Dear Heather,

Maybe you know something that I don’t after spending many hours researching, so here it is:

With Sallie Mae Tuition Answer loans @ 9% that went over 120k balance before being charged off and 120k of federal (includes spouse), school was my ultimate sub-prime screw-up. Unfortunately, unlike a sub-prime mistake on a house, there’s no asset to walk away from, and it’s unclear if they will give up after the statute of limitations would normally expire.

There are the obvious federal loans, the private “gap” federally backed loans to meet the “cost of attendance”, and then there are “true private” like these, which to me seem to be regular unsecured loans because they are privately funded. However, it would be hard to identify them as a separate class in a bankruptcy as it requires an adversary proceeding. According to one analysis at http://www.finaid.org/questions/bankruptcylimitations.pdf , these may actually be “non-qualified” loans suggesting that they would not be exempt from discharge:

“An education loan that is not school certified could still be a qualified education loan if it did not exceed the limits of a qualified education loan and was not disbursed for expenses outside the scope of a qualified education loan” , in my case it was for living expenses beyond what the school could provide after stafford loan funds were exhausted on tuition. Again, the classification is unclear as a matter of law—I now realize that Sallie Mae took advantage of this to create predatory high rate loans that they consider “no risk to themselves” due to a complete lack of consumer protection. I admit it was a mistake on my part as well to borrow, but I had unrealistic expectations of the job market and how much money would be left at the end of the month (and also how obscene the payments would be).

It seems that Sallie Mae doesn’t deal with these loans but farms them out to collectors without selling the debt. This would make it more difficult to fight if they sued, although the collector’s lawyers might make mistakes (a lot of them I hear come expecting default judgements without a fight or just not being prepared, but that’s up to luck). Since they are not sold to junk debt buyers that I know of (maybe after many years?), the collector would probably have access to any documents that Sallie Mae has, so the only dispute once making them produce the documents would be on anything they have added to the amount inappropriately.

Due to how large the balance is, I assume they will eventually sue for it and take the effort to produce the necessary documents. Perhaps they are waiting until I have some kind of assets to strike, or maybe like mortgages there are just too many defaults to process and it’s just a matter of time? I will also assume that despite me getting a lawyer to fight it, they will ultimately obtain a wage garnishment order of 25% since they are not bound by any restrictions like how the Department of Education limits itself to 15% garnishment.

Now, I got a lot of criticism for not working with them in the end and giving up on the loans, but from my perspective 1500/mo in interest is simply unsustainable and they could string me along forever on whatever I could pay (the balance would just keep building). Unfortunately, even with a 25% garnish at the 10% penalty rate, while I would pay less per month it is also a “forever battle to be done with it” since they can just renew it ad infinitum and again the balance will never be paid off.

The federal loan balance will also keep building. I cannot afford to initiate the IBR program and I keep having to do forbearance because if Sallie Mae sues then I will have a 25% judgement AND a voluntary payment of 10-15%, in the end I am forced to default on the federal loans because their 15% overrides the other judgement and the result caps at a total 25% garnishment, instead of 40%.

You see my dilemma. Private loans aren’t limited to 15% garnishment, cannot be discharged in most cases in bankruptcy, the lender has no IBR program (or even if they did create one - it wouldn’t include a solution for the private AND federal loans to cap the total at 15% of take home pay which the government clearly is trying to do, so you would be paying 25-30% still). Frankly, none of this makes any sense to me - to afford them the same protection but not the same limitations, as the federal loans; and, to provide no way out of a “forever debt” situation.

In retrospect, if all of these loans were treated like regular consumer debt, perhaps they would actually calculate the risk and not lend to stupid kids like me with no foresight on just a good credit score. Perhaps that would reduce the money supply and school costs would stop inflating at ridiculous rates beyond what the degree is actually worth. To my knowledge, this is the only debt type that will haunt you until you die, but all the current movements and protests as more people find themselves in this situation has not really changed anything and all the proposed changes to related law have failed to pass.

Is there any hope for regulation or change ? I can live with a 25% garnishment, but for the rest of my life ?? I feel bad for this generation and there are even some people at retirement age whose student debts will outlive them. It’s sad that things are this way. H.R.4170 Student Loan Forgiveness Act of 2012 appears that it will die a slow political death, and in any case it doesn’t address these private loans that claim bankruptcy protection ! If only all things that get the protection from discharge were rolled up into your federal account and the 10/10 forgiveness was passed - we would see a light at the end of the tunnel. Sallie Mae has covered every base here to keep the “forever debt” alive.

A couple of other notes:  there are time limits on how long private student lenders can sue.  Those time limits vary by state, but are usually about six years after default. You can consider contacting an attorney in your state to find out more these statutes of limitations.

If the lender sues and gets a judgment, the lender is also given a specific period of time to enforce the judgment, but in most states, they can keep renewing the judgment which basically gives them an unlimited amount of time.

Debt is not forever. Too many times, we hear “you’ll always have debt” or that carrying debt is an investment. Debt makes us think that it is impossible to live an amazing life without it. Debt makes us think that we must always have a car payment in order to have a drivable car. Debt makes us think that we can never finish our degree without massive student loans.

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