delequint student loan - unsure of next step

Without going into too much of the hard luck story, I need some advice on what to do next.
Spouse has a student loan (more than 10 years old).
Financial problems that lead to Chapter 7. Subsequently, the student loan went into default. It has now been turned over to Van Run for collection.

Other factors include: $23k debt to IRS, Child support and arrearages (previous marriage), two pre-school aged children, do not own home (rent). No savings account. Yada yada...there isn't anything left for another high monthly payment.

There is the loan amount, interest and the fees and costs, which pretty much equal the interest.

Our options?:
In a straight settlement offer (would require closing out a SIMPLE IRA), how much of that total above would be expected to have to be paid? The fees and costs I suppose is mostly what I am really asking about. We understand that we would pay heavily (again....10 - 25%) to the IRS in penalties for closing out the IRA. This would leave us with not enough to cover the principal and interest (it would cover about 80%).

Rehab or consilidation. Again another high monthly payment is not something we can handle. Would this collector look at low payments as an option? I would guess there is hefty interest involved as well. How willing are they really in working with us to do something to get this back on track?

We are just not sure what our best choices are without putting ourselves back in way over our heads. We are trying to rebuild and the last thing we want to do is destroy what we are just beginning to do.

Any advice is appreciated.

Most collection agencies will not accept any reductions in the first shot. However, if you can negotiate well, you may be offered to pay 70% - 80% of the total.

Your debts are added with too much interests and fees. Perhaps, you can look for some consolidation company for managing your repayments and negotiate a lower pay off with the lender/collection agency.

All CA's for federally insured loan can and regularly do settle student loan accounts. Generally they will waive some or all of the collection fees (which can total up to 18.5% for staffords and 33% for Perkins loans.) Sometimes they will waive some of the interest.

I do not recommend you cash out an IRA. I would recommend that you go for rehab or consolidation.
A standard payment for rehab is calculated at 1% of your balance..so if you owe $10k, the monthly pay would be $100. You need to make 9 on time monthly payments to qualify. However, if you cannot afford the 1% payment, you are entitled to "reasonable and affordable" payments. This regualtion is straight out of the Higher Education Act. The CA will more than likely require a financial statement including pay stubs so qualify for a lower pay. (FYI...if the CA does not wish to cooperate and give you the lower payments, you can contact the student loan Ombudsman for assistance. )

The other option is consoloidation. I recommend the Direct Loan Program thru the DOE. Since you are defaulted, you will automatically be assigned to the ICR (income contingent repayment) plan, where your payment is made as a percentage of your income. Due to the fact that you have other IRS and child support obligations, they will work to give you a lower payment if you cannot afford the ICR payment. They are easy to work with!![/u]

Thank you both for your advice.

Am I correct in assuming that when she talks to the CA that if she requests that the loan be rehabed that there will be no trouble in doing so? In other words, can the CA deny the request? Can the CA insist on an amount higher than 1% of the debt?

Also, and I admit there are not a lot of details yet (spouse is embarrassed to ask), but the CA called her employer, asked for HR and talked to them. Again, not sure of what all was discussed, but we know for sure the CA gave full idenitfication of the CA and had HR give spouse message to call them. As I understand it,there are provisions of the fdcpa that prohibit contact with third party other than (in case of employer) to verify name and contact information(phone). Where is the line here when the CA has gone too far in contacting the employer?

Thanks again.

Sounds like the CA has verified your husbands employment for purposes of initiating Administrative Wage Garnishment. Totally legal. If your spouse has not talked to the CA yet and the CA has not been able to reach her, having HR pass a message is something we reguarly did. I would assume that you will receive a garnishment notice shortly....it is extremely important that the notice and objections to garnishment be returned immediately or the garnishment will go thru.

They can ask for a higher pay than 1% but with your other obligation such as IRS and child support, if they do not cooperate, I would highly suggest that the next call or email be to the student loan ombudsman.

Spouse's work schedule of late has been disruptive to more than just this matter.

It may be necessary for me to contact CA and act on spouse's behalf.

Here is my game plan...I would prefer to get this taken care of without putting us in a bad situation...so if anything I suggest is unreasonable, I would appreciate feedback.

When I call, I will give pertinent information to verify identity and my connection to the account in collection. I will then attempt to establish that the desire is to rehab the loan. At that point I will outline the IRS and support obligations and request that the rehab be set at 1% of the total amount (including all fees...at this point, I do not see an advantage in trying to negotiate down the fee). If that is agreeable, I would think a direct payment option would be better suited to ensure timely payments so there is no misunderstandings in meeting the terms of the rehab.

How does that sound?

I just do not want to stumble here and make a mess of this.

Thanks

Thanks for all the advice. It went pretty well all things considered. The CA wanted 2%. After all that it turns out though that rehab was not an option. The spouse had problems prior to our marriage with this loan and had a few DOE judgements already. Would have been nice to know beforehand.
The CA was still excellent though and helped me work into a doable solution. It is going to be extremely tight, but given the alternatives....at least it is going in the right direction again.

Thanks again for the advice.

from fhtim..can't seem to log in..anyway

The CA did say something that is interesting, but I did not ask further about it. The CA told me that we could contact the DOE and "cut a deal" to pay the amount in full. She told me that they would accept an amount that turns out to be less than the total of the principal and the interest.

How accurate could the CA have been? How do they know how much the DOE would accept to pay it out? If it is possible to do so....how does one go about it?

Not sure how we can come up with the cash, but from what the CA was telling me...as opposed to paying the monthlys all the out vs paying it off, we would cut the total costs to us by almost 60%.

The DOE wont authorize going below principal and interest....just wont happen. Getting 100% waived is next to impossible. DOE looks at your spouses earning potential over the next 25 years. I only had a couple of full interest waived during the time I was in collections and both were extreme circumstances. One of leaving the country permanently, and the other was retired and was offering a settlement out of her husbands estate.

Keep in mind that anything you settle on, you will be tax on the following year via a 1099. So you could end up in deeper IRS problems.

I have made the 9 payments leading to loan rehab. I arranged for payments via my credit card. Yesterday the ca called and gave song/dance about someone set it up wrong and they needed one more payment and would only take a checking acct. number or moneygram. I asked they simply put it on my cc. they stated the gov't. had cut off cc payments the day prior. I found this hard to believe as my cc payments usually post later in month. After several phone calls to ca and several hangups by ca, I smelled a rat. I called the DOE and they stated my loan was ready for rehab, that I had made my 9 payments on time and the ca needed to release my loan. They also advised that the ca should not have asked for my checking info. They provided an alt. phone number for the ca( which unfortunately led back to same ca reps.). When I told the ca what the DOE had told me, they put on hold for a few and then returned and stated my loan rehab paper work was going out that night. I followed up with the DOE and they verified the paperwork was being sent.
Don't accept what the ca tells you. Verify info with DOE. Many ca use biz names same as or similiar to official gov't programs. Don't be fooled.
Good Luck!

I might also add the people at dept of ed were great. They also allow me file a complaint against ca over the phone and gave me an address for DOE collection complaints to send additional info to. My ca was a really sleazy outfit, trying to boo game me into sending one extra payment to them and also giving them my bank info. Heck, I was paying, save the bs for those who aren't. If anyone has had similiar situations, please post.

This is hard to understand since the CA's have absolutely nothing to do with releasing for rehab. All of the paperwork for rehabs is done by the guarantor, the owner of the loan. It is not uncommon for additional payments to be required for rehab...a 10th payment is required 50% of the time with most rehabs.

On the credit card issues. It is quite possible that credit card payment are being done away with. It happened in the 90's...credit card issuers were not happy with CA's accepted cc'd to pay off bad debt. There was a high incidence of accounts being paid off and then being filed in BK.

SoapLady, you give some very good advice on student loans and I think you should stick to that and not give advice about using or not using IRA's and savings.

Guest,
That is just plain rude. She is investing her own time to help others and the least we should do in return is show the lady some respect.

Excuse me but I only stated it is not advisable to cash in an IRA or 401K to pay off a student loan. There is nothing wrong with paying off student loans with savings, but to pay off a student loan with a cashed in IRA or 401K is asking for trouble. The tax implications can put you into a deeper mess. If you settle on a loan with a cashed in retirement plan, you not only have to pay taxes on the cashed in fund but you also pay taxes on the settled portion.

I also advise on a couple of other boards where there have been big discussion on the repercussions of paying off student loan debt with this type of funds.

Guest, It's your choice which advice to apply in your real life and which one to discard. Don't stop something good that is being discussed here. Someone will find it helpful in his/her situation. Soaplady has posted many suggestions and they are helpful.