When I began taking out student loans for university, I had a fool-proof five-year plan for paying them off. I was going to go to graduate school, become an elementary school teacher, work in a high-needs public school for five years, and have the rest of my federal debt forgiven. Simple. If I stuck with the plan, I didn’t need to worry about those loans at all.
Of course, life didn’t go as smoothly as I had envisioned as an 18-year-old. This became glaringly apparent 10 years later, when I received an email from the HR department at my company:
Attached is a copy of a Wage Garnishment Order filed by the U.S. Department of Education.
We are commanded to immediately remit 15% of your disposable pay to the U.S. Department of Education each pay period. Deductions will begin on your next paycheck. We cannot reduce, amend or discontinue the deduction without written authorization from the U.S. Department of Education.
Please contact our office should you have questions or require additional information.
I have a confession to make. I’ve defaulted on my student loans. I know I’m not alone in this. But here we are. We all have our reasons for being in this situation. It’s not a shameful or embarrassing position to be in. It just is. And, as I’ve recently learned, we have options if we aren’t afraid to pursue them.
I never intended to default on my student loans. Like I said, I had a plan. After graduation, I spent a few years teaching English abroad and paid my student loans every month without fail. When that job finished, I moved to New York for graduate school and deferred my loans while studying for my master’s degree in education. But then a funny thing happened. I decided that I didn’t want to be a teacher anymore. I had no idea what I wanted to do career-wise—I had some vague idea of doing something in book publishing—but other than that, I was at a loss. I was also broke and about $20,000 in debt to the U.S. Department of Education.
I funded all of my college and graduate school living expenses on my own by waiting tables. So, while I tried to figure out what career I wanted to pursue, I went back to serving to pay the rent. Although being a server in New York City can be wildly lucrative at the right establishments, I was working at the kind of restaurant where breaking $100 during a weekend shift was considered good money, and a “raise” meant helping ourselves to as much beer as we could handle without getting caught by the manager. Between paying for both my rent and living expenses, and saving a little bit of cash for going out, it felt like I had nothing left over for my student loan payments.
Fortunately, I had a six-month grace period before I had to start repaying my loans after graduating and I was confident something would turn up. But six months later, the only career-related job I’d found was an unpaid internship at a small literary agency. My income came entirely from the tips I made waiting tables. It was barely enough to cover all of my expenses and instead of setting up a repayment schedule or requesting a financial hardship forbearance, I decided I would much rather just stop thinking about my loans. I knew that the minute I earned more money, I’d start making the monthly payments again, so what was the point in dealing with all that bureaucracy?
At first, it was easy to not think about my loans. I have a hate-hate relationship with debt. I won’t buy things I can’t afford to pay for entirely up front. I don’t have credit cards. I have no personal or consumer debt, so it was easy to ignore my one and only source of debt. My creditors would send bills each month, and I would throw the envelopes away without opening them. Not paying my loans didn’t seem to have any effect on my life at that exact moment. I was sure my credit was ruined, but I had a long-term lease and eschewing credit cards and other forms of personal debt meant I didn’t care much about my credit score. And I still believed that my non-payment was just a temporary blip. I was certain I’d start to pay my loans off soon. I had faith something would turn up.
One year into default I started getting phone calls from strange numbers. I knew it was probably my student loan lenders. I thought maybe I should pick up the phone and deal with the financial mess I’d made, but every time I thought about it, I told myself I’d do it tomorrow. The truth was, I was scared. I couldn’t face how big my debt might have gotten. I worried that the collection agents would berate me for being so irresponsible. I didn’t know how to even begin to explain myself or have the conversations that I needed to have to find a solution to my problems. I was afraid that I’d screwed things up so badly that there was no way to fix it. I didn’t even have the money to start paying $100 a month, so what was the point? It all seemed so impossibly difficult. Continuing on in default seemed like the only option for me. My phone rang with increasing frequency. I started screening my incoming calls and would only answer when I knew who the caller was. It was annoying, but I could live with it.
I started working at a better restaurant and even with a 25 percent increase in the tips I made, I didn’t view the extra money I earned as money that could go towards paying off my student loans. For the first time in my adult life, I felt more or less financially comfortable, and I wasn’t willing to go back to scrimping and saving. No more instant ramen dinners, Forever 21 jeans and boxed hair dye for me. I deserved a little luxury in my life. I used my newfound wealth to go on a long-deferred vacation, to buy a new mattress, to try that amazing restaurant I couldn’t afford to visit before. After all, I’d been ignoring my loans for so long and there hadn’t been any negative consequences so far. What was another year or two?
Sometimes, I started to feel panicked about my loan situation. I would dream up all sorts of get-rich-quick schemes. I’d win the lottery or write the next blockbuster YA novel. I looked into becoming a dominatrix at foot fetish parties. I tried out for the game show “Who Wants to be a Millionaire.”
I finally found a full-time 9-to-5 job with benefits, although the salary was just about what I made waiting tables. And still, I ignored my student loans, living as thought I was completely debt-free. I knew that this was a mistake. But by then, five years into default, it seemed too late to remedy the situation. And then came the email from HR.
When the government garnishes your wages to repay your student loan debt, they are allowed to take 15 percent of your post-tax salary—or 25 percent if you owe student loans to two different creditors—and send it to the collection agency. The money first goes to pay collection costs and fees, and then when that has been paid off, towards the principal balance and interest. For some reason, I didn’t view wage garnishment as a big deal. I was thrilled that I wouldn’t have to remember to pay my loans every month; the government was basically doing all of the work for me. Around $500 a month was withheld from my paycheck to repay my loans, a rate much higher than if I had been repaying my loans on an income-contingent repayment plan. Even after garnishment, I was taking home about $450 a week, which I could live on in NYC if I were frugal. This seemed like a win-win situation, as long as I didn’t worry too much about my credit score. I still had no idea how much exactly I owed, or to whom, but since all of my loans were federal loans, I figured the money would eventually make it to the right people and everything would be paid off in five or six years at most.
I had read online that there were options for people in default. The first option was to rehabilitate my loans, which requires borrowers in default to make voluntary, on-time payments based on income vs. expenses for nine out of 10 consecutive months. Once a borrower has successfully done so, the loans come out of default, wage garnishment is stopped, and borrowers are eligible for the same benefits available for the loan before default.
In addition, rehabilitating a student loan will restore your credit, and collection costs for the loans forgiven. The other option was loan consolidation. This involves making voluntary on-time payments based on income vs. expenses for two to four consecutive months. While this option is faster, credit will not be restored and you will still owe the collections fees that can increase your debt by up to 25 percent. With both options, borrowers pay a fee of up to 18.5 percent of the total debt to the collection agencies, which is added to the principal balance after the loans have come out of default. I’d thought about rehabbing my loans, but I managed to talk myself out of it every time. The voluntary fees would probably be too high for me to afford. Setting up the rehabilitation plan would be too time-consuming. Would I have to call up all three collection agencies and negotiate a new deal with each one? What if the agencies treat me like an idiot? What if they can’t help me at all? Wouldn’t it be easier to just go on in default for years until it’s paid off, even if I have to live a hand-to-mouth existence until then? It was all just too complicated.
However, after two years of wage garnishment and generally avoiding the reality that I did, in fact, owe a substantial amount of money to the government, I decided to get my act together: No more stupid excuses. I was going to take responsibility for my poor financial decisions and get out of default. I only had myself to blame for getting into this mess. No one was going to fix it for me. It was up to me to fix it on my own.
The hardest part was making that first phone call. I went to Washington Square Park on a sunny afternoon, mentally preparing myself. You can do this. The Department of Education is here to help you. You have options. Don’t be a punk. Make the call.
I first called the U.S. Department of Education’s Debt Collection Service Information Center, whose number was listed on my wage garnishment order. The woman on the line was perfectly pleasant, but told me that I would have to speak directly with the three collection agencies that currently held my loans to discuss my options. To my surprise, even though I had only taken out federal loans, that did not automatically mean the collection agencies in charge of recouping those debts were the same. My loans had been sold off to different agencies based on the type of loan I had taken out and which school I had been attending when I took out the loans. She gave me the numbers for the three agencies that were in charge of collecting my federal student debt and what I currently owed for each loan. For the first time in years I knew the exact amount of my student loan debt. It wasn’t as bad as I thought. I still owed more or less what I owed before I had gone into default: $20,000. Even though almost $10,000 had been withheld from my salary during the last two years, the interest and collection costs that had accrued over the eight years I was either in deferment or default had caused the size of my debt to increase by almost 50 percent. But, it was a massive relief to finally, finally know where I stood. The woman also told me that all of this information was available online at the National Student Loan Data System of Students where borrowers can view all of their federal debt and get information regarding which agencies currently hold that debt.
Before I had a chance to change my mind, I called up the first collection agency on the list. I wasn’t sure why I was so nervous, but I was. I explained why I was calling to the operator, who passed me on to the correct department. I was only put on hold for about 10 minutes—not even long enough for me to change my mind about continuing on with the whole process. I took the quick hold time as a sign that everything was going to be all right.
My case manager, Sharon, introduced herself. She sounded a little young, but positive and cheerful. I explained the situation as best I could, and said that I wanted to try to rehabilitate my loans. I don’t know if I sounded worried or not, but Sharon was a reassuring presence. She told me that many people found themselves in default, that my situation wasn’t unusual and that the reasons why didn’t matter as much as our desire to get ourselves out of it. She told me that she was there to assist me in any way she could. We would work together to remove my loans from default.
Sharon informed me of the two options available to me: rehabilitation or consolidation. Because my wages were being garnished, the voluntary payments would be in addition to what was already being deducted from my paycheck. Since my take-home salary after taxes and garnishment was low, my voluntary payments would only be $100 per month. If I hadn’t allowed things to get to the point where my wages were being garnished, voluntary payments that both myself and the collection agency agreed were “reasonable and affordable” would have been calculated based on how much how large my debt was, family size, and how much money I made on a monthly basis once expenses have been taken into account. There is no one-size-fits-all percentage to determine voluntary payments—it depends on a variety of factors unique to the individual borrower, and it is open to negotiation if you feel the amount that the agency believes you can pay is too high. Since I couldn’t afford to pay an extra $100 each month for nine months, I chose to consolidate my loans. I knew consolidation meant a death sentence for my credit score, but financially, I didn’t have a choice.
When you consolidate your federal loans to get out of default, you apply to the William D. Ford Direct Loan Consolidation Program. This program is run by the U.S. Department of Education and only consolidates federal loans. Because this program is run by the government, the interest rates are much lower than consolidating with a private company and your federally consolidated loan is eligible for many benefits that consolidation via private companies can’t provide, such as the ability to apply for a financial hardship forbearance or to defer your loans should you go back to school. Although most borrowers who consolidate with this program have many repayment options, if you are trying to get out of default, you must use the Income-Contingent Repayment plan, which calculates monthly payments based on your income, family size, and the total amount of your loans. The Department of Education provides a calculator to help borrowers estimate their payments under this plan, and I found that my monthly student loan payments would drop to half of what was currently being garnished from my wages.
Sharon carefully explained the process for consolidating my loans, the benefits of getting out of default, and informed me of the two most important aspects of rehabilitation via consolidation. I had assumed the most important thing I could do was make those on-time, voluntary payments. However, equally important was completing the paperwork quickly and correctly.
The time it takes to consolidate your loans and get out of default varies depending on how quickly the Department of Education processes your paperwork. If there are any mistakes, you have to resubmit your paperwork and start the process over. Different departments within the Department of Education work at different speeds, so the separate parts of your consolidation application may be processed at different times. If the paperwork is submitted and approved immediately, those voluntary payments may only last for two months before the loans are consolidated and considered out of default. However, if there are problems or if you take a long time to return the paperwork, the entire process can take three or four months, and you must keep making voluntary payments until consolidation is approved. If you miss a month, then you must start the whole process over from the beginning. Plus, you can only get your loans out of default through rehabilitation or rehabilitation via consolidation once. If you default again, you are not eligible to rehabilitate them a second time. Essentially, you are dealt one, and only one, get-out-of-jail-free card.
The following day, Sharon called me and we filled out the application together, page by page, to ensure that the consolidation application was completed correctly. All of my federal loans, including loans that were being handled by different agencies, were added to the consolidation application so that I only had to deal with one agency to get out of default entirely. Throughout it all, Sharon knowledgeably answered my questions about the parts of the application that were unclear, as well as any further questions I had about the process in general. Whatever worries I had, she quickly alleviated. Most importantly, she never made me feel like an irresponsible loser for making such obviously stupid decisions about my student loans. These things can happen to anyone, she reassured me. All that matters is that you are taking charge of the situation now. I believed her.
The key to successfully completing this entire process is communication. Sharon contacted me to confirm that my paperwork had been received and sent on to the Department of Education for review. We set up a time to speak once a week to discuss what progress had been made with the application. Part of Sharon’s job is to continually follow up with the Department of Education with regards to my case. In our weekly phone calls, even if no real progress has been made, she keeps me apprised of how everything is going. I’m only three weeks into the consolidation process, so in the next month or two I can probably expect to speak with Sharon two or three times a week. For the first time in years, I’m not screening my calls. I’m not afraid to pick up the phone. It’s a wonderful feeling.
I don’t know how all of this will turn out. Maybe getting out of default will take much longer than expected. Maybe one of my loans won’t be eligible for consolidation. Maybe this process will be a lot harder than it seems. I know I only have myself to blame for getting myself into this mess. I’m proud of myself for taking that first step. Making the first call was the hardest part. But once I got past that hurdle, the task at hand didn’t seem quite so daunting. All of the excuses I made for not dealing with my student debt earlier now seem ridiculous.
I know everyone in this situation has a different set of obstacles to overcome before they can consider rehabilitating their student loans. You might have private loans, which may be harder to rehabilitate. You might not have the financial ability to make the monthly voluntary payments. Perhaps you have family commitments that take precedence over dealing with the rehabilitation process. But for me, getting my loans out of default wasn’t as impossible or as terrifying as I had imagined. So far, it hasn’t been that bad at all. I don’t know what I was so afraid of.
I’m only halfway through this process. But: This experience has taught me that we—myself and the roughly 6.8 million student borrowers who have found themselves in default—have options. All we have to do is make a decision to do something about it, and then, simply pick up the phone.
Anna Moreno lives in New York and also contributes to Bad Date Great Story.