My husband had his student loan through several different companies. They were bought and sold all over the place, the last loan holder was Citibank.

He is a builder and work was scarce so he applied for a forbearance with Citibank in early 2006.

We never heard anything more until December of 2006 when we got a notice from NYHESC. We assumed that the loan had been "sold" again.

I called to make arrangements for payment with them and was told our $200-ish payments with Citibank had now gone up to $424/month. When I explained we couldn't afford that right now and asked for a deferment, I was told they didn't "do" deferment. That the loan was in default and we could ask to have the payments reduced but that was it. They gave me no payoff "terms" just that we were to pay it until it was paid off.

I've gone back and forth gathering information and talking to them on the phone trying to get this all straightened out. This month we decided to refinance our home to pay off our high interest loans and this student loan.

On his April statement he owed about 28k. When I called last week to get the payoff amount, they told me it was 33k!!! When I asked how it had gone up so much they said there was a 5k "default" fee that was applied to the account.

When I pushed further, I was told that when the loan came to them (they were the "cosigner" so they didn't BUY the loan, so we never needed to be "notified" of the change) in November 2006, we had 2 months to pay it off in full. Since by January we had not paid it off (we only got notice in December that we now owed THEM) the fee was applied.

The thing is, on our APRIL statement there was NO mention of this "fee". No "projected fee", nothing. If this fee is applied to EVERYONE if they don't pay in full after 2 months, why did 4 months go by with no mention of it? It wasn't until they got wind of the refinance that it "suddenly" showed up on our account. To this moment I have no statement from them with this fee reflected.

We want to pay off the loan amount of 28k. That's his loan and all the interest and late fees. I don't feel like we should have to pay this $5000 "default" fee.

The rep with NYHESC told me that the government allowed them to charge 15.7% default fee on accounts. I can't find ANY information to support this. When I asked her again, she said the rate was 2% for interest and that it was compounded monthly. I said, "you mean daily?" and she said, "yes, daily".

If we owe it, we owe it, but really, the only documentation I can find about a default fee this high is when the defaulted loan is turned over to a collection agency. We have not been 270 days over with NYHESC, so while we were "defaulted" to them from Citibank, we have not "defaulted" by definition with NYHESC, so I don't know what they are basing this "default fee" on.

Do I have a chance of challenging this? The attorney for our closing will handle the issue as we want to pay the 28k to NYHESC but not the 5k fee. Should we just pay the 28 and let them come after us for the 5? I don't know if it's worth it or not. I don't know if what they are charging is LEGAL or not.

I have requested a copy of my husband's original promissory note to see if there is any language in it that allows for this type and amount of fee. I still haven't rec'd it yet.

Thanks in advance for your thoughts!

This link goes to a standard Stafford promissory note. The the wording and disclosures really have not changed much in years. http://www.edfinancial.com/NR/rdonlyres/40...taffApp2008.pdf All of the supporting information on collection fees which average 18.5% can be found in the Higher Education Act.

Late Charges and Collection Costs
The lender may collect from me: (i) a late charge for each
late installment payment if I fail to make any part of a
required installment payment within 15 days after it
becomes due, and (ii) any other charges and fees that are
permitted by the Act for the collection of my loans. If I
default on any loans, I will pay reasonable collection fees
and costs, plus court costs and attorney fees.

If you just send $28k, it will be applied first to the collection fees, interest then principal. You will therefore still have a loan in default. These fees are very real and unless they agree to settle off on them, you are legally responsible for them 100%.

Thank you for your reply! I am in fact on the phone with them now and actually have someone who is appealing to a supervisor to simply settle the account for $28k. They aren't waiving the fee necessarily but accepting a lessor amount on the principle balance.

I swear, I will cry if this man can do this!!

Keep in mind that you WILL receive a 1099 nextg year for the waived portion. It is deemed taxable.

If it's a settlement they will still 1099 us for the difference?

I hadn't ever heard of that, but that's ok. Whatever amount they will settle for helps us out tremendously.

Thank you for your information!

Were you able to pull that off? My loan is also guaranteed through NYSHE and the extra default & interest fees are what is making my loan seem insurmountable.

Can you get a settlement approved even when you will just be making payments?

A settlement by definition is a one time payment for a lesser amount. Payments don't qualify for a settlement.

NYSHE guarantees a lot of loans for my company. They also sell us a lot of rehabs. They never waive the collection cost/"default fee" on a rehab. They may have considered waiving it for OP if OP was just over the 60-day mark.

FYI, if you voluntarily start making installment payments to the guarantor before you reach that 60-day mark, they will not add collection costs as long as you continue to make timely installment payments.