
I’d love to tell you that ACS has not been the subject of consumer complaints for similar issues but I can’t do that.
ACS is very tight lipped about the best way to have additional payments applied to your account. However the Consumer Financial Protection Bureau does provide some excellent advice on this. The CFPB says:
“Your student loan servicer should listen to your instructions about which loan your additional payment goes toward when you submit your payment.
Here’s why providing instructions to your servicer can be a good idea:
If you direct any extra money to your highest interest rate loan first, you may save hundreds of dollars or more in extra interest payments and you may be able to get out of debt faster.
If you don’t tell them what to do, your servicer will apply extra payments as they see fit, in most cases spreading your money out across all of the loans on your account.
This means that you’ll pay down your debt slowly, and you’ll pay more money in interest over the life of your loan.
To help you explain to your servicer what it should do with your money, we’ve put together some sample instructions you can send to your servicer to ask them that they direct any extra payments toward your highest-rate loan. Helpful servicers will generally accommodate your request. You’ll want to be sure your servicer responds to your request so you know if you need to send additional instructions.
You can download a sample letter to mail to your servicer, or you can use the text below to provide instructions using the “Send a Message” or “Contact Us” feature when you log into your account on the servicer’s website:
I am writing to provide you instructions on how to apply payments when I send an amount greater than the minimum amount due. Please apply payments as follows:
1. After applying the minimum amount due for each loan, any additional amount should be applied to the loan that is accruing the highest interest rate.
2. If there are multiple loans with the same interest rate, please apply the additional amount to the loan with the lowest outstanding principal balance.
3. If any additional amount above the minimum amount due ends up paying off an individual loan, please then apply any remaining part of my payment to the loan with the next highest interest rate.
It is possible that I may find an option to refinance my loans to a lower rate with another lender. If this lender or any third party makes payments to my account on my behalf, you should use the instructions outlined above.
Retain these instructions. Please apply these instructions to all future overpayments. Please confirm that these payments will be processed as specified or please provide an explanation as to why you are unable to follow these instructions.
Thank you for your cooperation.
You’ll want to save the message you sent for your records. – Source”
Once you fall into default a number of fees and penalties can be added to your account and make the balance even bigger and more affordable. And during the time the account is being shifted from one entity to the next, there can be a gap or lag in locating your account.
The last thing you should be worried about at this point is what may or may not be reported on your credit report. The first thing should be to negotiate a mutually agreeable repayment plan you can meet.
So you missed some payments, fell into default and it went to a collection company. It is what it is. And it seems all of that is a factual representation of the actual status of your loan.
Private student loan lenders offer all sorts of offers when a loan has defaulted. And those options change. Sometimes the lender will take settlement payments over time. Sometimes they want the settlement in one big check. You can attempt to negotiate with ACS or hire someone with experience to represent you.
The best you can do here is listen to what the math is telling you and what you can actually afford to promise as a consistent payment to use for repayment. Don’t overpromise.
Of course the way you bring a loan back to current is to pay the delinquent amount due and get caught up. I would guess that amount is not affordable at the moment or you would have made it.
So as long as your loan is in default it should be reported in default on your credit report. When the latest period of default ends the loan performance will be reported for up to seven years and 180 days from the start of the last default period.
You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
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I have an appointment with an attorney today, actually. I hope he will be able to offer some kind of solution or action plan.
If you strike out today, one place to find an attorney who has at least some exposure to student loan issues is at http://thestudentloanlawyer.com/workshop-graduates/
Yes, I contacted a local attorney on that list two weeks ago but he has not responded so I am going to see what this other firm might have to say about the situation. Thanks!
Don’t give up hunting for the right attorney. It’s surprising how often people struggle to find an attorney who knows how to deal with student loans. I frequently still run into bankruptcy attorneys who say student loans can’t be discharged in bankruptcy, yet there are plenty examples of cases they have been.
Thank you for your advice. I’m hoping the new loan holder will work with me in some way. I have some more questions to ask them, it seems. I appreciate it.
Just keep in mind that creditors and logic do not run hand-in-hand. What would make sense to you and I may not make sense when applied against the corporate policy and procedure. Don’t let illogic make you angry, just keep searching for valid intervention and alternatives.
I’ve been able to settle EFP loans for signifcant reduction. They may not be able to prove ownership if you hire a reputable student loan attorney, since EFP themselves went bankrupt years ago.
Great advice. I just wish there were more attorneys out there who were taking on these cases instead of turning them away. Many of these pools of loans are significantly polluted. As an example, see https://getoutofdebt.org//100201/national-collegiate-student-loan-trust-loans-fundamentally-problematic
Andy, how were you able to do this? And, if you don’t mind, how much of a reduction were you able to receive?
Question asked.
Question answered.