Default on Sallie Mae student loans

[dingaling]

My son defaulted on two Sallie Mae student loans last year that were about 12 years old. I had cosigned for both. The original principal balance was about $11,000 total. I was just reading through the documents and saw that they said they could keep any tax refund if we defaulted. Is that likely to happen or is it an idle threat? I don't have the money to pay them back right now and we are counting on our refund. My son owns his own business and business is off some. I have never gotten any paper work about the default and only found out about it when they appeared on my credit report. It has been a little less than a year since he defaulted.

[Guest Muggle]

As a tax preparer, I see this all the time. They will, indeed, put a lien on your tax refund. They usually wait a few years before they take this step, but I have seen people have their refund taken and they have only been delinquent a year or so. If they don't seize the refund this year, and the delinquency continues, you can expect future refunds to be in jeopardy. In addition, because you are the cosigner, they can take your refund as well as your son's.

Edited February 15, 2012 by Muggle

[dingaling]

After I posted, I got a letter from Wells Fargo, the original lender. I guess it was Sallie Mae who guaranteed it. They said the balance was $4500+. I had not heard from them in years on this loan. I think my son defaulted last year, but Wells Fargo never said anything to me. My son told me about the default, but I did not have any way to help him out.

 

There is another loan for about the same amount which I also cosigned for and on which my son defaulted last year. I have never heard from Wells Fargo on this one except for the ding they recently put on my credit report.

 

Right now I am only concerned about the one they just sent the letter on. They have offered to settle for just over $900. They said they would take no further collection effort on this account. It will report to the credit bureaus that the loan has been paid in full for less than the whole balance. Further, they will report the settlement to the IRS. I assume this means the IRS will tax me on it. I think I could absorb the hit, assuming it is on my 2012 taxes.

 

I think I can get the money together for a settlement. Will this then resolve the issue with Wells Fargo? In other words, this is the last I will have to deal with them on this loan?

 

How does this affect Sallie Mae? Since they backed the loan, does this mean they will pay off Wells Fargo? Will they then come after me for the balance?

 

Is there any chance that I could successfully dispute this off my reports in the future, or am I stuck with it for the next seven years? Has anyone got them to delete as part of a settlement?

 

Since I cosigned for my son, is the forgiven amount reported on his taxes or mine?

 

My nightmare scenario is that I pay the settlement to Wells Fargo; they report the forgiven amount to the IRS as income for me and I pay the taxes on it; then Sallie Mae comes after me for the deficiency.

 

Once I get a handle on this, I plan to talk to my son and see if he is in a position to pay the settlement. If he isn't, I am tempted to take the deal as long as I will not end up with Sallie Mae coming after me.

[LynnInMN]

Ok...are these private loans??? Private loans cannot seize income tax returns.

 

I also think you need to do some research. Both Wells Fargo and Sallie Mae offer private loans under their own name...to my knowledge they do not service/guarantee each others products. I think you need to do some research as to what was borrowed, from who and who you currently owe. Start by pulling your credit report.

[dingaling]

Thanks for the reply. I went back and pulled everything I have. My son has most of the records so what I have is not complete.

 

I was confused. There were three loans (I only remember two). One was from Sallie Mae and is not in issue at this time (this is the one that said they could seize my tax refund). The other two show on the loan documents: Program ID: Plato Education Loan; Lender: Norwest Bank South Dakota. After signing the loan documents, I never got anything from Norwest. One of these two loans is the one I got the settlement offer on.

 

As to the loan in question: It had a $6,000 principal balance and was disbursed in early 1999. Through September 2004, all statements were from Plato and that is where the checks went. In October, 2004, the statements started coming from Wells Fargo. At that time, the balance was $4850. I cannot find any document stating why there was a change in who we sent the payments to, but I am assuming that Wells Fargo bought the loan. Since late 2004, everything has come from Wells Fargo. And, Wells Fargo is who is reporting on my credit reports.

 

I have made payments on this loan off and on when my son was unable to make the payment. That is why my records are incomplete. He had been making payments on this loan for the last couple years until he stopped.

 

Now that I am no longer confused, let me try the questions again.

 

1. Will this be the last I will hear from Wells Fargo on this loan?

 

2. On the amount forgiven, will I be taxed or will my son?

 

3. Is there any chance I could successfully dispute this off my credit reports, or am I stuck with it for seven years? Is there any chance that they would agree to a deletion as part of the settlement?

 

I screwed up my credit starting in late 2002 and having been cleaning it up since then. I almost got it in good shape until this hit. I would hate to have 7 more years of bad credit.

 

Thanks for your help.

[LynnInMN]

I was confused. There were three loans (I only remember two). One was from Sallie Mae and is not in issue at this time (this is the one that said they could seize my tax refund). The other two show on the loan documents: Program ID: Plato Education Loan; Lender: Norwest Bank South Dakota. After signing the loan documents, I never got anything from Norwest. One of these two loans is the one I got the settlement offer on.

 

Norwest Bank was bought by Wells Fargo years ago.

 

 

 

Now that I am no longer confused, let me try the questions again.

1. Will this be the last I will hear from Wells Fargo on this loan?

Yes

2. On the amount forgiven, will I be taxed or will my son?

You would have to ask the bank.

 

3. Is there any chance I could successfully dispute this off my credit reports, or am I stuck with it for seven years? Is there any chance that they would agree to a deletion as part of the settlement?

It will report for seven years from the date of the last payment.