I've made mistakes in my life that I can fix, and some that I cannot. And right now it looks like the one that I can fix is going to interfere with the one that I cannot, and vice-versa.

I had a defaulted school loan. The Department of Education added over double to my 7,000+ school loan from circa-1990. I was a young fool, with a step-grandmother who had promised to pay for my loan at the time that I took it. But then she went mentally AWOL and I was left with the school loan, and a car loan she had also promised to help me pay off. I did pay off the car though, on time with no defaults. Then I spent the next several years taking care of my mom who had her own problems, and always avoiding mine while I dealt with everyone else's.

(Hidden orchestra begins playing violin music now)

I had avoided this debt for many years because of ongoing crises in my life that made life difficult, including clinical depression, memory problems, and ADD, all from a brain injury when I was 14. I had to learn to read and write, walk and talk all over again, and spent years taking physical therapy, and have permanant cognative problems from that injury. But that's neither here nor there; the government does not care about that. They still want me to pay back nearly 20,000 including the fees that they tacked on.

That default had tarnished my credit badly for years, until it finally dropped off my credit score and I built my credit up nicely, to buy a car and a condo in the last year. Now I am getting ready to do my 2005 tax return, which will include a write-off due to the condo I bought in 2005. When I bought my current condo, after years of struggling and trying to fix my life, my mortgage broker, a fraudulent family friend, conned me out of a lot of extra money and I got stuck in a condo that I do not want to stay locked into.

At one time the Dept. of Education had garnished my pay to pay off the school loan and after garnishment and expenses I had barely anything left for take-home pay. Then through some mistake, the garnishing stopped a couple of years ago, give or take, and naturally I did not complain because it eased my financial struggle. But then they realized it partway through 2005 and began sending me letters and calling me on the phone again, demanding repayment of the loan at the full 18,000+ amount. When I bought the condo the default had not been put back on my credit report, nor recently when I checked my credit score, but I am concerned that they will put it back on and ruin my chances to refinance and sell and buy another condo, which I will be needing to do within 6 months or less perhaps because of grief with the Condo Board here who are causing problems for me.

I am currently unemployed, but trying to build up a self-employed business that should bring in a nice income within a couple of months. Thus, currently there is no paycheck to garnish from, if they pursued that route again.

I am concerned that if I do not acknowledge the default and let them do as they may, they will put it on my credit report and my score will plummet.

I am also concerned that if I do make arrangements to start a payment process, that it will, as I have read, go back on my credit score anyway as an old debt revisited. I have read time and again not to try to fix very old debts due to this reason.

Here is another problem. I must make plans ASAP to get my 2005 taxes done. As I indicated, due to my home purchase, I now have a large write off and should get a nice chunk of taxes back. But due to the default, the government will automatically take my tax return and apply it to the 16-year-old loan, and I will see none of it. And right now in my current situation, I need that money desperately.

So, do nothing, and they may put it back on my credit score and then keep my tax return.

Or do something, and it winds up on my credit score anyway, and I get to keep my next tax return once I am out of default status after 12 months of payments in rehabilitation, as I've read.

So what should I do, I ask myself? Self, what options do I have? I am between a rock and a hard place, and feeling pretty drained. I want to pay back this debt but at this time it is difficult with being currently unemployed and trying to work independently; and I worry that if I make arrangements to pay it back now it will hurt my credit now, when I need my credit score to be good now rather than later. I spent years improving my credit to find a way to live a life...I dread having to spend another several years trying to fix it again, and losing my tax refund, which I desperately need.

Does anybody have any ideas on what to do, how to negotiate with the Dept. Of Education or the collector that is now apparently taking care of it?

Also...I know that school loans have no Statute of Limitiations, but after all this time, after it was on my credit report for several years until recently in the last year that it fell off, can they put it back on my credit report at all?

Most loans circa 1990 were FFELP loans and the FFELP lender and loans would have dropped off by now. However FFELP loans are regualarly subrogated by the DOE, which causes reporting to start again with US DOE collection department.

You are going to have a hard time negotiating a low payment with recent home purchase and car loan. They will pull your credit. Not to mention that any mortgage lender you are trying to refi with will question the inquiry and want evidence of what a CA was pulling your CR for.

You more than likely wont get your tax return back. And there is always a possiblity for this to turn into a judgement account with a lien on your property. These things could happen....hopefully your home loan was not an FHA mortgage as FHA mortgages prohibit defaulted loans.

You have to do something. With a $20k loan, for rehab your payment would be around $200/month. However they will question your unemployemnt status and your ability to make payments on your loan and other expenses. You are in a difficult situation as any collector handling your account is going to quesition your credibility. In my opinion, you are better off calling and seeing if you can get a rehab set up.

Good luck!

Thank you Lynn, for your response and aswers. I read the following information, which I already knew, and I have a question about it.

"President Bush (#1) signed by executive order that any and all student loans statute of limitations would be waived -- meaning they can collect literally forever."

I am assuming that it was the 2nd President Bush who singed that order. My question is this: If SOL were waived as per President Bush's signing, then was there a SOL for DOE student loans prior to that executive order? And if so, and there had been a SOL until that point, and my loan had reached the point of dropping off prior to the rule being changed...where would I fall in? Wouldn't my SOL still count, and not become null and void, if the rule changed after my SOL ran out? Does this make any sense?

I dont know which Bush signed it but all I know is there is no SOL period, regardless of when you took it out.

From the DOE site....

Statute of Limitations


By virtue of section 484A(a) of the Higher Education Act, statute of limitations of no kind now limits ED's or the guaranty agency's ability to file suit, enforce judgments, initiate offsets, or other actions, to collect a defaulted student loan. Regardless of the age of the debt, statutes of limitation are no longer valid defenses against repayment of a student loan.

Can you explain this a bit further? I am not sure what a FHA loan is and if it is what I have. I also am not sure what you mean by "prohibits defaulted (school) loans. Thanks.

FHA and VA mortgages are government backed mortgages. Apparently it is in the FHA regs that you cannot qualify for a FHA mortgage with a govt default on the books and there is a question on the actual loan application about this too. I do know of one case where someone lost their home in an FHA review. The borrower had a default and checked off "no" on on the application. They actually owed over $50k and were paying on it but it had dropped off the CR. In FHA reviewer recognized our agency inquiry on the credit report and basically did some research. The mortgage was deemed fraudulently acquired and they were given 60 days to refi or sell the house. They ended up having to sell.

I see. No, it was with a regular bank. Thanks for the info.

Might I be better off trying to negotiate directly with the DOE, or the CA, in order to try to get some fees and interest forgiven?

And, what if I filed my taxes but did not use the home purchase as a deduction, and later on after making rehab payments, I filed a make-up deduction for the home purchase. Might I then manage to get my deduction back anyway? Sorry for what may be dumb and obvious questions, but my thoughts are presently in dissarray and I'm trying to sort all this out in my head. This is the problem with depression and ADD, your confusion snowballs into more confusion.

Your negotiations have to be with whoever is handling the loan now. It the DOE has it and it is assigned to a CA, you must deal with the CA. There is no option.