YORK (CNN) -- Carl, a Florida native now living overseas, is afraid
to move back to the United States. That's because he can't afford
to pay his student loans.
Carl (who doesn't want his last name used) stopped making his $450
monthly payments after his family incurred some unexpected medical
expenses, and his $55,000 private loans went into default. That's
when the phone calls from debt collectors started, and Carl decided
not to come back.
"It was made clear that if I ever came home, I'm screwed,"
Today, he estimates his private loans are more than $70,000. Though
he hopes to move home one day, for now, staying abroad is the only
option he can see.
"If it means I have to live in exile from friends and family...well,
that's the breaks. So be it. But I won't put my family in a situation
where they are afraid," he says.
While most Americans are burdened with debt of some kind, student
loan repayment can be a particularly scary prospect for young people
struggling to start a career. Payments are often higher than expected,
and the loans can't easily be discharged. Added pressure from debt
collectors causes some grads to flee their loans by fleeing the
"These are people new to borrowing and they didn't understand
what they were getting into," says Mark Kantrowitz of Finaid.org,
an online student loan information Web site. "It's a very sorry
situation that it comes to students feeling they have no option
than to leave the country," he says. "It's a sign the
system is broken."
To date, there is about $60 billion in defaulted student loan debt
according to Chris Lang of the New York-based debt collection agency,
ConServe. But while skipping town to avoid paying student loans
isn't very common - Lang estimates that only about 2% to 4% of delinquent
student loan debt is owed from students abroad - for some, it seems
like the only way out.
International addresses make it more difficult to find people, and
collection companies would usually need to hire an international
counsel or a third party collector to recoup the debt, cutting into
their profits and reducing their incentive to go after a debtor.
"It increases our expenses to go overseas," says Justin
Berg of American Profit Recovery, a debt collection agency in Massachusetts.
"Our revenues are cut by more than half," he says.
Very little relief
Chris left the country to help pay his debt, not to avoid it. But
when that didn't work out, he saw his foreign address as the only
way to escape.
Chris (who doesn't want his last name used) graduated with about
$160,000 in student loan debt with a master's degree in music.
"At the time I thought I could handle it. I thought the most
I'd be paying was $600 a month," he says.
But his payments were $2,400 a month. So Chris started looking for
jobs overseas. He thought he'd be able to earn more and pay off
his loans. But it didn't turn out that way. His salary was even
less than what he was making back home. He realized there was no
way he could make his payments, so he changed his address.
"They think I'm living somewhere in Arizona," he says.
His last payment was a year and a half ago.
"I am upset at myself. I could
have gone to a cheaper school," Chris says.
"But I'm most angry at the fact that for anyone who has debt
that's not student loan debt, there's relief. You can get into $150,000
worth of credit card debt and you can declare bankruptcy and you
can go on with your life. But with student loans, you're being punished
for being a better person."
While getting student loans discharged through bankruptcy is no
easy task, that doesn't mean it can't be done.
"There's a mythology that private student loans can't be discharged.
But sometimes they can and should," says Kantrowitz.
To get your student loans discharged, you must file an undue hardship
petition. To qualify, you have to satisfy three conditions: First,
you must not be able to repay your student loan and also maintain
a minimal standard of living based on your income and your expenses.
Second, your situation must likely persist for a significant portion
of the repayment period of the loan. Finally, you must have made
good faith efforts to repay the loans.
In about half of cases of people who do file for this hardship petition,
debt will be partially or totally discharged, says Kantrowitz.
Lifting the burden
If you're having trouble paying your student loans there are steps
you can take, according to Kantrowitz.
If your income isn't sufficient to repay a federal loan, you can
apply for an economic hardship deferment or forbearance which would
suspend or reduce your monthly payments. To find out if you qualify
for these programs, check out the hardship calculator at http://www.finaid.org/.
If your money problems are longer term - say your career path doesn't
pay well - there are some alternate payment plans that you can explore.
An extended repayment plan could lower your payments. But it also
increases the life of your loan so you'll wind up paying more in
the long run.
If you have federal loans through the Direct Loan program, you may
qualify for an income contingent repayment plan. In this case your
payments are based on your income and your debt load.
These steps must be taken before you default on your loan. If your
loan is already in default, you won't qualify for deferments or
forbearances. If you can't resolve an issue, contact the Federal
Student Aid Ombudsman at http://www.ombudsman.ed.gov/ or call 1-877-557-2575.
If you have defaulted on a federal loan, you can rehabilitate yourself.
It will require you to make nine to twelve full payments of some
agreed-upon amounts within a certain time period to the Department
of Education. For more information on this, contact the Department
And there's another way to get help if you're buried under student
loans. Talk to a non-profit counselor.
The counseling session should be free of charge. Make sure you ask
if the agency works with student loans. And in addition to helping
you with your student loan payments, these agencies can work with
you to manage your spending and your budget. If you are put on a
managed debt program, there is typically a small fee. To find a
non-profit credit counselor in your area go to the National Foundation
for Credit Counseling at www.nfcc.org.
the new article from NYT:
Grim Job Market, Student Loans Are a Costly Burden"