In these times along with mortgages and credit cards, many people are not able to afford student loan payments. SLM Corp., or Sallie Mae, the largest private student lender, reported a delinquency rate of 9.4% in September, up from 8.5% a year earlier. “It’s clearly because of economic conditions,” says spokesman Tom Joyce. “The credit crunch has washed onto the student-loan beach.”

Unlike credit cards, there is no statute of limitations on these types of loans, meaning that they can haunt you into the grave. Collections agencies hired by Sallie Mae are in a strong bargaining position when dealing with consumers because of this. In my experience, Sallie Mae collection agencies are typically a cut above above collection agencies dealing with credit card (unsecured) debt.

I get many people who come to me with debt exceeding $100,000 in student loans and payments of $1000/month. What to do if you are buried in debt and facing default?

1. Student loan blemishes on your credit report (I’ve seen up to 25 loans on a single credit report) can be easy to fix. Any Sallie Mae loan can be “rehabbed” through the Department of Education. Typically, if you qualify for the program and make 12 payments on time, they will upgrade your paying status on your credit report as “paid, never late”. Contact information for the department of education is at http://www.ed.gov.
2. Another way to handle student loans: you can possibly wipe out some or all of your student loans through a program recently introduced: public service student loan forgiveness program.
3. One other ray of light: in July 2009, a program called the income-based repayment plan — designed to help those who take jobs with lower salaries — will be another option for people with federal loans.

Still the current default rate is still less from the late 1980s, when student-loan default rates skyrocketed to as high as 30%. That prompted state and federal governments to pass legislation allowing them to seize income-tax refunds, withhold professional licenses and enlist collection agencies to gather payments. Meanwhile, the U.S. Department of Education withheld eligibility from federal financial-aid programs from institutions that didn’t keep their default rates low.

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