Do you hear that big, cosmic chortle?
One of the axioms I find myself repeating a lot lately is "If you want to make God laugh, tell Him your plans."
I've talked before about how easily a budget can be upset by unexpected expenses. In fact, the tighter the budget, the more easily a small item can completely turn your plans upside down. So it should come as no surprise that Tim and I are constantly revamping our outlook. We try to roll with the punches as best we can -- because the punches they keep a'comin'.
So why am I talking about this now?
Well, just the other day, Tim got a call from a debt collection agency. It's not an uncommon occurrence. Companies get some information -- sometimes outdated -- and go to work on the folks most likely to pay up.
It was an excellent reminder to do a piece about dealing with debt collectors. Some people have problems with harassing phone calls regarding past-due accounts. Others are bewildered by the same calls, but about debts that they didn't incur.
And so, in starting a post about that very subject, I seemed to have set in motion some epic, Rube-Goldberg-style mechanism. Witness the marble slide down the chute, knock over some dominoes, which push down a lever... You get the idea.
The end result was a letter from the IRS, received today, informing us that our refund was being withheld. It would be used as an offset against Tim's defaulted student loan.
Fascinating, since we finished paying the suckers off in early October.
So we called the Department of Education. It took several tries to figure out the right combination to get to an actual operator.
Apparently, we only paid off 2 out of 3 loans that Tim took out. The loan was assigned to the wrong Social Security number. Which means that, when we called two years ago and said we wanted to rehabilitate Tim's loans, there were only two on record. Those two got rehabbed.
Meanwhile, whoever got assigned Tim's third loan went through a dispute with the Dept of Education. An investigation was started, and they eventually concluded it was Tim's. So they assigned it to his social security number.
But by this point, his account was in good standing with the other two loans having been rehabbed. And the people who send out the ominous letters about defaulted loans don't check accounts in good standing.
So when we paid off the loans, apparently we finally -- in the last five months -- came to the attention of the Department of Education once more. But since it was so long defaulted (Tim went to school in 1999, graduated in 2000) no letters were sent, no calls made. We were just sent to collections.
As you can imagine, this kind of mind-boggling bureaucracy gave us both headaches. But the operator saw nothing strange about this cycle. I argued that we had made a good-faith effort to deal with Tim's outstanding debts, yet we were being penalized. Mainly for taking the government at its word. The guy simply replied that in each promissory note, the lender agrees to keep track of his/her own debts. Essentially, the operator said, it's not the government's responsibility to notify us about these things.
On the one hand, I agree -- if you take out debts, you need to be responsible and pay them back. And that means knowing what (and who) you owe.
On the other hand, it seems like the government does keep pretty detailed tabs on the status of various loans. It's certainly pretty active in sending updates/bills/declarations of defaults to most of the people who owe the department money. Which leads me to think it really just has that clause in promissory notes to give itself a loophole in situations like this.
So essentially the message is: "We will follow you closely to be sure we get our money back. We'll send you monthly bills and updates on your payments -- including how much is applied to principal vs interest. But just in case we're wrong and have been attempting to collect from some poor American who doesn't owe us money, we reserve the right to blame you and charge you interest for that entire time that we thought the loan was someone else's."
It seems like a pretty ridiculous set of circumstances, made worse by the dueling opinions in my head.
One side points out that taking on a debt should be a bigger deal in this country -- and it's a little ridiculous how many people owe money and don't even know it. Just because it's my husband, shouldn't excuse the fact that we should know exactly what he had taken out.
The other side says, sure that's true. But...
- When the entity you owe money to states that you owe it $X, it's pretty reasonable to then assume you don't owe them $X plus $Y that it's forgetting about. Especially when the entity has a vast, computerized database.
- Even if we had known about the third loan, wouldn't we have just assumed it was somehow lumped into one of the two other numbers -- because, again, the government would know what we owe it better than we do?
- Even if we figured out the government had forgotten about it, what are the chances we would have wanted to risk asking about the loan? (I'm not saying it's right, but more than likely we would have just crossed our fingers and hoped we'd heard the last of it.)
- Should we really have to pay interest on the last 2 years, when the loan wasn't technically on Tim's account or even tied to his social security number?
- Once the account went from good standing/paid off to default/not goodstanding, shouldn't the Dept of Education have bothered to -- oh, I don't know -- inform us that the status had changed and give us time to respond before sending us to collections?
- If a loan has been erroneously assigned to someone else, shouldn't the investigators just take a few minutes to type up a letter to the original borrower? If it wasn't tied to his social security number, after all, there's no way for him to make a payment. Ergo, he'd need to be notified, right?
But the other side just keeps repeating that it really is the borrower's responsibility to keep track of what he has borrowed.
So I don't quite know what to think. I'm disheartened and Tim is pretty devastated. He felt so free finally putting those student loans behind him. They had loomed so large for so many years, while he struggled to keep any job around his health problems.
And there's not a whole lot we can do. I asked the operator for a copy of the promissory note. That will take 2-3 weeks to get here. (I searched through Tim's papers and found a Direct Loan document that appears to match up with the alleged loan, but I want to see his signature on that piece of paper.)
I also touched base with the collections agency. I explained that we had just received all this news today, were pretty upset and generally confused. As far as we knew, we had completely paid off Tim's loans. My blood sugar was low and I was a little emotionally punch-drunk, so I spilled out our sob story -- combined monthly income of $3,100, rent of $700, insurance of $500, and credit card debt (mostly from medical-type expenses) of $8,000.
I made sure to mention that we could not acknowledge this debt as belonging to Tim until we had a copy of the promissory note in hand. But I wanted to know, if this proved to be a valid debt, what sort of plan we were expected to adhere to.
The agent was actually very kind (of course, most are to crying females but it's still nice) and took all this information into account. He agreed that any payment could wait until we had proof that this was Tim's loan. Additionally, he gave us the lowest payment option -- $51/month for 9 months. After that point, the loan would be considered rehabilitated and the collection fees would be dropped.
So this is more of a emotional than financial blow.
We don't have the money sitting around, obviously. But it was relatively small as student loans go: $2,625 at 6.96% became $4692.21 over the last 10 years. Once our withheld tax return gets applied, it'll be just about $4100. The 9 monthly payments will take it down to about $3650. Then the collection fees ($917) will be dropped, taking it down to just about $2700. Or about the amount Tim borrowed... allegedly.
Still, the emotional impact was pretty big. We thought we had closed the book on one section of our debt. We thought we were on track to just pay down this credit card debt, after which we'd be done with interest-bearing loans.
But, besides calling and arguing the case (probably without any results) with the Department of Education, what can we do?
We can suck it up and pay it down. We can use this as an object lesson in organization and thorough research. We can realize that it's definitely a step backward, but that we're still making good progress.
We can remind ourselves that this sort of thing is why we always have to be careful -- with our money and the plans for our money. Relying on a smooth ride is generally the best way to find yourself with a flat tire -- and no spare in the trunk.
And finally, we can hope that God (or fate or whatever entity you believe in) got a nice, deep guffaw out of this one. Because if we can't keep our deities entertained, really what's the point?
For those of you still interested in the "how to" of dealing with debt collections, the post will be out on Thursday.