Questions About WF Loan Going into Default

I am going to address the federal loan first....do NOT let that one default. If she has not consolidated with Direct Loans Consolidation Loan program, she needs to do it NOW. She needs to get on the income contingent, income based repayment plan asap!!

Now ...her private loans. You said she has an $1800 per month income...I do dont see a car payment....why is she not paying them? (Or just floating the federal ones for that matter??) If she defaults, the CA;s will be on her. Eventually she and the cosignor will be sued...that results in wage garnishment for both parties, bank account levies and leins on homes. This will affect her and the cosingor for 10-20 years. She will not be able to purchase a home, car notes will be a high interest rates. Plus it could affect her getting a better job.

She needs to talk to the cosignor NOW and try to avoid the default. Federal loans can be brought out of default at a cost...however private loans, there is no going back.

Hello, thanks for the reply. Note: I just registered under this name as I was a guest at the time on the forum.

About her income: the $1800 is pre-tax. She's lucky to take home $1300-1400 after taxes, workplace deductions for benefits, etc. The combined payments from the other government loans are about $350-400 per month. It's very difficult to keep these afloat right now on her limited income.

After paying these loans, she's left with about $1000 per month to live on, and that includes everything: rent, groceries, utility bills, transportation, etc. With a little of my assistance, she lives a pretty bare bones lifestyle: no cable, savings and cost cutting wherever possible, etc.

The payments for the loan in default were over $800 per month and it's now almost five grand behind. I don't see any way to get it out of there, as the lender is unwilling to do any kind of income based repayment. There is nothing that can be sold to instantly produce an extra five grand and more.

I would like her to keep the government loans going, if possible. She has already applied for income based repayment, but it didn't lower the payments that much. Maybe because one of these loans pre-dates the Obama income cap reforms? I think all the government loans are managed by ACS and were taken out about eight years ago.

Can she re-apply for a lower income based repayment plan if her wages are garnished from the private loans? I'm not sure if wage garnishment is factored into your income. If so, that may help prevent the Fed loans from defaulting.

The consequences you mentioned of defaulting/getting sued is about what I expected. The only thing that concerns me at this point is a frozen bank account. Is this something that's used very often after they have already garnished wages? It seems to me that freezing a bank account is like a 100% wage garnishment, if the lender is able to take all of the money direct deposited into the account from paychecks every two weeks, but maybe my understanding is wrong here.

If they can only seize whatever money is in there at the time, it seems pretty pointless, as savings are minimal - usually no more than a few hundred, sometimes about a thousand from tax refunds, but no more over the last few years.

I'm in a completely different situation financially, and researching this issue to help her is really tough for me. I don't want to advise defaulting on any loans, but it seems the ship has sailed with the Wells Fargo loans some months ago. The money simply isn't there, and won't be there, to set it right anytime soon.

I should mention that the co-signer has no real assets to speak of either, and no wages to garnish. For reasons I won't go into here, the man has been unemployed for many years and I don't think he will work again. Perhaps the collectors will try to garnish his Social Security benefits one day if this goes on for another five to ten years, but I read that private lenders can't do that, only the government ones.

So, all together, they can't do anything beyond suing for their 25% of wages in this situation and perhaps trying to levy a bank account? If that's the case, I think all I can do is advise her to try to keep the government loans going and prepare for the inevitable with wage garnishment.

Neither her nor I are terribly concerned about the inability to get credit because of this default. I think my own habits (I'm extremely debt averse) plus the sourness of this whole thing have convinced her to avoid any type of future debts. Neither of us would ever take on future loans for cars, school, etc. If we get a house together one day, the home and mortgage will be entirely in my name, and I'll be putting down at least 50% of total cost.

For her sake, I hold out hopes of future student loan reforms that may come about in the next decade due to the education bubble popping. I don't see how it can't happen with tuition as high as it is and inability to discharge private debt in bankruptcy - looks exactly like housing prices before the meltdown. When costs are exploding every year far beyond inflation, that's a bubble, in my mind. Of course, I know that's pure speculation, and the terms of any future reforms are totally unpredictable.

But enough said about that. Thanks again for your assistance, SL.

How much does she owe in federal loans and has she consolidated them with Direct Loans???

I suspect she went to some for profit educational school instead of the more affordable community college or state university. That is were the bulk of private loans are taken out from.

I believe the total owed on the government loans is about $20,000-25,000. There's a small "private" loan for around $4,000 owed directly to another school (it is not through a private lender, but the school itself). This is where the $350-400 per month in payments comes from.

What are the prerequisites for consolidating the government loans? Is this still a possibility with the private loan going into default?

Also, can you let me know whether or not she can re-apply for an income based repayment plan after her wages or garnished? Will the Federal government take this type of income adjustment into account or not?

You may be right about the for profit school, though it wasn't anything like the University of Phoenix/Arizona or whatever it's called. She went to an accredited private school, which was a huge mistake, in retrospect, and had to drop out before completing her original degree due to a mixture of health issues and poor performance. It was a huge mistake in retrospect.

Years later, she ended up getting a two year degree from a cheaper community college for massage therapy. About half the government debt is from this, and the rest was paid for in grants. Hopefully, she will be able to earn a higher income one day by working full time in this industry, but it isn't viable right now because very few clinics provide therapists with health insurance. So, she's forced to stay at her low paying retail job part time for the benefits and work as a therapist for 10-20 hours per week on the side.

I'm not looking for sympathy or anything, but I'll add that the difference between our two situations highlights a huge flaw in the system, in my eyes. I was fortunate enough to come from a family that fronted the cost of a big part of my four year education and encouraged me to go to a state school. I graduated with minimal debt, and the loans are almost totally paid off now. Would I have been so fortunate without well reasoned family input? I doubt it.

She, on the other hand, came from an incredibly irresponsible family. To compound matters, High School counselors during the pre-2007 boom times (and maybe now) seemed to push the idea of education for education's sake at any cost. I myself was told to "go wherever you want" and "don't think of the cost." Luckily, I suspected this was absurd advice, and my family weighed in against it too.

The lenders don't care about this and perhaps no one here does either, but I thought I would mention it as food for thought. We're in this mess because a good number of eighteen year olds have almost nowhere to turn for sound financial advice, if they are unlucky enough to come from irresponsible parents and go through the public education system. The schools don't help at all in developing sane financial decisions for higher education and beyond.

We've decided as a society that it's government run education's job to educate children about science, history, sex, and nutrition, but not basic personal finance??

Like I said, the only way I believe people like my GF will ever gain a more manageable foothold on their debt is by some serious student loan reform. I hope to see changes that will make these loans dischargeable in bankruptcy again, or at least cap repayment for all loans (government and private) at a percentage of one's income. Regrettably, it will take a crisis on the order of the housing crash for the government to act, which may mean a decade or more of waiting. But I firmly believe it will happen.

Sorry, I forgot to ask: how common is it for a private student loan lender like Wells Fargo to pursue measures beyond wage garnishment? Are frozen bank accounts and levies on assets pretty common, or uncommon? I couldn't find a clear answer to this from my own research. It looks like a lot of other people in default purgatory just ended up with their wages garnished...

They could theoretically go after the co-signer's home, but he may be renting by that time anyway. There are no other assets for either him or my GF, as I said before.

Also, what are all the implications of having a frozen bank account, if they decide to do this?

Quote:

Thanks, SoapLady.

It sounds like I should advise her to pursue consolidating the Federal loans, and then re-apply for an income based repayment plan. Once Wells Fargo has done whatever they are going to do with wage garnishment, hopefully she can apply again and have a new income based plan taken into account.

The private loan from her school was not a Perkins loan, or any other type of government backed debt. It was a small loan offered exclusively by the school with no third party lender involved.

Finally, just clear up any confusion, the huge Wells Fargo debt and most of the government loans did not come from a sketchy online school like the University of Phoenix. The school in question was St. Mary's in Winona, MN, which is a regular accredited private school. Just a very expensive one. I don't know if you put in the same league as the "for profit" schools you mention.

This debt came from pursing a four year degree in liberal arts that never came to fruition, and probably wouldn't have led to very good job prospects if it had, unfortunately. She later added a minimal amount of debt and received grants to get a two year degree in massage therapy. There's no need to have a four year degree in this field, and I doubt they even exist.

Ironically, I believe lots of certificates and two year degrees are becoming far more valuable than four year degrees, especially against liberal arts and some of the easier business fields. Maybe you weren't knocking them, but I wouldn't. If more students decided to go into fields where these were the only requirements (plus a license or two), I think the debt bubble would be well on its way to deflation.

I understand that the swindling, unaccredited for profit schools pre-dated the recession. So did hyper-expensive private schools like St. Mary's. The point of my mini-rant was that too may High Schools are shoving students to "the best" college (or perceived best) they can get into, without caring about the cost. I was told this in 2004, when I was near the end of High School, and my girlfriend was as well. I've had many other friends who were fed the same garbage by counselors and teachers, who were either clueless or totally idealistic about what's really going on with higher education, debt, and finance.

I realize that personal anecdotes may not mean much, but I think it is one factor into why we've arrived in the situation we're in as a society with regards to education and debt. Until the public schools stop preaching that everyone should go to college for education's sake, "do what you love," etc. without encouraging them to think about the financial cost, the cycle will continue.

It's insane to me that no lender in their right mind would give an unpolished eighteen year old with little real world experience a large business loan, a high limit credit card, a mortgage, etc. even if their parents co-signed for it. Yet, taking out half a mortgage for a degree that may or may not lead to any earning potential is a-okay in the dominant social consensus right now - one that I hope is rapidly starting to change as cautionary stories like my GF's are reaching more ears.

Yes I know St Marys...I am from Bloomington MN and my ex has family in Winona. My eighth grader has dreams of going to Saint Oalf if she can get the scholarships although she has state school backups.

SoapLady,

I'm still a bit unclear about what exactly happens when they freeze/levy a bank account. This is my main concern about her getting sued over the defaulted loan. I expect wage garnishment and attempted seizure of the co-signer's assets (just the house, if he still has it when any collection attorneys come knocking).

Does levying a debtor's bank account mean that the account is rendered virtually useless? Or are they simply allowed to draw out anything that's in the checking/savings account at the time of the levy, and then it reverts back to normal?

I have this vision in my mind of them being allowed to withdraw all money that is placed into it, which makes the account pretty useless, if that's the case, since there's no point to banking at all. Then again, why garnish wages at all if you can seize the entire direct deposit week after week? I am confused about what exactly a collector can do to a levied bank account.

Thanks!