I have defaulted on a private student loan owned by Citibank. I tried unsuccessfully to negotiate a lower payment plan when I lost my job and gave up making payments in 2012.
Since then I assume the loan has entered default and it has been referred to a collection agency. I’m in the position now to start making payments. I’m getting some help from my parents that I can use to make payments so I get the loan back into good standing so I can take the state bar.
The ultimate goal to find a job – I’ve found I have limited options without bar standing – and finally pay off the loan for good.
What steps should I take to get this loan back into good standing? I know since it’s been referred to a collection agency I could owe fees. Is there a way around this? Can I contact Citibank directly to restart paying my loans? And is there anything I should consider asking the representative in order to get a good deal for getting my loan out of default and back in good standing?
Dear Indebted Student,
You raise an interesting situation. One that many people are still unaware about.
I inferred by where your email was sent, which state you live in. The statute of limitations in that state is three years.
Since the loans have been unpaid and the statue of limitation may be exceeded, I would suggest you first consider talking to an attorney to get a definitive opinion about your loans and the statute of limitation expiration date. There are factors that can cause the date to shift a bit.
The loan would be reported as a delinquent loan from the date your period of delinquency last started. In your case it would be 2012. That means the loan would fall off your credit report in 2019 and you may not be able to be sued for the debt.
So keeping that in mind, when you do contact the creditor and make any payment arrangements. As one North Carolina bankruptcy attorney says, “For instance, if you can’t afford your private student loan payments and stop making payments in May 2012, that’s when the statute of limitations starts tolling. (That’s legal word for the ticking clock of the law). So long as you don’t make any other payments, the statute of limitations on the private loan would expire on May 2015. However, if, at any point in the interim, the lender talks you into making a partial payment, the clock would reset.
In this example, say the lender set their debt collection dogs on you. They tell you, in May 2014, that if you make a partial payment they can work with you on refinancing (or any other option they offer). Then you pay $20 – the statute of limitations clock resets to May 2014 and, barring you making another payment, your debt would not expire under the law until May 2017. Creditors know this and will push for a partial payment when the debt is close to expiring.”
If you have not made a promise to pay or made a payment and the creditor has not sued you to collect on the debt, they may be out of luck. While they may attempt to collect and get you to promise to make a payment, which will restart the statute of limitations, they may not sue you.
If you do make contact with the creditor and engage in discussions to start making payments again you should not be surprised if your balance is substantially more than what it once was. Fees, penalties, and interest have been added on since you last made a payment.
Private lenders do not have to offer any repayment plan other than what you agreed to in the loan agreement. However, some lenders are agreeing to settle old debt for about half of what is currently owed. Some also offer payment arrangements on those settlements. But getting those settlements is a bit tricky. You’ve got to know the right department to talk to and how do you know if they are offering you a good deal if you don’t have any experience doing this?
In this case it might make sense to be represented by a third-party with experience in these things. Someone like an attorney or an experienced debt coach who has a track record of handling such issues.
So faced with how to deal with this without any outside assistance, your only hope is to throw yourself at the mercy of the creditor, believe the facts they tell you, and enter into a payment plan they agree to.
But there is still a wrinkle here. It is unclear if the loan was sent to outside collections by Citibank or they sold the debt. If they sold the debt then there is great concern the new debt buyer even has a valid debt to collect. If you do elect to contact the collector or new debt owner, then you may want to ask them to validate the debt before you do anything.
For more on debt validation, read “How to Dispute and Ask a Debt Collector to Validate a Debt.”
Keep in mind, once you open the door on this old debt you should expect to be pursued fairly aggressively by collectors. It can be mentally taxing but it can also be an opportunity to eliminate your debts all together. You should read this piece with information from a California attorney,”Top 10 Reasons You Should Stop Paying Your Unaffordable Private Student Loan” and learn why debt collection violations can help you to negotiate with the current debt owner.
I’ve given you a lot of information here and I would urge you to distill it all and decide what approach and game plan you want to pursue before you contact the current debt owner or collector. If you deal with this from a position of knowledge and information rather than assumptions and fear, you’ll make better choices.
And as part of that decision making process I would urge you to talk to the State Bar and understand how, or if, that old loan might impact you if you decided to do nothing and accept the fact it is outside the statute of limitations and you no longer have a legal obligation to open that door again.
In a perfect world, if you enter a repayment plan without restarting the clock on the statute of limitations, that would be awesome. We don’t live in a perfect world.