Recent Grads Face Stifling Private Student Loans

Sept. 14–Private student loans can be a godsend for college graduates pursuing advanced degrees, but trying to get relief once school ends and payments become unaffordable often results in frustration and little success for borrowers.

The large payments and high and variable interest rates, compounded by a sluggish job market, are forcing many graduates to seek relief from lenders but are finding them vague, aggressive and anything but cooperative.

"There was no way I was going to pay off $50,000 at 12 percent interest," said Rennee Dehesa, of Camarillo, when the private lender of her $50,000 law school loan increased the rate because of a billing issue with her credit card, even though it was removed. "I just think they were really reluctant to really do anything."

After that, Dehesa, an attorney with the Oxnard law firm Schneiders & Associates, L.L.P., tried to get rid of that loan and other student loans by consolidating them through the private student loan lender SLM Corp., or Sallie Mae, one of the nation's largest. But she faced another brick wall from the same lender.

"Sallie Mae said it needed approval, and the private lender wouldn't let me transfer it to Sallie Mae," Dehesa said. "I got through to them pretty easy, but at the end, the answer back was 'No.' "

Growing debt

Federal and private student debt is approaching $1 trillion, according to the Federal Reserve Bank of New York. More students are taking out loans and the loans are bigger. The number of borrowers and the average balance soared by nearly 70 percent between 2004 and 2012. Student debt now exceeds all consumer debt except mortgages.

Private loans account for only a slice — 15 percent — of the overall student loan market. according to the consumer loan oversight agency, the Consumer Financial Protection Bureau, and totaled about $150 billion at year-end 2011. Most borrowers are students seeking advanced degrees, particularly for law and medical school, and interest rates vary between 6 and 7 percent.

In July, reminiscent of the federal government's steering of home mortgage lenders into doing modifications and workouts during the foreclosure crisis, the Fed and other regulators began nudging private lenders to do "prudent workout and modification programs" such as extensions, deferrals, renewals and rewrites for struggling borrowers, and told the lenders they wouldn't criticize them if it affected their credit.

Clients with private and federal loans facing bankruptcy are giving lots of work to bankruptcy and debt settlement firm, the Law Offices of Rounds & Sutter, LLP in Ventura and Westlake Village. Clients need help because private lenders have to be negotiated with individually, said John Rounds and Randall Sutter.

"Each private lender is different in what they will work out with borrowers," Sutter said, because every borrower differs in details such as overall income, size of family and medical issues.

A common tool for getting out from debt — bankruptcy — is not available to student loan borrowers, the attorneys said. However, under extreme hardship cases, such as if a borrower becomes disabled and unlikely to ever work again but has attempted to repay the debt, the loan can be discharged through bankruptcy or possibly forgiven by a lender.

A "huge tool" for borrowers and their attorneys is the statute of limitations for private loans, Sutter said.

"Private loans are like credit card debt," he said. "If they don't bring a lawsuit within four years, and if you stop paying, and they put the loan in default, and they stop trying to collect from you, and in four years they haven't reached out to you to collect from you, they're done."

Student loans now also burden parents, as most private lenders now require co-signers on student loans, according to the Federal Deposit Insurance Corp. or FDIC.

Rounds and Sutter say three-quarters of their bankruptcy clients are parents bogged down with their children's loans in addition to their own debt. It's "a consistent problem," Sutter said.

"Their ability to buy a home or make financial decisions are always going to be impacted by the student loan they co-signed," Sutter said.

CO-SIGN NEEDED

The co-sign requirement stopped Ventura criminal defense lawyer Rachel Coleman when she tried to lower her $700 monthly payments by consolidating about $50,000 in private Sallie Mae loans through Wells Fargo, N.A., another of the nation's biggest private student loan lenders.

"That would've been $400 less, but it (Wells Fargo) wouldn't consolidate unless I had co-signers," she said. Coleman said she was already making the higher payments, never missed a payment, had good credit and owned property. "Wells said I didn't meet the qualifications," she said, and wouldn't explain the criteria.

Coleman didn't want her parents to co-sign, she said. Instead she asked Sallie Mae for modifications.

After four refusals, Sallie Mae agreed to interest-only payments on three loans, Coleman said, even though she told them she couldn't pay anything due to a recent divorce. The two loans it wouldn't modify had the highest interest rates and payments, she said, and it wouldn't explain the qualifications.

"They won't let you refinance, they won't work with you at all; they won't let you do anything," Coleman said. "It's really frustrating."

In light of the tough economic and job situation for graduates, Sallie Mae says it has developed several programs to help borrowers through financial hardship.

Patricia Nash Christel, vice president of corporate communications, said the lender now does one-on-one counseling and offers modified loan terms, lower interest rates, good-faith catch-up programs, temporary payment suspension and rate reduction for those unable to pay current amounts.

BANK HELP

So are other lenders. John Rasmussen, head of Wells Fargo'sEducation Financial Services, said while most private student loan customers are current with payments, the bank offers several forbearance options to suspend payments those facing financial hardship during that time.

Rounds and Sutter say they've found negotiating lump sum settlements with private lenders rather than small payments over time to be more successful when there are multiple debts. Most of their clients have debt in addition to student loans.

Another solution can be a fixed payment at a variable interest rate, the attorneys said. Also, lowering payments for other debt, such as credit cards, helps clients pay off student loans

Dehesa said she paid off a large chunk of her private loan using credit cards that offered zero percent. That worked only because she budgeted what she could pay off, Dehesa said, and made all the monthly payments.

"That's a dangerous game to play," she said, and doesn't hide a student loan should the borrower try to declare bankruptcy. Borrowers will likely still be responsible for the full student loan, she said.

Student loan debt is "a huge problem for our generation," Sutter said. "There's no buying a house if you've got $100,000 in debt."

Student debt tips

*Attend a college and graduate school that's affordable

*Attend a less expensive community college and transfer to a four-year college

*Take classes online when less expensive

*Work while in school to pay off student loan debt before graduation

*Take credit counseling classes

*Use loan money only for tuition

*Don't miss payments

*Negotiate loan interest rates and terms; shop around

*Understand loan repayment terms

*Pay at least the minimum on loans

*Meet with a financial adviser to learn how to budget; set financial goals

*Seek help from debt settlement lawyers before trouble starts

* Parents: avoid co-signing on student loans

*Pay off the most expensive loan first

___

(c)2013 Ventura County Star (Camarillo, Calif.)

Visit Ventura County Star (Camarillo, Calif.) at www.vcstar.com

Distributed by MCT Information Services