Getting Out of A Sticky Delinquency

So even though I have already laid out some of the history of how I got into this mess in three separate posts, (Part 1, Part 2, Part 3), I have yet to explain some of the more ridiculous aspects of dealing with the loans when they came due.

When the student loans came due I also had accumulated a mountain of personal debt in the form of credit cards. To deal with the personal debt I had the option of seeking credit counseling or filing for bankruptcy. At the time, I felt extremely pressed as the end of the availability of chapter 7 bankruptcy was close at hand, or so I thought. As of October 17, 2005 bankruptcy law did change but in retrospect the change in the law wouldn't have affected me because my income was so low.

However, I didn't know that at the time and the bankruptcy lawyer that I consulted with didn't know that either - at least he didn't seem to know or he didn't tell me. Suffice to say - I looked at my personal debt and made the best decision I could with what I knew.

But after the bankruptcy I still had a vehicle payment and my student loans. With my credit in ruins I had to pay for everything directly for awhile. On the small income I had things were very tight.

When my student loans came up for repayment I unfortunately let them go. I ignored them - wishing somewhere in my bankruptcy traumatized mind that they would just go away. By the time I had the strength to face them they had fallen into delinquency. And for you I told you so people out there - yeah I know - it was all my fault. My mistakes. I get that.

Anyway, when I approached the nice people at the Federal Student Loan Service Center to deal with my loans they would only acknowledge that my loans were in delinquency and that the case had been forwarded to their collections agency - PIONEER.

That's when things got ugly. The good folks at Pioneer informed me that they could only get me on a plan out of delinquency if I agreed to make 9 consecutive payments of approximately $900 a month. I explained to them that they were insane because that was 73% of my monthly net income!

I went around and around with them explaining that I couldn't do that - that there must be some other way. I insisted that no one on my income could afford 73% of their income and still live. They didn't care. In fact, they even suggested at one point that I take the single credit card that I did have at the time and make the first payment on that and then maybe borrow the rest from friends or relatives as need be. I explained to them that I was not going to make more bad decisions to quote "do the right thing" by them. I further explained that if they were already asking for 73% of my income there would be no way for me to pay the credit card off under this much financial duress. Again, they didn't care but they did their best to try and make all this seem legitimate.

Aside from the $900 a month, the only other option, they explained, was that I could make maintenance payments that showed some good faith on my part. This payment amount was not going to get my loans out of delinquency, mind you - it was just to show good faith.

I felt that I needed to start somewhere so I agreed and started paying them some $400 a month to keep the account from getting worse. That was 32% of my monthly net income. Over the next nine months I made every payment on time but I kept trying to get them to relent and release the account. All my requests were to no avail.

It wasn't until I came across an obscure reference on the internet to the Office of the Ombudsmen for the Federal Student Loan Service Center that I got some relief. One late night I sent a frustrated and exasperated letter explaining what I had done to deal with these people at Pioneer. Within three days the Pioneer people called me and released the loan from delinquency.

The sad thing about all this is there was no clear listing on the Federal Student Loan Service Center web site about what to do if the Federal Student Loan Service Center's own collection agency wasn't working with you. I had to find it and dig it up on my own just to get the loans out of delinquency. There is no real help to this day on the website for people with loans in delinquency.

Furthermore, there was no apology or explanation of what happened to the money that was sent to Pioneer. I am sure they got a portion of what I paid - there would be no other reason for them to insist that I pay them 73% of my net income otherwise.

So, today I have student loans that I can only make interest payments on. Of the approximately $120,000 in total debt - $107,000 is principal - the rest is penalties and interest. And unless my income takes a significant jump in the near future I can only see paying on these for the rest of my life. And given the current economy and the pickle I am in - I don't see a foreseeable jump in income coming.