The Wacky Student Loan Adventure

[sls1969]

What is the name of your state (only U.S. law)? WI

I had some student loans that were in default. I went through the rehabilitation and got them current and have been making payments on them ever since.

During the rehab period they took our tax return. My spouse filed an injured spouse after finding this out, which is what the Dept of Ed advised us to do when I called to complain.

While the tax offset claim was in limbo, I completed the rehabilitation, my loans were brought out of default and sent off to the people who are now handling them. They are all shown as current.

Then a few months later I get a notice from a collector claiming I owe a 4-digit sum of money. I call them up and they insist this is defaulted student loans. I then call the Dept of Ed and they finally figure out that this money is the amount they had to give back on the injured spouse claim. Apparently instead of adding this back to the debt it was originally applied to, they just created a "new" debt in this amount and sent it straight off to collections! (Also, the entire debt is "interest and fees" not one penny of principal.)

They (DoE) never notified me of this amount being due. The first I heard was from a collection agency demanding payment in full, and threatening all the usual nasties that go along with defaulted student loans: credit report, garnishment, tax offset, etc. One person I talked to just told me "this happens all the time, there's a process for it so just be patient and we'll get back to you" (then 3 weeks later that same guy calls me demanding full payment...)

I told the CA I am already happily paying on my student loans. I attempted to get both them and the DoE to place this amount back with the debt it was separated from. They refuse and demand payment of the entire amount. I offered to make $50 a month payments which would have it paid off in a few years. They demand payment of the entire amount unless I can prove to them that it would be a hardship to pay it off in a lump sum.

I don't have a problem paying off my student loans, but it's totally ridiculous that they are demanding a big chunk of it in a single payment. We've got other debts that are at a much higher interest rate, and this money would be better applied immediately to those debts instead of making a giant lump sum payment on our lowest-interest debt.

I've sent in a request for validation and asked for details of where this debt came from, when it came into existence, when it became defaulted, etc etc, and they are gathering that info for me.

Is there anything else I can do? I guarantee if we give them our financial info they will claim we can just pay it off, but again, that's BS and not what I signed up for. Any ideas of what chance I have of getting them to apply that back into my student loans ... any alternative to "just keep demanding full payment" would be a good start.

[sls1969]

Update... On Dec 3 the CA sent a letter saying "Your request for obtaining documents and/or copies of your promissory note(s) has been processed. All documents/promissory note(s) will be forwarded to you upon receipt."

(Meanwhile both the CA and DoE told me on Nov 5th that I don't have to do anything, they are reviewing the account.)

I haven't received any such "validation" paperwork yet, or anything regarding the results of this review the DoE was supposed to be doing. But on Dec 8 the CA sent a letter stating, "this letter could possibly be (the CA's) last attempt for an amicable settlement of your defaulted student debt(s)."

Apart from being totally idiotic, isn't this a violation of the FDCPA?

[debtcollector`]

Originally Posted by sls1969

Update... On Dec 3 the CA sent a letter saying "Your request for obtaining documents and/or copies of your promissory note(s) has been processed. All documents/promissory note(s) will be forwarded to you upon receipt."

(Meanwhile both the CA and DoE told me on Nov 5th that I don't have to do anything, they are reviewing the account.)

I haven't received any such "validation" paperwork yet, or anything regarding the results of this review the DoE was supposed to be doing. But on Dec 8 the CA sent a letter stating, "this letter could possibly be (the CA's) last attempt for an amicable settlement of your defaulted student debt(s)."

Apart from being totally idiotic, isn't this a violation of the FDCPA?

No. Student loans are different animal. Why did you think you wouldn't have to pay the money refunded to your wife? And why did you think there wouldn't be interest and penalties on the balance you failed to pay?

DC

[sls1969]

Thanks for the benefit of the doubt there, DC. It sure is nice to have yet another debt collector who ignores the details and treats me as if I am a scumbag trying to get out of paying my loans.

I expected to repay the money refunded to my spouse. I should not have to repay it as a lump sum. That defeats the whole purpose of the "injured spouse" form if it immediately becomes a brand new debt due in full, and especially when it is also instantly "defaulted" even though the rest of my student loans are in repayment.

It makes sense that this money should be added back to the loans where they came from. I am looking for a way to get that to happen. There is no reason why it should suddenly become "due in full" for that amount... why was the DoE happy to wait for that money to be paid in installments before, and now suddenly because they failed to steal a third party's money, that amount needs to be paid right this second. It wasn't their money to begin with, that's why they had to give it back to my spouse.

Someone somewhere had to have decided "this is a new debt" and someone had to decide "it is in default" so I'd like to find out why this procedure exists and what can be done about it, because it's ridiculous.

Again, do I need to put it in 72 point flashing bold, I am happy to repay my student loans and I am currently doing just that, according to the repayment plan I agreed to. I never agreed to repay them in payments of four thousand dollars at a time.

And why did you think there wouldn't be interest and penalties on the balance you failed to pay?

This question doesn't even make sense. I did not fail to pay anything. I made all payments that were agreed to in the rehabilitation agreement. Taking a large chunk of my spouse's tax return was never part of that agreement. What are you claiming I failed to pay?

BTW are you saying the FDCPA doesn't apply to student loans?

[sls1969]

Originally Posted by debtcollector`

And why did you think there wouldn't be interest and penalties on the balance you failed to pay?

I think you missed what was happening here.

(Also, the entire debt is "interest and fees" not one penny of principal.)

That is, the debt consists entirely of interest and fees, which used to be interest and fees on a loan, but that loan with its principal and the remaining interest is now current and in repayment.

[ecmst12]

I think you need to read the terms and conditions of the injured spouse program you signed up for. I suspect everything they have done conforms with those terms, and if you had read them beforehand, you would have been expecting it. However, if they are NOT following the terms, you can find out exactly what they're supposed to be doing, and point out where in the terms it's spelled out. That is the only potential recourse that might exist for you.

[sls1969]

Thank you. When got the notice they had offset our whole refund, I called to find out what could be done, and they specifically recommended filling out that exact form.

There are no terms spelled out by the IRS or DoE. The DoE site only says this:

Federal tax refunds payable to joint filing couples are subject to offset, as explained in the notice, but that portion of the refund owed to the non-debtor spouse can be recovered by that individual by filing an "injured spouse" claim with the IRS.

This is also the information I was given by the dept at that time. They never said, "if you do so, we will then roll over that amount into a new defaulted debt and immediately turn it over for collections." They just say it can be recovered. (Anyone with a shred of sense would think the difference would then be added back into the original debt whence it came.)

[ecmst12]

I think that was a rather dangerous assumption on your part.

You can try asking the IRS about it, since it's their program. But it sounds to me that this was money already PAID towards this loan, so it's expected that they might want to recover it immediately rather then adding it to the rest of the loan.