I May Need To Default On My Student Loans…But Who’s My Lender?

Published Thursday, July 2, 2009 @ 5:18 pm

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It may sound a little silly, but do you know who your student loans came from? And do you know where they are now? Arriving at the answer is often not so easy as providing the name of your school or simply answering “the federal government”― even if all of your loans came from the federal government’s lending program. Apart from these two entities, a number of private lenders are also involved in the federal student loan game. In the federal student loan program, private lenders provide what are called Federal Family Educational Loans (FFEL), the schools provide Perkins loans, and the government, via the Department of Education, provides Federal Direct Loans.

What happens if you can’t afford to pay your loans? Thousands if not millions of students are graduating with thousands of dollars in debt, and the job market isn’t exactly waiting with open arms. A majority of the people (three fourths of them) who default on their student loans do so after dropping out of their program, but there’s still a chunk of people left over who finished their degrees and still couldn’t cope with student loan payments beyond their means. It’s hard to say which is worse: taking on a huge amount of debt with no degree to show for it because you were forced, for one reason or another, to drop out? Or going through the hard years of work, earning the degree, only to find that it can’t help you find an adequate salary?

If you don’t pay your loans, the account eventually goes into default. Default happens on your student loans after 270 days of non-payment. Student loan providers are sometimes quite open to helping students get back on track with payments, especially when your lender is the school, so don’t be afraid to try some simple negotiating for more time if you’re falling behind. It used to be possible to wait out a student loan and hope that the lender didn’t do anything until the statue of limitations had passed; many people employed this strategy for a time, and it required conscious non-action on your part and perhaps a little bit of luck with the lender. Now there is no statute of limitations for student loans, so you’re on the hook for life.

Once you’re in default, it gets trickier to pin down the lender. It could be any of the three parties already discussed―the school, the government, or a private lender ― or it could be a collection agency hired by one of these parties to pursue the loan’s repayment. Often, a private lender will sell your loan to a lender who specializes in student loans, and any of the lenders can hire companies that handle billing and collection. Many loans are backed by state guarantee agencies which will pay off the lender whose loan has defaulted. The state guarantee agency will then try to get you to repay, and if they can’t they, in turn, are paid off by the federal government. The federal government then renews efforts to collect, often through those dreaded bill collecting agencies. The cycle never ends

If you get a collection letter for your student loan because you’ve defaulted on the loan, the first thing to do is find out who holds the debt. To do so, try contacting the Federal Student Aid Information Center and ask them to identify the holder. Their website provides a lot of information about application, repayment and default and is located at :  http://studentaid.ed.gov

Defaulting on student loans has serious consequences; it’s better not to get to that point at all. Before your financial situation spirals out of control, consider bankruptcy as a possible means to get a handle on your student loans and other debt. Contact a bankruptcy attorney who can help you get your life back on track.

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