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How Can I Repay My Sallie Mae Student Loans When I’m Broke?

Written by Steve Rhode

“Dear Steve,

I have 8 private tuition answer loans from Sallie Mae in the total amount of $138,000 taken out between 2004-2008. After school I was able to make some payments and paid the $150 forbearance fee. Then after the crash of the economy I have not found employment that would give me enough income to cover my living expense, child care and these loans payments of $900.00 a month.

I’m currently unemployed and stay at home mom. They are currently in default and have been passed through by three different debt collectors. On my credit report it is marked as a charge off. I was offered a settlement of $40,000, and another offer to repay in monthly payments with .01% interest. Either which I’m not able to do.

I did make some good faith payments to the first collection agency but realized that its money being thrown into an empty bucket with a hole in it, and ceased payment. I live in IL.

My question is can these private loans be discharged in bankruptcy? These loans were disbursed directly to me with no certification or a record of payment from Sallie Mae to my school. Also these loans were a gross overpayment on my tuition cap. Can it be argued that these loans are not “qualified student loan”? If one day possible is it better to settle these loans with the collection agency representing Sallie Mae or to file for bankruptcy with an adversary proceeding?


Dear Elyse,

Your situation is far too common among the people who contact me.

At the heart of the matter is the fact that, right now, it does not sound like you have much, if any, income to devote towards these private student loans. You are drowning. They are festering.

You raise some valid points and I see you might have read my article on “qualified education loans” and why those can be easily discharged in bankruptcy.

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It sounds as if the loans were disbursed to you and not an “eligible education institution” which is a key point in protection from bankruptcy.

The two easy areas people never seem to look to discharge private student loans in bankruptcy is when the loans were used for an unaccredited school like flight school or some other vocational training, and when the funds were above the limit of “qualified higher education expenses.”

Again, the details are all in this article.

I’d look for a bankruptcy attorney who is licensed in Illinois and talk to them about these private student loan issues. If they have dealt with this before they will be able to tackle the problem easily. Otherwise they may need some more awareness about what is possible.

Even some bankruptcy attorneys suffer from the incorrect assumption that private student loans are not dischargeable in bankruptcy. Many are tough to discharge while some are ridiculously easy to eliminate.

Based on what you’ve said with the loans being disbursed directly to you and for more than “qualified higher education expenses” then this could be on the easier side with the right attorney.

Deciding if you should settle or not is up to you. But before you make a decision I think you should do some more homework and talk to a bankruptcy attorney in Illinois with student loan experience.

I’d like you make any decision to settle based on if the attorney feels your specific loans are dischargeable. At that point the choice will be between if you should eliminate the loans in bankruptcy or settle.

Please post your responses and follow-up messages to me on this in the comments section below.

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About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.


  • Steve, I am in a similar situation. I have $20k in private Sallie Mae student loans. That coupled with my federal student loans and recent medical debt, I am barely keeping my head above water. I was young and dumb and used my private student loans to pay off consumer debt and purchase other things unrelated to my education. I recently bought a home and do not want to lose it. Should I even consider bankruptcy? Is there a way to keep my house if I do? Do I have other options to lower my student loan payments?

    Thank you,

  • Steve, I have a similar situation. I have $20K in private Sallie Mae loans. That coupled with my other federal student loans and recent medical debt, I am barely keeping my head above water. I was young and dumb when a got my private student loans and used them to payoff consumer debt and purchace other things unrelated to school. I recently bought a home that I don’t want to lose. Should I even consider bankruptcy? Is there a way to keep my house if I do? Do I have other options to lower my private student loan payments?
    Thank you,

  • I wonder if Elyse is married and her spouse makes a good living? That was the problem when I spoke to a bankruptcy attorney in St. Louis. He said that I cannot file because my husband makes too much. Also, he stated that Madison County, the county I live in, does not look favorably on discharging student loans. So basically I have no options for getting out from underneath $120,000 in student loans. And as of now I am unemployed again.

    • In that case a chapter 13 case could be filed which would hold the student loans off for the length of the case. Additionally, I’m not sure which theories the attorney you met with holds. As you can see from my article, debt that does not meet those conditions has been immediately discharged in a chapter 7 bankruptcy or at the end of a chapter 13 bankruptcy. You may want to find a bankruptcy attorney in your area that is experienced in dealing with student loan issues.

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