Get Out of Debt Guy - Steve Rhode

My Student Loans Have Been a Mess For the Last 38 Years

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Question:

Dear Steve,

I wanted to get some advice as soon as possible regarding my student loan problems.

I found your article about the bankruptcy case of Michael Kevin Abney vs. US Dept. of Education.

I have a student loan debt that was incurred over the course of several years way back starting 1979 to 1988.

There were four loans in undergraduate years, and three loans in graduate years. The total amount borrowed was $20,700.

These were made under the Illinois Guaranteed Loan Program.

In 1989 the loans defaulted because the holder of the loans at that time lost my paperwork I sent them to request a deferment or forbearance (I forget which), because I was on a “Year Abroad” Program at the University of Krakow Poland, from Sept 1988 to June 1989. I was sent a letter on plain paper from the then current holder of the loans requesting I resend the paperwork for the forbearance, -but, I did not have any of the proper forms while I was in Poland. I went to the US Consulate in Krakow, Poland to ask for assistance and the Assistant Consular simply gave me a PO Box address to the US Dept of Education. Some help he was for a US citizen living abroad in a communist country. I was not able to contact get in contact with the US Dept of Education, and it seemed like they most likely would not have gotten back to me with real help for getting a forbearance. As it was, the loans were defaulted, I believe, in early 1989. Communications between the U.S.A. and communist Poland in 1988-1989 were excruciatingly slow by regular postal mail, taking up to three weeks, literally, for a first class letter to go from the U.S.A. to Poland or vice-versa.

When I returned to the US in July 1989, I found out that the ILGP (now ISAC, Illinois Student Assistance Commission, Deerfield, IL) that the loan was then in default. They wanted over $600.00 a month in payments. That amount seemed huge, especially since I did not even have a job. (I studied music performance, classical guitar) When I did start working just to get some money coming in, I was only working for a temp agency at about $7.50 an hour in 1990.

I was living with my dear mother from the time I returned to the USA from Poland. Very sadly, my dear mother passed away in February 1990. I had one brother who was named executor of her small “estate” (consisting of a small 3 bedroom home in a Chicago suburb), and nothing else except a lot of debts. My brother had mental illness and tragically wasted a lot of funds trying hiring attorneys who would quit on him because of his weird ways. Eventually we sold the house (which was a big mistake, but my brother would not cooperate or even speak with me!), and then had to pay the attorneys, the funeral expense, the debts she left, the remaining small second mortgage, etc. In the end I received only a small amount from the estate. I should have paid off the student loan with it, (It was not the full amount due, but was close to that). But unfortunately for me, and unwisely, I lived on that small inheritance for a year and then it was gone.

Fast forward to about 1996, I got a permanent job. ISAC began garnishing my salary. I looked into and hired an attorney to declare Chapter 7 for me. This was in September 1998.
He did not file my Chapter 7 until AFTER October 8, 1998, the date which the U.S. Bankruptcy code was amended to exclude the discharge of student loans. I did not know about this beforehand and the attorney I hired completely messed up because he didn’t file for me the day after I met with him, but postponed it, by some time, I’m not sure exactly how long, but up to 2 weeks, I think. This is the cause of all my problems today, because my student loans at that time absolutely were dischargeable under the law because they were over 7 years past due.

The attorney tried to negotiate a deal with ISAC, but because I was working (although only earning about $29,000 a year at that time), they only agreed to stop the interest from accruing from that time, as long as I actually filed the Chapter 7, (and the student loans were the only reason why I was doing so).

The Agreed Order was that I begin making monthly payments of $200 for two years, beginning in June 1999, then $250 a month beginning June 2001, then $300 a month beginning June 2003, until the balance was paid in full. The balance at that time, including all accrued interest was $35,421.

I was able to make those payments every month until about 2006 or at sometime around 2006, when I was not working full time for some years, as well as being on unemployment for about 2 or 3 years in the mid-2000’s. I had paid the balance due down to $16,324 as of about 2006. In 2011 ISAC contacted me and said I now owed them $44,000 approximately. I was not able to make payments at that time because I was only working part time.

In June 2014, I got a job at a non-profit, earning first, only $10 an hour, for about 35 hours a week, then $15 an hour. In Dec 2014, ISAC began an AWG (Administrative Wage Garnishment), of 15% of my income before taxes. This was about $300.00 a month. In June 2017, the garnishment was removed by ISAC. I did not know the reason. Then in July 2017 I received a phone call from Transworld Systems in Wilmington, DE, which agency was now collecting on my loan. I called ISAC to ask why they sent my loan to an out of state agency, when, they -ISAC, had been getting $300.00 a month from me through the garnishment. The answer was that it was an executive decision, and that they did not have staff to do collections. So that makes sense, right? I don’t know why they did that. They didn’t even try to keep the business in Illinois.

I tried to offer them, i.e., ISAC, through Transworld Systems Inc., a settlement. I offered as much as $20,000 (which I would have to borrow from my employer, -if they would loan me close to $9000.00), but they said they would not take that. They would only take the full amount due, less the collection fees.

Anyway, I work at a non-profit law office, and I have been getting help from two of our very experience attorneys here.

The problem is they both want me to just sign up for a “loan rehabilitation program” and an “income based repayment” plan.

And maybe a Loan Forgiveness Plan, since this is a non-profit. As you know, the Loan Forgiveness plan requires 120 consecutive payments made, over 10 years, while one is gainfully employed at a nonprofit enterprise. I am 63 as of October, 2017. I do not see myself working at this job for another 10 years.

I don’t like any of these possibilities because, 1) I’m 63 2) I have very little saved for retirement, 3) one attorney says I should get a second job and pay as much as I can until it’s paid off in full, 4) If I don’t do the above, they will garnish my social security, which I hope to not take until at least I’m 66 (3 years from now), or maybe even at 70, in 7 years.

The article about Abney was interesting. But he was in a different Federal Bankruptcy Court jurisdiction than I am (I am in Chicago), and his situation is different than mine. Although, he is about 25 YEARS YOUNGER than I am. I have not many years left to my working life, and I need to maximize my income to save at least SOMETHING for retirement, for emergencies. I do not even own a car right now, and I rent a small apartment at $600 a month.

I’ve saved about $14k in the past 3 years, even while they have garnished me for most of that time. One of my attorneys says I should “throw as much of your savings into that loan, and then make payments of at least $500 a month until it’s paid off”, and that I could get it paid off in full in 3 to 4 years.

Yeah, I suppose that might be possible, but I feel that I am literally enslaved to this debt. I have figured that I have paid a minimum of $30,000 on the initial amount borrowed of $20,700. Now they say I owe $40,000. I was garnished on my current job for $8,700. I feel that the most I owe them should be where I had left off paying the amount due on the Agreed Order, which balance was $16,324, MINUS the $8,700 they garnished from my current salary, leaving $7,624 left. But the interest right now is approximately $19,797.

The collection fees are $3,694, the principal is $16,324. The amount owing including principal, interest and collection costs as of Nov 3, 2017 is $40,001.

Do you think I have a good possibility in getting my student loan discharged in Chapter 7 Bankruptcy?

What do you think I should or can do so that this debt doesn’t ruin the rest of my life?
Do you agree with my attorneys here at work who say I should just throw as much money at the loan debt as I can, and make the largest payments I can until it is all paid off?
I am so down about this, and have been for years.

I also have possibly $15k or so in unpaid, old credit card debt, that I had been paying on until about 2013. They send me letters every so often, sometimes offering a settlement, sometimes not. They could start garnishment proceedings but have not yet.

I would appreciate it if you could reply sometime early next week, Nov 6 – 10, 2017.
We are supposed to be getting detailed financial information on my loans sent by regular US Mail to me next week.

The collection agency could not explain how the interest has been calculated, other than it is 9%. Even my attorney, who is very good with numbers could not figure out how the interest was calculated, and added in, AFTER I was not able to keep up my payments per the Agreed Court Order from the Federal Bankruptcy Court in 1999, here in Chicago.

Thank you for your help. I hope you can get back to me as soon as possible, next week, Nov 6 -10, 2017.

Information on my current position: The job I have is a base level support position: data entry. It is important, but I need to see if I can get a better, more well-paying job. The nonprofit sector does not pay as well as for-profit businesses. But prospects for getting a decent paying position (like for about $50k/year at my age are very, very poor.

Paul

Answer:

Dear Paul,

Wow, that’s a lot of information. Thanks.

You have several possible avenues of attack. There is the one where you may prevail but it will cost you a lot in potential legal fees to file bankruptcy and file an Adversary Proceeding to go for a student loan discharge. You would have an argument that has worked for some. The position would be your years of working are nearing an end, your income is slated to go down, not up, and an Income Driven Repayment plan would never get you out of debt.

Then on the other hand you have a less expensive and easier solution of getting on a rehabilitation plan as someone suggested and then opting for an income based repayment plan. Your payment might go to $0 per month when you stop working. This would prevent your Social Security payments from being garnished. And while the loan balance would grow, it would probably just outlive you at this point.

If you wanted to talk to an attorney who specializes in student loan issues and discharge, click here.


Big Hug!
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