Thursday, March 11, 2010

Default On Your Student Loan? A Big Decision, But Make It!

First, do the math. Can you possibly afford to make the payment? I hate this process, I hate the Department of Education, I hate the banks, I hate Sallie Mae, and I especially hate all those collection agencies, but still, if you can make the payments without too much hardship, make them. I do not advocate complete anarchy here.

If you have one of these law school debts of over $100K, you’ll probably be making monthly payments up to $1K per month. So, again, do the math. Can you afford this, plus your rent ($1,500-$2,000), plus any car payment ($300 per month) plus living expenses (which includes credit card debt: another $1000 per month)? Let’s round up to $5,000 per month, which is $60K per annum. If you make $60K per annum, read no further and pay off your student loans.

If not, listen to these words: you cannot afford this. Change your mindset and prepare yourself for a life you probably didn’t expect, but it isn’t the end of the world.

It’s funny how some people go through college and don’t understand that if you default on your student loan (that is, if you miss enough payments—usually around six) the FBI does not show up at your door and arrest you. You don’t have to move out of the country if you stiff the Department of Education!

Here’s some things you should learn about the employment world as it stands today in America. The current minimum wage is $7.25 an hour, and it appears that it will stay that way for a while. That means an 8-hour day will earn you $58; a 40-hour week (8 hours x 5 days) will earn you $290; a full time job at minimum wage will earn you ($290 x 4 weeks) $1,160 per month, which is $13,920 per year. The official poverty level for a family of two is $14,000 per year, so this minimum wage job puts you just under it.

Now look at what you have to make to afford your student loans, or $60K per annum. That’s $5,000 per month, $1,250 per week, $250 per day, or $31.25 an hour. There might be some adjusting to do with vacations, February, which has only 28 days, and other facts of our Western calendar. Round up to $32 per hour. If you are not making $32 per hour, you should not be attempting to pay back your student loans.

So what happens if you simply don’t pay? Again, I’m not a complete anarchist, so if you can pay something, anything, say $100 per month, do it. You’ll default and be making those payments to a collection agency, but so what. In fact, the collection agency will tell you not to send them a payment if it isn’t for the full amount. Send it anyway. They’ll take it. If you stiff them cold, they will remember that. Don't stiff them cold if you can avoid it.

Oh yes, and their hardship plans are usually bogus. They'll try to sell you those. Listen to them. But usually don't sign up for them. If the collection company treats you like a rogue because you won't sign up for their hardship plan, tell them tough titties. If they start to come down on you hard, hang up the phone.

Even if you are unemployed and have no money whatsoever coming in, a $100 payment to them now and then (say once or twice a year) will keep you out of the worst of their categories. It all goes under the general category of how to handle bill collectors.

This advice goes for stiffing credit cards as well. Do it only if you don’t have the money coming in, but don’t be afraid to do it. When the collection companies start calling, it is important NOT TO TELL THEM ANYTHING. They will say they have the force of the law on their side, but that is a bluff. Collection companies will use every trick in the book to make sure you don’t have enough money for food that month. They are despicable. Treat them like criminals, because that’s what they are.

If collection agencies start harassing you (and they most certainly will), you must demand that they stop all collection calls. You have to do this in writing. Write your demand to stop all collection calls to them in crayon. They must. Oddly, this is one of the laws they honor.

Make your priorities: stiff student loans and credit cards first; don’t stiff auto insurance if you don’t want to be fined (depending on the state you live in); don’t stiff the auto payment if you don’t want your car repossessed; and don’t ever, ever, ever stiff the IRS. With all the conservative propaganda horror stories out there about the IRS, as long as you don’t owe them mega-bucks, they are the puppy dogs of collection outfits. If you owe back taxes, set up a monthly payment with them. If you can’t afford what you owe at the end of the year, make sure you at least file on time. Send them what you can. Their collection letters are intimidating, but they are nothing like the lawless collection agencies that the Department of Education or credit card companies will sic on you.

There are a few other laws to know about. The Fair Labor Standards Act (FLSA), which goes back to the New Deal during the Great Depression, is what you need to invoke if your employer works you overtime without paying you “time and a half.” If you receive an hourly wage and your employer works you more than eight hours, you can sue and usually collect twice the amount of your damages. The problem is, of course, you are going to piss off your employer if you sue them, so you have to decide if this is really worth it. Still, it is more than interesting when you work for a company and lo and behold they simply show what they are made of by completely dishonoring this law. This is one of the laws that I’m sure young JDs will be encountering when they get these temporary positions with law firms. Other employers will try to grant you “exempt” status, by making you a vice-president or something. McDonalds once thought it could successfully skirt around FLSA by making all of its burger-flippers vice-presidents, so they could work overtime. Once you thoroughly know this law, you’ll see just what your employers are made of and why you should be very suspicious of them at all times.

ERISA, which dates from 1974, is another important law, which deals with pension plans. Employers are aggressively trying to make a buck by getting you to sign up for their pension plans, and sometimes you don’t even know you have signed up for one. If you stop working for a company, make sure that they haven’t signed you up for a pension plan and if they have, make sure that they return the money they took out of your paychecks, if you are not yet vested. I don’t care how fancy the office building is where you work, these companies are ruthless. Make Xerox copies of all of your paychecks, because they will often skimp on the information provided to you on your pay stubs.

Also watch for the part-time/full-time shuffle. I worked for a company once that had me employed 7.75 hours a day, and considered that part-time employment. No, it was also not some fly-by-night organization either.

If you are a young lawyer, you have no doubt entered into the legal field at a time when downsizing is going to cream you if you let it. Don’t let Judge Judy intimidate you when she says you are a bum if you don’t have a job. Many of these places are simply not worth working for. Sometimes it is better to simply stop paying your bills than to put up with the nonsense that an employer is going to try and pull on you. It will waste your time and it is not worth the money.

Above all, make sure you get enough to eat and have a roof over your head. You are not a bum if you don’t pay back your student loans, no matter what that television tells you.

And if you get in a jam, go see a lawyer! Their first consulation is usually free.

17 comments:

  1. Right, the concept comes down to "burden of proof." The burden is on them, and many of them do not want to go through the legal trouble.

    And for the debtors, the question is, "how much harassment can we tolerate?"

    I've always wanted to charge my entire student loan balance on an American Express credit card, since they technically have no credit limit. And then I would declare bankruptcy!

    ReplyDelete
  2. student credit cards credit card holders should learn how to control their finances wisely. They should be more responsible with their spending habit and always pay their bills on time at least the minimum.

    ReplyDelete
  3. I wish to contact you personally, but I have no info. I do not like to leave my email out there, and I understand if you don't. Angel the Lawyer and Nando have their emails public, so if you would like to reach me, contact them.

    ReplyDelete
  4. Just file for BKY and get the automatic stay but don't show up for the 341 meeting. Case dismissed. But since you weren't discharged, you're still eligible to re-file. Sure that's abusive of the system, but it will easily buy you a few years.

    ReplyDelete
  5. Yes. The main point is, it is important to first do the math first. If needed, ask for help from someone who understands better how you’re going to execute your payment for the loan. It is essential to see things beforehand to help you decide if it would be worth the try and if you would be able to handle it.

    Carmella Bezio

    ReplyDelete
  6. I got help with my student loans from a company called Student Debt Relief they were able to get my student loans out of default with in 4-6 weeks through several government programs that I qualified for, this allowed me to file my taxes this year and receive a monthly payment of $25. My credit was cleared up and then I was able to qualify for additional finical aid, give them a call 1-855-429-9577 or visit their website http://www.wehelpstudentloans.org/

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