Question:
Dear Steve,
Before I graduated from high school in 2008, I was looking at schools and ways to pay for my continuing education.
My father assured me that he would pay for my college education. My first choice was Michigan State University to major in Zoology. I applied for federal aid and got some, but it did not cover tuition.
My father again assured me that my college education was “taken care of” and we got private loans in my name that he cosigned for. During my college career, my father had to file for bankruptcy and so for the remaining private loans that I needed to finish out my degree, my grandfather cosigned (my father’s father).
I finished my degree program and graduated with a degree in zoology in 2012 and my father continued to pay as he had promised. I got a job in a zoo but my fiancé and I moved and I had to seek other employment.
After not being able to find anything zoology related, I returned to school. I discussed this with my father and it was agreed that I would pay for the loans needed to pay for the additional schooling but that he would continue to pay the MSU loans (which I could not afford).
I graduated from a technical college with a degree in medical assisting. I worked as a medical assistant for a few months and earned my national certification before my fiance and I had to move again.
Now, I am currently working as a CMA and hopeful that I can one day use both of my degrees and pay off my loans. My federal loans are currently on an income-based repayment plan and the minimum monthly amount due is $0.00 because of my low level of income.
Yesterday, my father informed me that he would no longer be paying my student loans. I also found out that the payments that he promised to make are already past due on some of my loans and he did not tell me.
I am trying to educate myself and do what I need to in order to make payments, but I am unsure of my rights and options even after speaking with my lenders (Discover Student Loans and Citi Bank Student Loans).
1) I am willing to work with my lenders to try to make payments work, but if none of those options work, what exactly will my lenders do to me and my two cosigners? I have heard horror stories of severe punishments (legal suits, jail time, etc.) and I am wondering if I have any way of avoiding these if I cannot make enough money to make payments. I am only 26 and I have no assets except possibly my vehicle (which I am also paying off), so I’m wondering if they would take my vehicle, garnish wages, seize tax refunds, etc.
2) If I take on a second job to try to make payments, I will lose the health insurance that I currently have because it has an income cap. Would it be worth it to give up my health insurance in order to take on a second job to make payments? I would then have to find new health insurance that would cost more each month, so I am wondering if it would only make matters worse.
3) Is there anyone besides my lenders that I should be talking to for information or options available to me? I am searching for education and resources but I don’t know where to begin.
4) Is it wise to explore options of defaulting or bankruptcy after I have exhausted all of my repayment options? I know that it will destroy my credit, but if I am unable to make payments, I really don’t know what my other options would be. I am worried that the only options left to me (default or bankruptcy) wouldn’t even help anyways because my loans my not even be discharged.
Thank you very much for your time. I appreciate the information you provide on your website.
Sarah
Answer:
Dear Sarah,
Both of my parents are MSU grads. Go Spartans!
You are certainly caught in a trap. And if there was a time machine it would have been awesome for you to stop the moving that does not seem to be increasing your income. But that is what it is. Hopefully your fiancé is finding bigger and better opportunities with these moves.
Private student loans are horrible. They offer none of the benefits of federal student loans and no lender has to offer you any repayment option outside of what you originally agreed to.
It sounds like your father may be experiencing financial problems himself. And as a co-signer, if he files bankruptcy it can accelerate the entire loan due to you. That is certainly not a reason for him to avoid bankruptcy. I’m just alerting you that is a possibility.
But it doesn’t really matter if you can’t afford the monthly payment or the entire loan. The result is the same, default.
And speaking of default, if you can’t make the payments on the loan your grandfather co-signed, the lender may go after him.
The things the lender may do are all spelled out in the original loan document. They can attempt to collect, sue you, get a judgment, and/or go for a wage garnishment or a lien on property.
All of that being said, the lenders sue less than you would imagine. Absent any affordable repayment plan then you should read Top 10 Reasons You Should Stop Paying Your Unaffordable Private Student Loan.
If you will default out of an inability for the lender to negotiate a solution or your ability to pay then at least having a plan on how to leverage the default would make the most sense.
My advice would be for you to first attempt to negotiate a repayment plan you can afford with the private lenders. I would resist any offer for them to defer your loans as that will only increase the balances and make them less affordable in the future. Also, don’t make any repayment promise you can’t afford. It will come back to bite you later.
I would then have a conversation with your co-signers and discuss what may happen when you default. I would suggest as a team, you think about hiring Damon Day, a friend and experienced debt coach, who can help y’all develop a concrete plan of attack when the inevitable collection calls start to come. It’s always better to have a plan when they do than be in fear of those stressful calls. Damon can help you understand how you can use those calls to your advantage.
You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
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