Can Anybody Do Anything About Private Student Loans?
I just came back from Chicago, where about six hundred bankruptcy lawyers studied and talked for three days–half the time about student loans.
At the bankruptcy lawyers national convention, we talked a lot about private student loans. But nobody had any good ideas.
I especially hoped to learn something about the “private” student loans. What I learned was not much help. Private student loans are bad, compared to Federal student loans, for two reasons.
First, the interest is higher. Second, they are not required to offer you an income-driven repayment plan. In other words, they don’t cut you any slack just because you can’t afford to pay.
Before the 2005 Bankruptcy Reform, there weren’t many of these private student loans. Back then there was something you could do. If you couldn’t afford to pay, you could file Chapter 7 bankruptcy on private student loans. After 2005, you can’t.
Now there are a lot of people pushing those private student loans, and it’s real easy to get into debt with a payment you can never afford. Americans owe at least $150 billion on private student loans. (The people who do them are NOT required to report the totals. And some of them don’t.)
If you fall behind on private student loans, it can wreck your credit for a lifetime.
So, What Can You Do if You Can’t Pay Your Private Student Loan? Anything?
Some people at our convention said, just don’t pay. Just don’t pay?!?
They said the history of these loans is like the mortgages at the top of the crisis. They move from hand-to-hand, investor-to-investor, and the paperwork is not very good. So, if you just don’t pay, and they sue you, often they can’t prove who really owns the loan.
In other words, they can’t prove exactly who it is you are supposed to pay. And if they can’t, you win. (Also a student loan agreement is NOT a negotiable instrument under the UCC. That means two things. First, just because somebody has it in their hands, that does not means they are the person you have to pay.)
The mortgage people had a problem on this because the papers often got lost; but if they had the papers, that was all they had to have. And the “holder-in-due course” rule does not apply. Meaning any claim you have against the original loan carries over to whoever has it now.) Still, “just don’t pay” and try to beat them when they sue?
I hope that sounds scary to you–because that’s how it sounds to me. That’s a desperation tactic for sure. I’d try that only if nothing else worked. (But what else is there that can work?)
Two different articles in the news about private student loans, the first week of June 2015.
The first one, from Bloomberg Business, is about fighting them in court and winning, because they can’t prove who actually owns the debt. That’s the scary, desperation strategy I talked about a couple paragraphs up. At least for Adam Beverly, in Ohio, that worked.
The second article, from the New York Times, is by somebody who said he decided to just not pay. Couldn’t afford to pay, so I didn’t, writes Lee Siegel. Since his credit is terrible, he says this just-don’t-pay works better if you marry someone with good credit. There we are. Still no good solutions of the problem of private student loans.
Another article in the New York Times about the advantages and disadvantages of private student loans. It’s all disadvantages; there are no advantages.
One More Thing
How can you find out if your loan is a private student loan? You can go to this website. NSLDS.ed.gov. That’s the government listing of all the Federal student loans. If your loan is there, then you know it’s a government student loan. If it’s not there, then its probalby a private student loan.
This case is important on the issue of student loans as a special circumstance.