“Dear Steve,
So this is less my situation than my partner’s. Ryan had a bit of a rough patch in his younger days – a pretty long one actually – and managed to rack up a school loan debt without managing to graduate college. He has $18,000 on the books right now that has been deferred for years for different reasons. Obviously this cannot be done forever and the period is soon coming to a close (or at least the period for which he is willing to defer). We have a new and expanding business along with the debt that comes with it and now we are also responsible for a mortgage. The idea of having yet another monthly payment is a nightmare to me.
There have been several updates to my knowledge base that prompts me to ask these questions. One is that Obama has apparently recently passed debt forgiveness legislation. I am not too familiar with it and am wondering if we can take advantage of this since Ryan is horribly low on income at the moment. Since Ryan never graduated school, I am worried that this program will not apply to him.
I have also recently heard that when a debt is delinquent, the loan company or school then sells this debt to a collections agency but does not supply sufficient paperwork to actually prove that this debt is owed or how much is owed because the transfer of such documentation is so sensitive that it would open up potential privacy litigation.
As a result, if they do take you to court, you just have to ask for the paperwork accompanying their claim and, since they don’t have it, the case will be dismissed. This sounds too good to be true, I know. That’s why I am questioning it. However, Ryan is willing to take the hit to his credit report for the 7 years that it would be affected (as all of his major loan activities are essentially covered now – hopefully nothing huge in the future) if his debt will eventually just disappear.
I did read your last article to Matt about his situation with NCO and this makes me, predictably, nervous. Ryan and I are not yet married, but we are considering it for many reasons. Marrying our financial histories, however, may destroy my record, which is perfect right now, at least for my income level. I need to know how bad collections could be and how long his record would be tarnished.
If neither of these options are real options, is there anything else that you would recommend we do to take care of this? Can banks look back at your record in collections and see how much money you are delinquent in? Does that go away also in seven years?
Thank you for all of your help!
Julie”
Dear Julie,
While there was some fanfare and fine-tuning with announcements about an Obama Student Loan Program it was just some tweaking of programs that have existed.
These programs are for people with federal student loans, not private. And if these are federal loans it sounds like Ryan would significantly benefit from them since they are income based repayment programs that will him to keep his loans current with payments as low as $0 per month.
For more information on these programs see The Ultimate Guide to Dealing With Student Loans You Can’t Afford.
Your point about having the debt and not having graduated is well taken. I’ve said for years the stats show 75% of people who have student loan debt never obtained the benefit of the degree. Most people never finish school for a variety of reasons, including needing to drop out to service the student loans.
While there has been an issue with private student lenders selling old loans and the new owners not having the sufficient documentation to defend their claims, when it comes to federal student loans that has not been the case in general.
The Department of Education does hire outside collection agencies and they will share information with them but this is done per a defined policy and guidelines. I would not think it would be a blanket privacy problem.
Your concerns over marrying and destroying your credit are unfounded. After you marry you will have a joint credit report but that is based on credit jointly applied for. Ryan will not destroy your individual credit report or score. This is a common fallacy that many fall for.
As for banks looking at how delinquent Ryan is, that information is already probably being reported on his credit report. Negative credit events will fall off the credit report around the seven year mark from when they went delinquent.
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Just answered Julie’s question about Ryan’s student loan debt. Sorry for taking so long to get to it Julie. Just backed up.