Reader Jennifer sent the following letter to a few lawyers looking for some help with SallieMae. They told her that there was nothing she could do and to negotiate with the lender and to start making payments:

Hello,

I’m writing this email to express my interest in your services. I’m looking for some legal help with the matter of my student loans with Sallie Mae. Basically my situation is that for the past 3 and half years I haven’t been stable, financially or emotionally. I’ve also have had difficulty finding and keeping a job and I have not had a steady place to live, basically staying with different friends for a few months at a time. During this time I haven’t contacted Sallie Mae about my loans. Initially I had talked to them a few years ago and they threatened to garnish my wages but at the time I wasn’t working so there wasn’t much I could say in response. I’ve changed addresses and phone numbers several times in the past few years and I’ve lost contact with them. My parents have mentioned that they’ve received calls and letters but without a stable place to live or work I didn’t contact Sallie Mae.

Recently I started a pretty good job that I’ve had for the past 4 months and I’m doing well. I have a stable place to live and I’m making enough money to support myself. With what I make, it’s about enough to pay my rent and utilities, but I still don’t make much more than that to be able to start making the $400 a month payments they want from me. I would like to start making some kind of payments for now and increase that amount as my financial situation improves.

I’m afraid however to contact them because of threats they’ve made about garnishing wages in the past. They told me that they can take up to 25% of my pay, and frankly if I lost a quarter of my income I’d lose my place to live and be unable to get to work and be at square 1 again. I’ve read on the consumerist (www.consumerist.com) about Sallie Mae harassing people and causing them to lose their jobs. So I would prefer to have an attorney contact them for me initially to set up an agreement and to help me understand what they can and cannot do. I’ve also read about debt collection agencies illegally threatening and insulting people, and I’d to be informed about my rights in this matter.

I’d like to make an appointment for a consultation. Please let me know if you think you can help me and what you can do for me and what your rates would be. Thank you very much for your time.

Regards,
Jennifer

Congratulations on getting a job and turning your life around! If you had federal loans, the answer would be simple, because they have flexible loan workout programs that can help people who have been through some tough times. Private loans are much more difficult to deal with. Student lenders have broad rights not available to traditional “debt collectors,” and it can be difficult to get back on track, even if you’re well-meaning.

According to the Student Loan Borrower Assistance website, your private lender isn’t required to offer you income based repayment like you would get if you had a federal loan. You should contact them, however, and ask them what income-based options they are willing to offer you.

Sadly, the best recourse for you may be to file bankruptcy. It’s very difficult to get your student loans discharged through bankruptcy, but it isn’t impossible. You’ll need to prove that repaying your loan will cause you undue hardship:

Courts use different tests to evaluate whether a particular borrower has shown an undue hardship. A common test is the Brunner test which requires a showing that 1) the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for the debtor and the debtor’s dependents if forced to repay the student loans; 2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and 3) the debtor has made good faith efforts to repay the loans. (Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987). Not all courts use this test. Some courts will be more flexible.

If you can successfully prove undue hardship, your student loan will be completely canceled. Filing for bankruptcy also automatically protects you from collection actions on all of your debts, at least until the bankruptcy case is resolved or until the creditor gets permission from the court to start collecting again.

Assuming you can discharge your student loan debt by proving hardship, bankruptcy may be a good option for you. It is a good idea to first consult with a lawyer or other professional to understand other pros and cons associated with bankruptcy. For example, a bankruptcy can remain part of your credit history for ten years. There are costs associated with filing for bankruptcy as well as a number of procedural hurdles.

Even if you can’t get the loans discharged, you can repay them using a Chapter 13 repayment plan:

CHAPTER 13 and STUDENT LOANS

A case under chapter 13 is often called “reorganization.” In a chapter 13 case, you submit a plan to repay your creditors over time, usually from future income. These plans allow you to get caught up on mortgages or car loans and other secured debts. If you cannot discharge your student loans based on undue hardship in either a chapter 7 or chapter 13 bankruptcy, there are still certain advantages to filing a chapter 13 bankruptcy. One advantage is that your chapter 13 plan, not your loan holder will determine the size of your student loan payments. You will make these court-determined payments while you are in the Chapter 13 plan, usually for three to five years. You will still owe the remainder of your student loans when you come out of bankruptcy, but you can try at this point to discharge the remainder based on undue hardship. While you are repaying through the bankruptcy court, there will be no collection actions taken against you.

Why not talk to a bankruptcy lawyer? It’s obvious from your letter that you want to pay your loan, just not while living on the streets. Good luck!

Has anyone successfully negotiated smaller payments with Sallie Mae? Share your advice in the comments.

Student Loans & Bankruptcy [Student Loan Borrowers Assistance]

Want more consumer news? Visit our parent organization, Consumer Reports, for the latest on scams, recalls, and other consumer issues.