How one man recovered from student loan disaster -- and you can, too

It's the bitter little pill stewing in the subconscious of every brilliant writer here at Money College: No matter how many fascinating pieces we write about how to save money and soft-shoe smart with fall's best buys for dance clogs, or how to catapult yourself through a master's program in a year with zero debt by working nights and weekends as a breath odor evaluator (nope, didn't make that one up), a huge number of students will completely screw up their finances anyway.

Take my debt. (And, in the spirit of the great Henny Youngman: No, really. Take my debt -- please!) A few months ago, I wrote a piece about the wake-up call -- and subsequent scores of collection calls -- I received after graduating from a private university last May. Statistics show that I'm not alone, either: according to recent data obtained by the Chronicle of Higher Education, one in five federal student loans that entered repayment in 1995 have gone into default by now, a much higher number than anyone thought.

So what's a student to do when -- like me -- they've already borrowed too much, and their post-graduation income doesn't begin to cover the bills coming in from all sides?
As I learned over the past few months, one of the best things a beleaguered student can do is to simply pick up the phone and talk to their creditors. Sounds pretty basic, right? Certainly it sounds like a trite piece of fiscal wisdom, and it didn't do me much good when my student lenders and credit card issuers started calling last June, either.

Along the way, though, I realized that when it comes to debt, it takes two to tango. Both student lenders and credit card companies won't hesitate to lend you large sums on some pretty speculative terms: the promise of future success and a rosy tomorrow. When that rosy tomorrow doesn't greet you at the auditorium doors after your graduation walk, things might seem like they're getting pretty desperate for you, but they're also getting pretty desperate for your creditors, too. Creditors, debtors, collectors, representatives -- it turns out we're all whirling on this broken-down merry-go-round of excessive debt.

Case in point: When my student loan bills came due to the tune of about $800 per month in November, I didn't stand a chance of paying them each month on my wages from the local coffee shop. All of my student lenders (Citibank, Great Lakes Student Loans and Federal Direct Loans) rejected my forbearance requests, and even scoffed at my deferment papers; apparently, I hit that sweet spot where I made too much (in the ideal realm of figures set out by wealthy Washingtonians) to get some relief, but not enough (in real life) to actually pay my bills and have anything left over at all to make student loan payments.

With less than 30 days left before the black hole of default hit on most of my student loans, I decided to pick up the phone one more time in June. I sat down with a list of phone numbers and started calling all of my student lenders. All of them, without exception, granted me a no-questions asked, over-the-phone forbearance, and even agreed to figure my income in such a way that I could claim an economic hardship deferment until I raised my income substantially. There's an excellent chance this will buy me enough time to find a better-paying job and get my repayment plan on track, not to mention the option of loan consolidation to reduce my monthly payments.

What gave me the power to get my lenders to grant me a stay after so many weeks of threats and demands? In part, poverty. State laws set limits over how much creditors can dig into your income and assets, and if you don't reach that threshold, your creditors have almost no recourse against you. Even student lenders, who play by slightly different rules, will bend over backwards to avoid garnishment in a financial hardship situation because that route might take them decades to make up the loan balance. Once I got threatened with court orders and wage garnishments, I decided to research my own situation, and found that the State of Illinois protected almost everything I had. There was practically nothing my creditors could take from me. Not wages, not cash, not my computer or cameras -- nothing. Power through poverty -- it's limiting and a bit ironic, I suppose, but it helps to know, because your creditors sure aren't going to spell it out for you.

Meanwhile, as I worked my student loans out of the whirlpool, I had another storm brewing on a different front. One bleary-eyed morning last month, I woke up to an insistent ring from my alleyway buzzer and trundled down the stairs in my boxers to stare at a big black-and-silver badge slung around a stranger's neck: "You've been served." My credit card company, which I wrote off while dealing with my student lenders, actually decided to sue me over the delinquent debt.

While no one enjoys seeing "Chase Bank U.S.A. v. You" on a piece of notarized paper, I knew from my earlier research that credit card companies often occupy the lowest rung on the debt ladder; if your student lenders can't get a slice of you, your card company really doesn't have much hope. Rather than panic, I bought a manila envelope at Kinko's and stuffed it with evidence -- pay stubs, bank account statements, tax returns -- and mailed it out with a cover letter formatted from a pro bono legal aid website in order to show the credit card company I was, as the industry term goes, "collection proof." If they could beat me in court, fine, but I made sure they knew that they'd get a judgment that wasn't the worth the printing paper as a result.

Thus far, I haven't heard another word about the lawsuit; this past week, I called the bank one last time, and they offered me a face-to-face meeting to discuss a debt settlement program (not through a debt settlement company!) that would forgive my credit card balance by more than half over a series of long-term payments.

So, consider this an epilogue of sorts to my tragic tale from the "Tuition Ignition" series Money College ran in May. As endings to journeys go, it's a bit more "The Road" than "Homeward Bound," but I at least learned that, no matter the magnitude of your fiscal screw-ups, no one can render you completely powerless to stand up and deal with debt on your own terms.
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