Question:
Dear Steve,
Hi there – hope all is well in these current circumstances. I am currently a gov’t employee in New York City making decent $ but ran into a financial wall sometime in 2018 with debt and cash flow.
I started to pay down debt and purposely missed some private student loan payments in order to pay down credit card debt. While I became current again on the private loan, in early 2019 I stopped making payments on the student loan. And it wasn’t on purpose, I totally forgot to continue making payments on the loan.
To be honest, I didn’t even know what defaulting on a loan meant until a few weeks ago.
I called my provider (Wells Fargo) to try and enter forbearance or enter a payment plan to catch up, but by this time I had already defaulted on my loan.
I read a few articles about possibly not taking any action on the loan and waiting for the statue of limitation to run out.
I also considered refinancing the loan with another provider to clean my report and become current again. What are my options?
I have another 5 years under the SOL in New York. Should I try and refinance the loan or not do anything and hope the SOL run out and become debt free on the private loan?
Khari
Answer:
Dear Khari,
I think the path you should follow should be directed by the math. If you are now able to make at least the minimum payments on the private student loan and save money in an emergency fund and retirement at the same time then honoring the terms of the contract is the least traumatic approach. It will also do the most to benefit your credit and keep you out of legal trouble or collections. This also includes refinancing the student loan if you can afford to do so.
Strategically defaulting on private student loans is a valid strategy for people that have no other way to deal with their loans. However, that strategy is not without consequences and as long as you are aware of the consequences and prepared to deal with them, it is better than doing nothing.
Waiting out the SOL is not as easy as it sounds. There are things you might accidentally do that will reset the SOL clock back to zero.
For example, the SOL can be reset if you:
- make a payment
- admit you owe the debt
- say you will make a payment
- change something on the account
- agree to a partial payment
If you do decide the wait it out approach it would be a good idea to talk with a consumer attorney that is licensed in the State of New York. They can give you a legal opinion and represent you with the creditor if it comes to that.
One place to look for such an attorney is here.
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