Consolidating student loans while in Chpt. 13 Plan

[Gauche1967]

Hello all,

I need some advice. I have federal student loans that were included in a Chapt. 13 payment plan. In Spring of 2006, I tried to consolidate the loans in order to take advantage of the low consolidation rates. The holder of the loans told me I would need court permission to take on new debt in order to consolidate them. In May of 06, I paid my attorney to file a motion with the court to allow the consolidation which was approved. However, the loan holder has still not released the loans for consolidation. I have been pulling my hair out for 8 months trying to get this consolidation to go through. The Chpt. 13 was discharged in December, but still the loan holder will not release them for consolidation and they continue to report them to the credit bureaus and the National Student Loan Data System as "in bankruptcy status."

I just got off the phone with the Dept. of Education's Ombudsman who informed me that regardless of the order allowing consolidation, the lender cannot under federal law release the loans for consolidation until the bankruptcy is discharged. This doesn't sound right to me and I cannot find that law anywhere. It seems to be an arbitrary decision on the part of the loan holder whether or not a particular loan is in listed as in bankruptcy status on the NSLDS and it was the loan holders themselves who told me to apply for permission to incur new debt.

Still, it is looking more and more like, I wasted the money I paid my attorney in May. More and more I am convinced that nobody knows what they are doing. Is it unreasonable for me to ask my lawyer to refund the fee I paid him to file the petition considering that these loans could not legally be refinanced. Is it too much to expect him to know that law?

[lrprn]

I'm so sorry to hear about your student loan problem, gauche - how frustrating it must be to get permission from the trustee only to have the consolidation denied by the lender. Who is your student loan lender? And is your lender government or private?

I searched online to see if I could unearth something about student loan consolidations during bankruptcy, but no luck. Hopefully one of our other members may have some personal insights to share or can find something I overlooked. Please keep us posted if you find out something new about your situation - it's a difficult one.

[Gauche1967]

Sallie Mae is the servicer on the federal loans--and they are the ones who told me I needed to get court permission to consolidate. Under federal law, you have the RIGHT to consolidate loans that are not in default status, the lender has no say in the matter. However, the Dept. of Ed says they cannot be consolidated if there is a non-discharged bankruptcy (regardless of whether or not they were in default prior to the bankruptcy filing). I wonder if that contradicts other federal laws that forbid denying a new student loan to someone because they filed for bankruptcy?

As peeved as I am at Sallie Mae, I think I am just as upset with my attorney. Shouldn't he have advised me of this?

[Gauche1967]

OK, did some more research. Section 525 of the bankruptcy code clearly forbids denying a Title IV student loan due to a bankruptcy filing whether discharged or not. Federal consolidation loans are considerded Title IV loans. So I am pretty sure I am getting royally hosed here.........

[lrprn]

OK, did some more research. Section 525 of the bankruptcy code clearly forbids denying a Title IV student loan due to a bankruptcy filing whether discharged or not. Federal consolidation loans are considerded Title IV loans. So I am pretty sure I am getting royally hosed here.........

I asked who your student loan lender was because I was praying that it wasn't Sallie Mae. Sallie Mae has a terrible reputation in the student loan world - see http://www.consumeraffairs.com/finance/sallie_mae.html and this 2003 article on Sallie Mae at http://bostonphoenix.com/boston/news...s/03351782.asp to see that, unfortunately, you have LOTS of company in the "hosed by Sallie Mae" department. It makes me so angry that so far, our government and our legal system have not been able to successfully deal with loan companies like Sallie Mae. They are growing rich on the backs of millions of people who are just trying to do the right thing. What Sallie Mae does may be legal, but my eyes it's morally and ethically wrong.

[Gauche1967]

Well, it is morally and ethically wrong, but I am pretty sure some of it is illegal too. The problem is finding a lawyer interested in doing anything about it or who won't charge you tens of thousands of dollars in order to "maybe get some relief."

[SamanthaJones]

What so you call a thousand lawyers at the bottom of a lake?

A good START.

Anyway, I heard yesterday that Sallie Mae is in financial woes? That would be cute if that that organization filed BK~

[lrprn]

Anyway, I heard yesterday that Sallie Mae is in financial woes? That would be cute if that that organization filed BK~

The Washington Post ran a story a few weeks ago that Sallie Mae's profits fell 96% in the fourth quarter - http://www.washingtonpost.com/wp-dyn...011801778.html . Also they noted a federal probe is starting into the company's marketing practices...about damn time!

[Gauche1967]

Spoke to my lawyer yesterday. He said Sallie Mae is known for not releasing loans for consolidation on time, so they can keep earning the higher interest rate a little bit longer. He is going to file a motion for contempt for violating Section 525 of the Bankruptcy code for failing to grant a loan due to bankruptcy. Section 525 may contradict Dept. of Education regulations regarding loan consolidations, so it sounds like this case may make precedent. I'll keep you all posted.