There are various alternative payment plans now available. Consider retaining an attorney knowledgeable in student loan programs to determine which program is best, whether consolidation makes sense and to help you through the application process to modify your student loan. There are many strategic decisions to be made to reduce your payment to an affordable amount. For instance, if you consolidate a certain type of loan with others, you basically kill any income based payment options for the other loans.
Loan forgiveness and discharge options also exist. While deferments and forbearances are available, there are pitfalls in using one over the other, and income adjusted plans are often a better choice.
Unfortunately, most of these options exist primarily with federal loans. There are not a lot of options available with private loans currently.
Tips for Defaulted Borrowers
Even if you have already defaulted, you can get out of default by rehabilitating your loan to bring the loan out of default, eliminate the debt from your credit report, and regain eligibility for more student aid. This would also eliminate garnishment of wages or tax refunds, or lawsuits. A borrower should consult with an attorney who is knowledgeable about student loans when trying to rehabilitate their student loan. Many debt collectors will steer the student borrower to a higher payment because it nets a certain collection fee to the collector. These rehabilitating payments are supposed to be based on the borrower’s budget. There are several lawsuits pending around the nation intended to hold the debt collectors to the law and reduce payments to an affordable level during the rehabilitation process. Once the loan is rehabilitated, then the full ranges of income adjusted payments are also available.
Tips for Borrowers who have been Sued for a Student Loan Default
The first 20 days are the most important in a lawsuit. You will have 20 days (sometimes 30 if the summons provides for 30) to file a response to a lawsuit after you are served. An attorney well versed in debt collection laws is necessary. The National Association of Consumer Advocates (NACA) maintains a list of qualified consumer advocates in your area. Student loans are like any other debt in that the collector has to have a signed loan agreement, proof of ownership and standing, payment history etc. Often the student loan, much like our home mortgages, has been securitized and payment or ownership records are inadequate. The debt collector must bring a person with personal knowledge to the final hearing or trial or risk loss. Settlements are likely in student loan cases. Reductions of interest rates and flexible payment plans are also likely. Ignoring these lawsuits can be dangerous because once the collectors receives a final judgment, that judgment, at least in Florida where our office is located, can last up to 20 years.
At any of the above stages, the debt collectors for the student loans may overstep the law. Filing a lawsuit against the student loan company can result in damages, reductions of balances owed or interest rates, and a way to pay your attorney to represent you in obtaining relief for your student loan debt.
To learn more about getting your student loan debt under control, including options for deferment and cancellation, see Nolo's section on Student Loan Debt Relief. Additionally, you may have the option of discharging student loan debt in bankruptcy.