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Alexia Esq.
Alexia Esq., Managing Attorney
Category: Legal
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Experience:  19 Years of Legal Practice Experience in this precise field.
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Hello. This question is regarding my student loans. I

Customer Question

Hello. This question is regarding my student loans.

I had two Stafford loans with American Education Services (AES). They defaulted, and were sent to Windham Professionals Collection Agency. I entered into a 'loan rehabilitation program' with Windham, and they made automatic monthly withdrawals for 15 months. The last withdrawal was in December, 2012. From what I understood, I entered into this program in order to get out of default.

I was applying for financial aid (I am going to graduate school in July), and they recently informed me that my loans are still in default, which means that I am not qualified for any federal loans, and they recommended loan consolidation.

I contacted Windham, who apparently knew nothing about my account, and directed me to an organization that tells you where you loans have gone. They are now with the Pennsylvania Higher Education Assistance Agency (PHEAA, which I believe is the same as AES). They told me that, basically, those 15 consecutive payments will have no effect on my default status because I did not sign some letter at the end of or during the program. I never received a letter from them or from Windham updating me on my account. I live overseas, so perhaps there was a mailing problem, but I doubt it. PHEAA says they tried calling but my phone is always busy (which seems very unlikely to me), and that they had the wrong mailing address.

Anyway, I am still in default, and they told me that my only options are a) to pay off the debt in full, b) to enter into ANOTHER 'loan rehabilitation program' for a minimum of 6 months (which means that I would only be eligible for financial aid after those 6 months), or c) do loan consolidation if I want to be eligible for federal loans in time for graduate school.

My question is: is it possible that those 15 months of regular payments I made will have no effect on my default status because of some letter I never signed because I never received it?

And is it advisable to do loan consolidation?


Submitted: 4 years ago.
Category: Legal
Expert:  Alexia Esq. replied 4 years ago.
Hi, my name is Alexia and I thank you for your inquiry. I have been practicing law for 19+ years and look forward to assisting you. I am also a long term student loan debtor, who also defaulted early on after law school, when the loans were so high each month my law firm salary couldn't make a dent in the monthly obligation unless I lived under a bridge. Years later, back on track, but it is amazing how $1000/mo for many years continues to keep me with a very high balance. But that is another issue, right?

I have read your post. With regard to your question:

My question is: is it possible that those 15 months of regular payments I made will have no effect on my default status because of some letter I never signed because I never received it? Yes. You indicate that it is true that you defaulted on your loan. That is a breach of contract. Subsequent conduct does not negate the breach, unfortunately. It sounds like you attempted to negotiate a rehabilitation that would enable you to be eligible for more federal loans come 6 months of proper paying under that new rehab agreement, but that you never actually succeeded (assuming what you have been told is true, that it was never "official"). If that is the case, the 15 months of paying $X amount didn't do anything legally to your default status, although it would have gone towards your continuing interest and whatever aspect of principal may have been implicated. I realize this stinks. Unfortunately, when you can not prove anything, and the onus is on you to prove it, you generally don't win the argument that this constituted a rehab legally, as opposed to you just trying to pay. It doesn't bind that other party into a rehab. Now, it is possible that there was a writing on the other side, that could prove you right, but getting it, if it even exists, may be next to impossible. You may have to file a lawsuit (federal, likely) and then demand discovery and hope they produce what they don't even believe exists. It is possible that notations in the servicer's file on YOU about contacts, could indicate "spoke to Sam, offered him a rehab if he paid $X for 6+ months"... and then the accounting showed you did in fact pay the exact amount noted... So you have to decide if suing is worthwhile on that gamble.

And is it advisable to do loan consolidation?

Loan consolidation CAN be a decent option particularly when it drops your interest rate to a very good and improved level. However, read your fine print carefully on any contract - it can be a "once in a lifetime" deal, and if you don't have rock bottom rates, you may or may not wish you could do it again later, yet be deprived of that right. Or, rehab and just put graduate school off for 6 months. Some schools, particularly those with a strong online access component, no longer abide by the September or January only start times, but have shorter more grueling 'terms' of 10-12 weeks. So consider that if it will help.

But again, yes, without a signed rehab agreement, or a lot of litigation to find an equitable agreement of the same existed, you are likely out of luck with regard to being in default. As noted, once we breach, we are stuck with it unless the victim of the breach starts another agreement with us or modifies the original agreement.

I hope this helps,and I am sorry you are in the plight you are in - you are in good company, as you likely know. It was a long hard road for me to climb out of the endless pit, and required 80 hour work weeks, moonlighting in non-law work at nights, all while starting my own practice, to be able to get a grip on paying back 7 years of post secondary education including law degree. If you can work while getting that graduate degree (as my husband is now), that can help a bit to keep the debt a bit at bay.

Good luck.

I hope this helps! My goal is to provide you with excellent and accurate service – if you feel you have gotten anything less, please reply back, I am happy to address follow-up questions. Kindly rate me "excellent" when you are done. I look forward to assisting you in the future, should you have legal questions.


Alexia Esq.

Expert:  Alexia Esq. replied 4 years ago.

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