By Mike Roberts

The Credit Solution

Copyright 2012 by Mike Roberts

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Copyright Information:

Copyright 2011, 2012 by Mike Roberts

All rights reserved. No part of this book may be reproduced, distributed,
transmitted, stored in a retrieval system or used in any form or by any means,
whether electronic, mechanical or digital, except as may be expressly permitted
by applicable copyright laws or as expressly allowed by the publisher or the
author in writing.



Publisher Information:

Published by Smart Consumer Solutions, LLC, 601 Van Ness Ave., STE E869, San
Francisco, CA 94102.



Disclaimer:

All of the information contained in this publication is true and accurate
according to the best information available to me at the time of publication.
Please understand, however, that laws and credit industry practices and
procedures are constantly evolving; so you should independently update laws,
practices and facts before you take action. I do not accept any responsibility for
errors or mistakes of any kind, or for any damages or losses that might result
from the use of any information provided.

Also, I am not a lender, a collection agent or a credit reporting agency. I am not
an accountant or an attorney, and nothing in these materials is intended as
professional advice. It is personal opinion only. I am providing it to you without
any warranties or guarantees whatsoever. To obtain advice as to the tax or
legal consequences of any action covered in these materials, or any action that
you might consider based on these materials, you should consult an attorney,
an accountant, or both. What I have tried to do here is simply offer solid, useful
information that I have obtained through my own personal and business
experience. Any action you choose to take based on any information that I
provide, including forms and other attachments, is entirely your responsibility.

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Contents
Introduction ..................................................................................................... 3
The goal of this report ...................................................................................... 4
Walking away isnt an option ............................................................................ 5
Bankruptcy wont erase your student loans ............................................. 5
Cancellation probably isnt available either ............................................. 6
Loan repayment options ................................................................................... 7
Deferment/Forbearance .......................................................................... 7
Deferment ..................................................................................... 8
Forbearance .................................................................................. 8
Consolidation .......................................................................................... 9
Advantages ................................................................................... 9
Limitations .................................................................................. 10
Rehabilitation ........................................................................................ 10
Student loans and your credit rating ............................................ 11
Loan repayment is OK .................................................................. 11
Rehabilitation is much better ....................................................... 11
How to find the money for rehabilitation ..................................... 12
How rehabilitation works ............................................................. 13
Some final points on rehabilitation .............................................. 15
Conclusion ..................................................................................................... 16


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Introduction

Back when John Kennedy was President, a high school graduate with good
grades could attend a name-brand college or university without breaking the
bank. In those days the annual bill for tuition, room and board at a good school
ran somewhere between $1,400 and $2,300. That wasnt necessarily cheap (in
1960 dollars), but it was low enough that you could get a degree without going
into debt. This was true even if your parents werent rich.

That was then. Its a very different story now. Today if youre an in-state
student attending a public institution you can expect to pay around $22,000
per year for tuition and other necessary expenses, and thats considered a
bargain. If youre out of state, or if youre enrolled in a private school, you can
count on paying twice as much. These are numbers that make higher education
simply unaffordable for most people.

And the need for a quality education has kept pace with the rising costs. Now
more than ever, you have to get a certificate or a degree if you want to land a
really good job and enjoy a stable, financially rewarding career. In the words of
Lennon and McCartney, an education is your ticket to ride.

So what do you do if you need a good education and neither you nor your
parents can write a check to pay for it? The answer is simple: You go into debt.
You borrow the money to go to school. Sure, you do your best to borrow as
little as possible (you apply for some tuition aid here, you work a part-time job
there), but still you borrow.

With college costs as high as they are these days, you have no choice. If youre
lucky, you dont end up borrowing too much. You get your degree, find a good
job, and make payments that you can comfortably handle. Within a few years
the payments are history, your student debt is gone, and youre on your way.

But fewer and fewer people are so fortunate. According to the Wall Street
Journal, two-thirds of todays higher education students borrow to pay their
bills; and by the time they graduate, they owe an average of some $23,000.
Many, especially graduate and professional school students, take on six-figure
debts. If you have student loan debt that you cant pay, then this report is here
to help you. In the following pages Im going to discuss what your options are if
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you cant pay your student loan(s), and Im going to show you how to avoid
trashing your credit as you work your way through your options.
The goal of this report

As you probably know, student loans come in a dizzying array of types and
flavors. Some are subsidized by the federal government, and others are not.
Sometimes the federal government is the lender, sometimes the school loans
the money, and sometimes its a private lending institution. Each program has
its unique features; they all have their strengths and their weaknesses.

In this report, Im not going to get into which loan programs might be best for
you; and Im not going to describe any of them in detail, at least as far as their
requirements and merits are concerned. There are two good reasons for this:

1. There is already plenty of solid, detailed information available about all
the various loan programs, how they differ, and how to apply for them.
Here are just a couple of the excellent resources available:
http://www.studentaid.ed.gov (a website operated by the U.S.
Department of Education), and http://www.finaid.org (a privately
published site that has a wealth of information. You can go to these
sites, and to some of the links on these sites, and find out everything
you could possibly want to know about the pros and cons of these
various programs.

2. Im assuming that you have already made your loan program choices,
and that you have already borrowed your money. A long discussion now
about why you should have taken another path or chosen a different
option isnt going to help you.

If youre reading this report, youre probably not starting out in the student
loan process. Youre past that. Youve borrowed the money, youve finished
your schooling, and youre in the pay back phase. Youre either having trouble
making your student loan payments right now, or you see trouble on the
horizon. My goal here isnt to help you choose the right loan; its to help you
figure out how to handle repayment as effectively as possible, and to keep your
credit intact while you do it.

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But lets deal with one obvious issue before we get any deeper into this. Is there
any way to get rid of a student loan without paying it at all?
Walking away isnt an option

It would be terrific if there was a way to just make your student loans disappear; but as
a practical matter, there isnt.

With many kinds of debt, if you cant pay you can just lay low and wait for the
statute of limitations to expire on your loan. Eventually the lender gives up and
leaves you alone. This wont work with student loans. Why? Because there is no
statute of limitations on student loan debt. Your lender can keep trying to collect
forever.

In very rare circumstances, it is possible to get a student loan forgiven (wiped
out); but you have to meet some incredibly tough criteria. Believe me; you dont
want to meet these criteria. If you do, your student loans are the least of your
problems.
Bankruptcy wont erase your student loans

What about bankruptcy? Its there to wipe out debt, right? Well, its true that the purpose
of bankruptcy is to clean out debt and give folks a fresh start; but certain kinds of debt
survive the process. Tax debt is one of those kinds, and unfortunately, student loan debt
is another. You should assume that youll have to repay your student loans even if
you go through bankruptcy and get rid of all your other debt. This isnt good
news, but its the truth in almost every case. The reason isnt complicated.

The federal government is deeply involved in student lending. In both
subsidized and unsubsidized loan programs, the government guarantees
the loans. This means that if a loan goes into default, the government
must write a check to the unfortunate lender. When that happens, the
lenders mood improves, but now the government is out the money and it
doesnt like that at all.

To protect itself, the government has made sure that defaulted student
loans dont get discharged in bankruptcy. This was easy to accomplish
because Congress writes the bankruptcy rules. They decide which types
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of debt are eligible for discharge in bankruptcy and which are not.
Student loan debt is not wiped out in bankruptcy for the same reason
that income tax debt is exempt from discharge. This is money owed to
the government, and the government intends to collect it.

There is one exception to this general rule. It is technically possible to have a
student loan discharged in bankruptcy, but only if you can convince the
bankruptcy judge that forcing you to repay the debt will impose an undue
hardship on you and your dependents.

This undue hardship test is extremely difficult to meet, and the requirements
are technical. Dont try this on your own. If you think you might want to file
bankruptcy, then discuss this undue hardship option with your attorney and
make sure he or she is on board and ready to plead your case for you. You
should understand at the outset that meeting the undue hardship test is a
long shot.

To have your student loan discharged in bankruptcy, you must be able to
show, with clear and convincing proof, that you and your family are
locked in a spiral of poverty from which you will never escape.

It has to be obvious that if you are forced to repay your student loan, you
and your dependents will be deprived of the necessities of life
indefinitely.

You have to show that you made regular payments over an extended
period (five years or more) before you filed bankruptcy.

If youre an ordinary, competent person with some reasonable hope of
bettering yourself over your lifetime, youre probably not going to meet the
undue hardship test.
Cancellation probably isnt available either

Under federal law and the rules of the Department of Education, student loan
lenders will cancel a loan under certain, very special circumstances.
Unfortunately, you wont qualify for this solution to your problem unless

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You cant pay because you are terminally ill, or because you are totally
and permanently disabled (you have a serious physical or mental
impairment that makes you unable to earn income doing anything);

You cant pay because you have died;

You dont have to pay because you have somehow managed to convince
your bankruptcy judge to discharge your debt; or

Your school closed while you were attending and before you could finish
your studies.

These are the main reasons why people are able to have their loans cancelled.
There are one or two others that almost never apply. You can learn more about
the details here: http://studentaid.ed.gov/repay-loans/forgiveness-
cancellation. Again, if youre an ordinarily capable person with the ability to
provide for yourself, cancellation isnt going to be an option for you.
Loan repayment options

OK. Lets assume that youre not going to be able to just walk away from your
student loan debt and forget about it. All is not lost. Even if you cant make
your payments, youve got some options. Depending on your circumstances,
you might be able to get your payments deferred, get a forbearance agreement
from your lender, consolidate your loans, or work your way through a process
called loan rehabilitation.

Lets look at each of these options in more detail.
Deferment/Forbearance

Both deferment and forbearance provide some temporary relief because they
both let you suspend your payments for a specified period of time. They are not
the same, however; and you decide to go this route you want deferment if you
can get it. Heres why:

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Deferment

With deferment, as with forbearance, interest on your loan continues to accrue
during the period when you suspend your payments. But if you defer a federally
subsidized student loan (a Federal Perkins Loan, a Direct Subsidized Loan, or a
Subsidized Federal Stafford Loan), then the government pays the interest
during the period when youre not making your payments.

This excellent feature is the key benefit to deferment. If the government pays
the interest during the deferment period, then that interest isnt added to
principal later. Lets say the balance on your loan is $10,000 when the
deferment period starts. If the government picks up the tab for the interest
while youre not making payments, then youll still owe $10,000 when the
deferment period is up (instead of maybe $11,000 or $12,000).

You can apply for a deferment if you are still in school, or if youve enrolled in
graduate school or an approved disability rehabilitation program, and the
deferment will last as long as you stay enrolled. You also can apply if youre
unemployed, but the deferment will last for three years at the most, whether
you get a job or not.
Forbearance

If you dont qualify for a deferment (youre not enrolled at an accredited school
and youre not unemployed) you still might be able to suspend your payments
for a period of time by applying to your lender for forbearance. Under some
circumstances, your lender will be required to grant forbearance. This will be
true if

Youre in a medical or dental school residency program,

Youre monthly student loan payments total more than 20% of your
gross monthly income,

Youre involved in national or community service,

Youre teaching in a qualifying education program (serving low-income
or disadvantaged populations), or

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Youre in the National Guard and youve been called up.

If you dont meet one or more of these criteria, you still might be able to get a
forbearance deal; but your lender will have some discretion to say no, or to
agree to suspend only a part of your monthly payment.

The main thing to remember about forbearance is that you are responsible for
whatever interest accrues during the payment suspension period. This means
that you will eventually have to pay it. Lets say you owe a balance of $10,000
when you suspend your payments, and that you stop paying for 12 months.

If your interest is 6%, then youll run up accrued interest of $600 during
the suspension period.

When you start paying again, your principal balance owed will be
$10,600 instead of just $10,000.

This means that your payments will go up, or that youll need to take
longer to repay your loan.

This is the critical difference between deferment and forbearance. To get more
details on applying for both deferment and forbearance, and for a review of
the fine points about how these programs work, go here:
http://studentaid.ed.gov/repay-loans/deferment-forbearance.
Consolidation

This is an option if you have more than one student loan, and the combined
total of all your monthly student loan payments is more than you can handle.
This is an increasingly common situation, and if you find yourself in this boat,
you need to weigh the pros and cons.
Advantages

1. Youll have a single monthly payment that is lower than the total of the
payments youre making now. This is more convenient, and it will be
more affordable in the short run.

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2. You might be able to significantly extend the period of repayment,
thereby driving the size of the monthly payment even lower.

3. If some or all of your current loans have a variable interest rate, you
might be able to lock down a single, fixed rate.

4. Flexible repayment plans are available, including plans that are tied to
your income stream (ability to pay). You also can switch repayment plans
during the life of the loan.

5. Most types of student loan are eligible, both subsidized and
unsubsidized.
Limitations

1. You cant include a loan in consolidation unless you have either started
to make payments on that loan or you have entered the grace period
(youve finished your studies and your payments will soon start).

2. Consolidation is expensive. There are no fees to apply and sign up, but it
will cost you more in the end. Its true that your consolidated payment
will be lower than the total of your individual loan payments, but the
combined total of all your consolidated payments will be greater
(depending on the repayment plan you select, maybe a lot greater).

3. Finally, and I think most importantly, you need to understand this:
Consolidation is not a good solution for a loan that is in default. Though
it is technically possible to consolidate a defaulted student loan, I
strongly recommend that you avoid it. Ill cover the reasons for this in
the next section.
For more on consolidating student loans, including a complete list of the kinds
of loans that are eligible, go here: http://www.loanconsolidation.ed.gov/.
Rehabilitation

If youre like most people, your education ended up costing you more than you
thought it would. Thats history. Whats done is done; but now youve got more
student loan debt than you ever expected, and your job (if you have one)
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doesnt produce enough cash to cover your student loan payments (not after
youve paid your rent, your car payment, your grocery bill, etc.). Youve missed
some payments, and now youre in default on one or more of your student
loans. This is not good, and the consequences can dog you forever. There is no
statute of limitations on unpaid student loans.
Student loans and your credit rating

Student loan debt is just like any other kind of debt in one important respect: If
you dont make your monthly payments, the late payments and default entries
show up on your credit report. Your credit rating goes into the tank. Your
account goes into collections.

These negative entries will continue to show up on your credit report and affect
your score for seven years, even if you start making your payments on time or
repay the loan in full. So what can you do to avoid these consequences?
Loan repayment is OK

Of course, if you happen to have the money (a rich relative has left you a
windfall, or you recently won the lottery), you can just send a check to your
lender for the outstanding balance on your loan. The obvious benefit is that you
wont have this payment to worry about in the future, but paying your defaulted
loan in full wont remove the negative entries on your credit report and restore
your FICO score.
Rehabilitation is much better

There is a better way, even if you have the cash to pay off your all of your
student loans right now. Through rehabilitation you can

Get your defaulted loans reinstated (regain your in good standing status
with your lenders),

Get the negative entries removed from your credit reports, and

Regain your eligibility for more federal student aid if you later decide you
need it.

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As you can see, the results with this approach are pretty good. Before you get
too excited, though, you need to understand two very important points about
student loan rehabilitation:

1. It takes time. Were not talking about a quick fix here. Were talking
about several months. You should assume that it will take a year or so for
you to start this process, get through it, and begin seeing the benefits of
rehabilitation.

2. It takes money. Loan rehabilitation is based on establishing a new
payment history with your lender. Youre going to have to make no fewer
than nine payments on each defaulted loan, and you will have to make
them on time, before your lender will reclassify your defaulted loan as in
good standing.
How to find the money for rehabilitation

Great, I hear you saying. If I had the money to make my loan payments, I
would be making them now and I wouldnt be in default!

This is a natural reaction, and heres my response:

The truth is that if you are unemployed right now, and you have little or
no cash flow, this isnt going to work for you. Youre not going to be able
to rehabilitation your loan(s), at least not right now.

But if you have some income (some . . . just not enough to cover
everything including your student loan payments), then there is a way to
rehabilitation your loan(s).

So what is the secret? How do I do this? youre asking. Heres how.

As you may already know, Ive been helping people deal with their
overwhelming debt and get their financial houses in order for a long time. One
of the programs Ive developed enables people to negotiate and settle their
debt for a fraction of the amount owed. This program, called Settle Your Debts
(For a Fraction of What You Owe), is primarily for people who are buried in
credit card and installment loan debt, but it has a feature that can help you
solve your defaulted student loan problem.
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If you already own this program, then you have access to a method to enable
you to

Analyze your cash flow situation, and

Find ways to free up money that you didnt think you had available.

This method is exactly what you need to find the cash to rehabilitate your
defaulted student loans. If you havent picked up this program yet, you can find
it here http://www.thecreditsolutionprogram.com/settledebts1. Youll want
to find the included Personal Budget Form and the Expense Reduction
Worksheet in the Appendix, and then turn to Chapter 3 for detailed instructions
on how to use these forms.

You dont have to use our program to help you work out a budget - as long as
you figure out a way to make regular payments on your own, you can move
forward with the rehabilitation process.
How rehabilitation works

Once you work your way through your finances and determine exactly how
much you actually can afford in monthly student loan payments for the next
year or so, youre ready to start the ball rolling.

You contact your lender and work out the payment plan. You have to make
the first move. You need to contact your lender and state your desire to
rehabilitate your loan. Student loan lenders know what this means, and they
know they are required by law to cooperate with you. The two of you will then
have a conversation about how exactly much your rehab monthly payment will
be. Here are some points to keep in mind:

The lender is required to let you into the rehabilitation program, but it is
NOT required to just accept whatever you offer as a monthly rehab
payment.

The amount of the monthly rehab payment has to be reasonable and
affordable. This means that you have to be able to afford the payment
after you pay your rent, utilities, food and other necessary living
expenses. In many cases this means that the rehab payment will be
quite a bit less than the payment originally required (the one you couldnt
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make). In some cases, it will be more.

The lender is entitled to require proof of your finances as part of the
monthly payment negotiations. They dont have to take your word for it.

Regardless of what the lender asks for in terms of proof, you need to be
sure you can free up the money to make whatever payment you agree to.
This is where the budget/expense reduction process really comes in
handy. You only get one chance to rehabilitate a student loan, and you
dont want to blow it by agreeing to something that you simply cant do.

Get the rehabilitation agreement in writing. Again, you cant leave anything
to chance here. You cant afford any misunderstandings about what you have
agreed to do.

Start making your payments. Once you have everything all buttoned up, send
in your first monthly payment, and be sure to get it there on time.

Youre going to have to make nine payments over a ten-month period in
order to rehabilitate your loan.

These payments must be voluntary. This means that any payments
taken from you without your consent (payments made through wage
garnishment or federal withholding of your income tax refund) dont
count.

You cant afford to be late on any of these (late is defined as more than
20 days after the due date).

The nine payments will rehabilitate your loan. Once youve made the nine
payments on time, youll receive confirmation that your loan is rehabilitated. In
some cases, there will be an interim step where your rehabilitated loan is sold
to a new lender. Whether that is true in your case or not, youll receive
paperwork stating that your loan is once again in good standing and that you
will now be required to make future monthly payments in a certain amount.

At this point

All record of the negative late payments in your credit report are removed
completely;

Collection activities, including wage garnishment and tax refund
withholding, stop;

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You are once again eligible for other student loan programs and benefits.

Now you can consolidate. Remember when I said that consolidation is not a
good solution for student loans that are in default. This is because of how
consolidation works. When loans are consolidated, a new lender pays off the
existing loans and replaces them all with a single, larger loan. If a loan in
default is consolidated, then

Your old lender (the unhappy one, the one you have not been paying),
just pockets the payoff, closes the book on your loan, and notifies the
credit bureaus that the loan is finally paid.

Your negative entries, including the statement that the loan was once in
default, REMAIN IN YOUR REPORT.

Your credit score continues to suffer.

But once your defaulted loan is rehabilitated, and is no longer in default, it is
safe to consolidate. Once the negative entries disappear from your credit
report, you can apply for consolidation and get all your payments rolled into a
single affordable payment.
Some final points on rehabilitation

First, you might find that the nine payments required for rehabilitation will be
at least as large, or larger, than the payments you previously struggled to
make. This is sometimes the case. If this happens to you it will be because your
monthly income and expenses are such that the lender is permitted to require a
larger payment.

Second, regardless of the size of your nine required payments, you might find
that the payments required thereafter are substantially higher payment than
those you were making before. This is because accrued interest and collection
costs are normally added to the new principal balance, and the term of the loan
(the repayment period) stays the same. If this happens to you and you cant
afford the larger payments, youll want to seriously look into consolidation.

Third, if you later default on a loan that you have rehabilitated, you wont be
allowed to go through the process again. Rehabilitation is a one shot deal.

Finally, rehabilitation is not available on loans if a court has entered a judgment
in favor of your lender.
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Conclusion

I hope you have found this report on student loans helpful. If youre having
trouble paying back the money you borrowed for your education, you are not
alone. Millions of Americans have the same problem.

Except in rare cases, student loan debt must be repaid. Fortunately, there are
ways to defer payments during difficult times, or to consolidate loans and
thereby lower payments and extend the repayment period. Through
rehabilitation, it is even possible to cure credit problems caused by defaulted
student loans.