I Rehabilitated a Default on a Student Loan
by Diane Conlinn, November 6, 2000
I had thought all was lost. I was getting terrible phone calls promising to garnish my paycheck for repayment of my student loans. It was a horror story. Federally backed student loans are collected by the IRS, so they don't need to go through the courts. They can just start collecting. The fact was I had been paying on my loan, I'd given them $2000 at one time, then $200 erratically, and they were wanting $250 a month and I had just recently started working after being unemployed for 18 months. Additionally, the phone calls had been so unpleasant, one of them suggesting going to work for McDonalds (not a bad job, just not enough money). McDonalds wouldn't even pay for the room rent of $500/month (California Bay area folks) that I was borrowing from a friend. I kept looking and looking and finally landed a job that with care I could start repaying at least some of the mountain of medical bills that had piled up during my time off.
In the mean time, any money I did get had either gone to living expenses or to the ever more ravenous creditors that called. Then, while surfing across the net on a friend's computer one day, I found Debtors Anonymous. Immediately, I knew that was me. I found out where the meeting was and hied myself to the meeting. They met in the meeting hall of a little Quaker church. They were a small group of people, but I came away with a lot of hope for the future. They had literature for sale, not for free. I remember thinking at the time, that was wise, because weren't we all a bunch of people just like me, good intentioned, but never enough money.
I cried and shared my story, and I didn't receive condemnation that I expected. I wasn't told I was a freeloader and a lazy excuse for a human being. No, they told me that if I wanted I could have a pressure group meeting and they would look through my piles of bills for me and help me figure out what to do, including my horrible student debt looming over me.
For two weeks in a row on Tuesdays, three of this group of saints got together and went through my two sacks of bills I had gathered. I had gotten to where I was afraid to even open the letters and I had them stashed like pills all over my small apartment.
After listing all my bills, the first thing they asked me to do was to pay my current utility bills. They also told me to write a letter to each of my creditors just stating that I was reviewing my situation and would get with each of them. For the student loan people, they suggested I send them a check for at least $50. I did that.
Everyone was quiet except I received more threatening calls on the student bill. Therefore, I wrote to my congresswoman and asked for help. She kindly intervened for me, and finally I learned that all this time, I could have requested a rehabilitation program. On this program, I would establish a monthly amount I could realistically pay (without fail, no screwups) each month for a year, and after a year the loan would be taken out of default and returned to regular status, just as if it had never happened.
It took a lot of writing and many phone calls, but eventually I reached an arrangement with the student loan program and I began repaying the loan. A year later, my loan was returned to normal status, and at that time, I was able to take advantage of other lower payment options.
What was great about this was that they removed about $3000 in extra charges they had placed on my loan when it went into default, and I was being treated just as if I had never gone into default.
I am surprised that this opportunity is not publicized more, because I'm sure there would be many people taking advantage of this, if they only knew. Unfortunately, one has to write a certified letter and telephone, making sure to ask those words, "I want to rehabilitate my loan, how do I do that?"
I would never have had the courage to do this, except for DA. If those brave people hadn't worked with me and suggested a way to deal with this mess, I don't know what I would have done. DA asks only that each individual have the desire to stop incurring unsecured debt. Along with this, it is usually suggested to cut up one's credit cards, and end lines of credit, etc.
I, personally, gave up my checking account and went strictly to cash to be sure I would quit being overdrawn. I also stopped having a library card and using video rentals. Why, I was always late, and had to pay charges (debt). Instead, I started going to the theatre, buying rentals and used books. Frankly, I found after tracking my expenditures that I was spending much less money.
They also encouraged me to allot money for clothing each month and to stop buying clothing at used clothing and thrift stores, and begin buying new clothing of good quality.
Slowly my life changed. Today I can say that I no longer worry that the phone ringing is another creditor. I have decent clothing, decent food, and I am slowly repaying my creditors.
Thank you DA.
I am not a lawyer, thus, if you have questions, about this please check with your attorney. Thanks.