I have about $20,000 of private debt from my undergrad degree, that went into collections when I lost my job due to the 2008 recession, and literally had to choose between my loan payment and putting food on the table. I’ve been getting calls from various collection agencies every since. My federal loans are in Income Based Repayment, and I make so little money that my monthly payments there are $0.
I want to go to grad school to get a professional degree so that I can make more money and get out of this cycle.
Will this unpaid private debt, which has been in collections since 2009, prevent me from getting the financial assistance I need in order to afford grad school?
What steps do I need to take to remedy the situation?
If you were hoping to get Direct PLUS graduate loans for your graduate studies, then your delinquent private loans could prevent you from getting more federal loans. One of the eligibility requirements to receive a Direct PLUS Loan is that the applicant must not have an adverse credit history. A credit check is performed to determine whether a Direct PLUS Loan applicant meets this requirement.
The Department of Education says you are considered to have adverse credit if:
1. you have one or more debts with a total combined outstanding balance greater than $2,085 that are 90 or more days delinquent as of the date of the credit report, or that have been placed in collection or charged off (written off) during the two years preceding the date of the credit report; or
2. during the five years preceding the date of the credit report, you have been subject to a
- default determination,
- discharge of debts in bankruptcy,
- tax lien,
- wage garnishment, or
- write-off of a federal student aid debt.
To get around this requirement you would need to drag someone down into this pit with you. You’d have to find someone
dumb enough willing to cosign for the loan and be 100 percent responsible for the debt.
If you have adverse credit the Department of Education says you can qualify for mroe unaffordable loans these ways:
“First, you can receive a Direct PLUS Loan if you obtain an endorser (similar to a cosigner) who does not have an adverse credit history. (A credit check will be performed on the endorser.) An endorser is someone who agrees to repay the Direct PLUS Loan if you do not repay it. If you’re a parent Direct PLUS Loan applicant, the endorser can’t be the child on whose behalf you are borrowing.
Second, you have the option of trying to qualify by documenting to the satisfaction of the U.S. Department of Education that there are extenuating circumstances related to your adverse credit history.
If you qualify by obtaining an endorser or by documenting to the satisfaction of the U.S. Department of Education that there are extenuating circumstances related to your adverse credit history, you’ll also be required to complete PLUS counseling before you can receive a Direct PLUS Loan.
If you apply for a Direct PLUS Loan and are notified that you have an adverse credit history, you’ll be given detailed information on the options for qualifying by obtaining an endorser or submitting documentation of extenuating circumstances, along with instructions on how to complete the required PLUS counseling.”