Student loans-dealing with a system stacked against the borrower

We recently came across this old piece in the New York Times: NY Times, 10/9/2015 “A Student Loan System Stacked Against the Borrower” .

It shows how people get trapped by crushing student loan debt, then have to deal with abusive collectors. Lately, this issue has gotten more attention, including a major piece in this month’s Consumer Reports.

If you are one of the people contemplating student loans, or if you have them, there are some important things to remember:

  1. Be careful and meticulous in keeping your own records. This starts with all the loan documents. If you signed it, demand a copy of the signed document right then and there.  Keep all correspondence and notices. Keep proof of every payment in hard copy. Keep notes of all communications. If you send something out, keep your own copy, and if possible keep proof that it was received. Keep your own ledger of payments.
  2. Especially, keep careful records of your dealings with debt collectors. If you encounter abusive tactics, these collectors could be subject to suit under the Fair Debt Collection Practices Act.
  3. Know the type of debt you are getting into. Federal loans are the best, and have the most options for abatement or eventual discharge. Some student loan debt, like that offered by the State of New Jersey, has no such provision, and indeed the recent reports are that the State agency is remorseless and inflexible in dealing with collections.
  4. Ask, and investigate on your own if there are any programs for deferment or abatement. Don’t expect that others will tell you, or even get it right.
  5. Remember that if you defer payment on a loan, that does not necessarily mean the interest doesn’t continue to pile up. If this is not the case, confirm it in writing.
  6. Almost every type of student loan is non-dischargeable in bankruptcy unless you can prove extreme hardship. This is likely hard to prove. Having good records (see above) is very important.
  7. While a bankruptcy may not discharge student loans, we have successfully used Chapter 13 to force the loan creditors into a reasonable and affordable payment plan, and to stop collections while this is going on. When the plan is completed, the debt is still there, but at least you do not have to deal with impossible demands for payment or harsh collection methods.

We are looking forward to the day when the system is not so stacked against the borrower. In the meantime, these steps can only help.

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