Student loans always are due, no matter how long overdue

By  Kathy Lynn Gray
The Columbus Dispatch Monday February 13, 2012 5:24 AM

If you think the student loan you took out years ago but never repaid won’t come back to haunt you, think again.
The debt could land you in federal court, pleading your case before a U.S. district judge.
“There’s no statute of limitations on student loans,” warned Assistant U.S. Attorney Deborah F. Sanders. “That debt is growing, and you still owe it.”
Sanders handles the student-loan default cases that come through the U.S. attorney’s office for the southern half of Ohio. Her office is pursuing about 400 cases.
“We get them because the (federal) Education Department has not been able to collect after many, many attempts,” Sanders said. “If it comes to our office, borrowers have had a lot of chances to pay.”
Defendants fall into two camps: those who don’t pay, and those who can’t, she said.
Usually the loans are years overdue, sometimes as long as 20 years. By that time, a large chunk of the money owed is interest that has accrued and compounded over the years.
In one case filed last year, the defendant owed $160,000, including nearly $25,000 in accrued interest on the 10-year-old loan. On another 10-year-old loan, nearly $40,000 of the $101,000 owed was interest.
If federal lawyers obtain a judgment against a debtor, the government can collect the money in a variety of ways. Wages and savings and checking accounts can be garnisheed, and tax refunds can be diverted, Sanders said. “We have a pretty good rate of collection.”
The court also can set up payment plans once a judgment has been made.
Unlike many other types of debt, student loans cannot be dismissed through bankruptcy except in rare situations, said Stephanie Dailey, a Columbus lawyer who specializes in bankruptcies.
“It’s almost impossible to get out of student-loan debt,” Dailey said. A debtor has to have a dire hardship, such as being completely disabled, she said.
About half the people who come to her with financial difficulties have student-loan debt, Dailey said. She advises them to approach the lender and try to get on a payment plan so that interest doesn’t continue to pile up.
“A lot of people will just stick their head in the sand and hope it’ll go away,” she said. “ Instead, they should let the creditor know they’re having trouble paying and ask for help.”
Dailey herself has nearly $100,000 in student-loan debt from law school. She has deferred her loans — postponed paying them with the blessing of the lender — when paychecks were lean. Interest continues to accrue during a deferral, but the lender won’t turn the loan over to collectors.
The number of student-loan defaults that went to federal court rose significantly in the late 1990s as the Justice Department pushed for collection. Nationwide, 1,142 default cases were filed in 1995; that number surged to 24,404 by 2000. But the number has fallen back since then as the Education Department has set up other ways to collect the debts, Sanders said.
At the same time, students are taking on more debt to attend college. In 2010, the average was $25,250, up 5 percent from the previous year, according to a study by the Project on Student Debt. The average in Ohio was $27,713. An estimated $1 trillion in total student loans is outstanding nationwide.
The default rate in 2009, the most-recent data available, was 8.8 percent. That includes borrowers with loan repayments due between Oct. 1, 2008, and Sept. 30, 2009. An estimate of the total amount of loan money in default is not available.
A survey released last week by the National Association of Consumer Bankruptcy Attorneys found that 81 percent of bankruptcy lawyers said the number of potential clients with student-loan debt has increased “significantly” or “somewhat” in the past three or four years.
The association thinks that student-loan debt could create an economic threat to the country as serious as the home-mortgage crisis did in the late 2000s.
kgray@dispatch.com

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