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DON’T DO THIS ONE THING WITH YOUR NJCLASS LOAN

The Four Horsemen of the Apocalypse from the Ottheinrich-Bibel (ca.1530-1532) illustrated by Matthias Gerung, Bayerische Staatsbibliothek

NJCLASS loans are bad; if you’re not already aware of this, please do some research. And if you have a defaulted NJCLASS loan, it’s even worse. Believe it or not, there is a sure-fire way to worsen an NJCLASS loan that is already in default (or that hasn’t defaulted yet): By entering it into a debt settlement program.

When I talk about “debt settlement programs,” I mean those programs run by companies that say they will take a monthly payment from you in exchange for negotiating a discounted payoff of your student loan debt. These debt-settlement companies tell you to stop paying on your loan and pay them instead. They say that they will help you build up enough money in an account so that you will end up with a lump sum of money that they will use to settle your student loan debt for you, at a discount. Often, they’ll add juicy tidbits about how the current owner of your student loan debt bought it for pennies on the dollar and that this “debt buyer” can’t prove they own your loan (“verify the debt”) anyway, so they’ll be happy to settle for a lump sum after they haven’t gotten any money from you for awhile.

Sound familiar? If not, this is the same way that the credit-card debt-settlement industry works. Clever marketers simply applied the same methods to student loans and magically turned themselves into “student loan debt specialists.”

So what’s the problem? Wouldn’t it be great to pay someone who promises to knock out my student loan debt by getting the loan owner to fail at verifying the debt? And in the worst case scenario, if the loan’s owner actually verifies the debt, student-loan specialists will settle it for less than the amount you owe?  WHAT COULD POSSIBLY GO WRONG? Oh, let me tell you…

  1. No matter what anyone tells you, at least as of the writing of this blog post, HESAA remains the owner of your NJCLASS loan. If you recall, HESAA is the original lender of all NJCLASS loans. They do not sell NJCLASS loans to debt buyers, period. They also, so far as I have seen, keep copies on file of the promissory note(s) that you and your co-signer have signed. These facts completely and totally invalidate the promise of the debt-settlement companies that they can knock out your NJCLASS loan by getting the current loan owner to fail at “validating the debt” or at “proving they own your loan.” When you start hearing these phrases with regard to your NJCLASS loan, run.
  2. If you sign up with the debt-settlement company and you put your NJCLASS loan into their program, bad things will happen. If you follow their program the way it’s set up, you would have to stop making payments on your NJCLASS loan (if you were making them, that is) and send that money to the debt-settlement company instead. If your NJCLASS loan wasn’t already in default, it will be after 180 days of non-payment (or payment of amounts below what HESAA demands). If your NJCLASS loan was already defaulted and you were paying a debt collector/law firm, you will be in default of any agreement that you may have had with them and this will cause them to pursue the collection tactics available to them, which can include bank levy and wage garnishment.
  3. But what if your loan was defaulted already and you weren’t paying anyone anyway? What is there to lose? For one thing, these debt-settlement companies typically charge quite a bit off the top, often more than what I’d charge for a Ch. 7 bankruptcy. They don’t like to make it clear that they are taking their (often large) fee first, right off the top of that monthly amount you’re paying them. The other thing is, remember – the law firm that’s trying to collect on your NJCLASS loan does NOT own that loan. HESAA hired that law firm to collect on the loan. They want you to pay the firm, which then passes along the money to HESAA. Make no mistake – HESAA is driving that train, telling the collections firm what to do, for the most part. And HESAA won’t take a low lump-sum settlement offer on your NJCLASS loan. They didn’t sell the loan for pennies on the dollar (they didn’t sell it at all, really) and they won’t take pennies on the dollar to “pay off” your debt. So why would you pay a big fee to a debt-settlement company? It just doesn’t make sense.
  4. Most, if not all, debt settlement companies have mandatory arbitration clauses in the contract that they ask you to sign when you sign up for their services. And, before you ask, yes – electronic signatures on contracts are legal (it’s the 21st century…get with it, people!). What is wrong with mandatory arbitration clauses? If you decide that the debt settlement company promised you things that they had reason to know they couldn’t deliver, but they took your money anyway, you might want to sue them. But if there is a mandatory arbitration clause in your contract with that company, you probably won’t be allowed to maintain a lawsuit against them. That’s Federal law now, as well as the law of most states (and if it’s not the law in your state, it should be soon, because of the Federal law). But wait, you say – I heard about this in the news…isn’t the government doing something about these “forced arbitration clauses”? Nope, not anymore! The CFPB (a Federal agency) was trying to pass a rule against it, but as of now, that effort has fallen by the wayside, unfortunately. And it’s not coming back anytime soon. Maybe the Feds will change the law on forced arbitrations when they make student loans dischargeable in bankruptcy…in other words, I’m not holding my breath waiting for it to happen.

If you have a defaulted NJCLASS loan and you need help, I’m available for telephone consultations on a low, flat-fee basis. You can schedule one at (201) 676-0722.

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