Private Student Loand Dischargeability - a bit more clarity (maybe)

[abc123]

Hello all,

I would like to share this with all of you who seem to be having difficulties with the non-profit organization issue as it relates to private student loans taken out through a bank or other commercial/private lender.

Through my research, I have found the following - first the code:

Section 523(a)(8) of the US Bankruptcy Code, at 11 U.S.C., excepts from discharge debts:
"for an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an educational benefit, scholarship or stipend, unless excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor's dependents".

- do you see the part "or made under any program funded in whole or in part by a governmental unit or nonprofit instiution" - this is the part that should concern you.

Apparently, a number of "private" loans from banks are GUARANTEED by non-profit organizations, one notably large one being TERI - The Educational Resources Institute (www.teri.org). Supposedly this one organization guarantees many private student loans, so it definitely behooves you to contact TERI and find out if they guarantee or are otherwise involved with one of your private loans.

Now, I believe, from what I've heard, that the fact that these are guaranteed mean that the bank lends you the money, but if you default, the GAURANTOR (i see people are having difficulties differentiating between the "co-signor" guarantor, and the fact that some entity may be the GUARANTOR of the loans - they are different) - anyway, the GUARANTOR in this case pays the defaulted amount to the bank, and effectively becomes the new note-holder or loan holder. THIS IS WHERE THE DIFFICULTY COMES IN, AS YOU ARE BASICALLY SEEKING DISCHARGE IN EFFECT FROM A NON-PROFIT.

Now, this does not mean NECESSARILY that these are 100% not dischargeable, but you can see that there is difficulty here, and it "doesn't look good".

CONVERSELY, there apparrently ARE private bank loans that are NOT guaranteed or serviced (again, the servicing vs. guarantee issue is another issue also) by a non-profit organization. An example of this is APPARRENTLY Norwest bank student loans (e.g. "Priority" loans, or "Success" loans) now under WELLS FARGO (norwest bought wells fargo but uses the Wells Fargo name).

But don't quote me on that one, you should definitely check it out for yourself to be sure. Again, I stress again, the word "appears", as in, they say (when you call the main line for the loans) that there is not involvement by a non-profit, nor has there been for some time (again, i don't know how long "some time" is) but IT IS DIFFICULT TO KNOW FOR CERTAIN. Also, TERI, who is a very large non-profit as I said, claims also that they have no connection with Wells Fargo/Norwest loans. But again, you should verify all this for yourself.

ALSO NOTE, this does not address this issue I have seen raised of whether the loan is INSURED by some non-profit entity - although it does not appear from the code that being INSURED by a non-profit is a problem, but that being insured by a "governmental unit" is.

Again, you may draw your own conclusions, but remember that most every bankruptcy lawyer i've spoken to agrees that private student loans are a tough issue.

For instance, outside of non-profit affiliation, etc. there's the second part of the code about "loan or obligation made as an educational benefit, scholarhip or stipend..." - it seems to imply only scholarship, stipend and other moneys given with direct relation to school of that nature, but could this be a problem as well?? I'd actually welcome any thoughts on that part from HHM or anyone else.

Thank you and good luck - but be careful.

[ads212s]

Thanks for clearing up some of the legalize in your post. You asked me about my experience today with the trustee and the 3 cents on the dollar statement he made, and I sat down and really tried to think how the conversation went. I'll make a stab at the best that I can recall.

Trustee: "I see that you've accumulated an extremely high amount of debt."

Me: "Yes. . . most of the amount, about eighty thousand, is due to student loans."

He takes my pay stub and looks at the stub and at the schedules.

At this point he takes out his calculator and begins punching numbers for 30 seconds to a minute.

Trustee: This comes up with a reduction of about 3 cents on the dollar.

Me: OK. . . .

Trustee. . . You should be contacted by (can't remember the title, but it was something like blah, blah administrator). You should (or could) be receiving some contact about these. If you receive something in the mail about your student loans, make sure you read the information carefully, and reply back to any questions.

Me: Yes, sir.

Then we move on.

Not much for detail, I know. And I don't want to give anyone false hope, but if something comes in the mail about this, I will be on the forum relaying the info. One concern I have about people seeing a pinhole ray of hope from this innocuous conversation is that even if there is a small loophole, it will be taken away when the new rules go into effect.

Keep up the good work,

ADS

[Charmony]

I received a letter from the company that I consolidated my student loans with, that reads like this.

Dear Borrower:
Congratulations! Our records reflect we have received the final payment of your student loan. The account number referenced above is paid in full.

Please retain this letter as confirmation that your student loan account has been fully satisfied.

How should I take this one?

[marko56]

Wells Fargo Consern Loan

I was recently discharged including my Wells Fargo Consern Loan. Off The Hook!

[abc123]

Thanks ADS, i look forward to it.

Charmony - i would be careful here.
It seems to me that all that happenned was you consolidated your loans with some company - there are thousands competing to consolidate everyone's federal student loans precisely because they CANNOT be discharged - everyone knows it so they want to buy them up. So what they do is, they consolidate for you, pay of the Dept of Education, and now you simply owe THEM the whole amount - p.s. they buy the loans from ed for some kind of discount. So I highly doubt you're free and clear, but that they simply mean that your dept of ed account has been paid and fully satisfied, but you will soon be getting a bill from them.

As a note to anyone else, I would be SUPER careful in consolidating your loans with other entities outside of the Dept of Education - as far as I know, Dept of ed gives you UNLIMITED forbearances (that means you don't have to make a payment for the month that you get the forbearance in - though interest still acrues) as well as a ton of other deferments based on unemployment, hardship, etc. (where interest doesn't accrue). Plus, you can defer paying federal student loans for as long as you enroll in school part time. So you can take a couple of classes (6 units minimum i think) at a community college for some tens of dollars, and push off having to make a payment for the semester - for as long as you take these minimum six units.

Now, these other consolidating entities, who use all kinds of "government" sounding names to sound more official and entice you, may in fact be able to give you special interest rate reductions that the Dept of Ed does not at this time, but you really need to evaluate all of this carefully - the pros and cons.

MARKO56 - congratulations!! So how long ago did you discharge it? You know they have a certain amount of time to object, but you're probably clear. Also, I'm curious what city/state are you in, and could you tell us a little about what exactly you did - you know, go to a bankruptcy lawyer, did he tell you that it was private and will be discharged, etc. - any detail you could give i think would help a lot of people.

Best to all