Ex didn't pay up, so your student loan defaulted? Go after him

It's up to you to enforce court-ordered divorce debt settlement

Opening Credits columnist Eric Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.

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Dear Opening Credits,
I have had an outstanding student loan since 2002. Never got to finish my degree. Got a divorce in Arizona in 2003. The judge said we each had to pay half. He never paid his half and has always been employed.

As for myself, due to making mostly minimum wage jobs, I have never had enough money to pay back any of my obligations. Of course, the interest keeps racking up and it is now well over $40,000. They have taken my tax refunds for two or three years, but that has never amounted to much. I have tried explaining to the collection agencies that my ex owes half, but they say they can't go after him for payment because the loan is in my name.

I will never make enough money to repay them. My health is failing and I'm finding it hard to keep up full-time work. I have no other bad credit, but also no good credit. I no longer live in Arizona and would have to go there to pursue legal action against my ex to make him pay his half. I do not have that kind of money. Please help.  -- Rio


Dear Rio,
The main problem, as you know, is the type of debt you have. When a student loan falls from good standing to bad, the lender can be tough to work with. If these are federal and not private student loans, they are difficult (sometimes impossible) to discharge in bankruptcy and there is no statute of limitations for collections. In general, they'll hang around, doing damage, until satisfied. The collection statute of limitations for private student loans depends on state law, but because your taxes are being intercepted, I'm betting your loan is federal. Those issued by private lenders are not subject to such action.

The other complication is the divorce decree. The judge ordered your ex-husband to pay half of what you borrowed for your education, but he shirked his duties. It's a common scenario. While assets and liabilities are often split down the middle when a couple breaks up, getting the other person to pay, especially if he feels it's an unfair arrangement or is angry and vindictive, can be a mighty struggle.

However, do not forget that this is a fight between you and your ex, not your ex and whichever entity is collecting on the delinquent student loan. Your name was on the initial paperwork, not his. For that reason you are the only owner, and the collector cannot go after anyone but you for repayment, no matter how the court divided the bills. Stop wasting your precious time explaining to the collector that your ex is supposed to be cutting his portion of the checks. They don't care. It's simply not relevant.

Now, your ex does seem to be in contempt of court, as he was given an order to make certain payments but did not. Because you live far away and funds are limited, look into ways to get free legal assistance. You may be able to file a motion against your ex, and he would have to appear in court. He might be given a second chance to comply, but if he fails, he could suffer serious consequences, including wage and property attachments -- even jail time, in some situations.

Will it be a swift and easy process or have a guaranteed outcome? I'm afraid not. But if you have the energy and he has the financial means, pressing the matter can be worth your while. Sometimes even just telling the person that you're ready and willing to fight it out in court, with a description of what can happen, is enough to inspire action.

The other direction to turn is toward your own liability. Since the loan is in default, you'll need to rehabilitate it. You can do that by arranging a reasonable and affordable payment plan. Work with the collection agency to determine what you can afford to pay monthly. New regulations expect this figure to be at least 15 percent of disposable income, though it's possible to negotiate the figure down if necessary. As an example, if you bring home $1,000 a month, the payment would be about $150.

Whatever you discuss with the collector, make sure you get everything in writing. Then start paying. After nine months you'll be out of default. The loan will be purchased by another lender and you'll be back on the standard 10-year repayment plan. That payment may be much larger than what it was when you were rehabilitating the loan, but you will probably be eligible for extended and income sensitive repayment plans that are within your economic ability.

The cured loan will show up on your credit report, and if you always pay on time your credit rating will steadily improve. Oh, and you should get your tax refunds back again, too!

See related: Mending a credit score hurt by a student loan default, How to move student loans out of default

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Updated: 01-21-2019