Hard lesson to learn if you don't pay back your student loan

[jym626]

<p>This could happen to you:

Suddenly, bank account was gone
Couple learns the hard way of bank’s ‘right of setoff’</p>

<p>Hope and her husband Matt Hughes had their checking account at Wachovia-turned-Wells Fargo wiped out when a student loan with the same bank was called in.</p>

<p>When Hope and Matt Hughes stopped for supplies at a pet store last month, they thought the trouble with their debit card was just a glitch. But it turned into a financial crisis.
They quickly discovered that their bank, Wachovia-turned-Wells Fargo, had deducted $4,059.82 from their checking account, wiping it out. </p>

<p>It was no glitch. It is called the right of setoff or offset, a long-accepted practice dating to early English common law.
When the right of setoff is applied to bank accounts, it works like this: When consumers place money in bank accounts, they are basically agreeing to let the bank borrow the money, with a promise to repay, usually backed by the Federal Deposit Insurance Corporation. If the consumer then takes out a loan with that same bank and falls behind, the bank can use the money in that account to offset the loan.</p>

<p>The trouble stemmed from Hope Hughes’ $10,000 student loan, which the bank called in.</p>

<p>Now, the couple, who rely on Matt Hughes’ once-a-month paycheck from Kimberly-Clark, have had to sell possessions on Craigslist, tap into his 401K and negotiate with creditors so they don’t put their house and car loans in danger. And they were charged $385 in overdraft fees for purchases that would have cleared their account the day it was cleaned out.</p>

<p>“We are so far behind,” said Hope, 36. “I don’t want anybody else to go through what we’ve been through. … I was blind-sided.”

</p>

<p>From the Atlanta Journal-Constitution May 2, 2010 <a href=“http://www.ajc.com/news/suddenly-bank-account-was-508472.html[/url]”>http://www.ajc.com/news/suddenly-bank-account-was-508472.html&lt;/a&gt;&lt;/p&gt;

<p>Another reason not to start out life with large student loans-- or, pay them back as promised</p>

[goaliedad]

<p>Ouch! </p>

<p>The sad part was that they were quibbling over a loan that was only $10,000. The monthly payment couldn’t have been that big.</p>

[jym626]

<p>Yup. Apparently there was some confusion about her graduation date and when she had to start to pay the loan back, so they got hit with interest. But still, they should have worked it out. They are in a bit of a pickle now.

After several rounds of calls and faxes to prove she graduated in May 2009, not December 2008, as the bank believed, and a last-ditch application for a deferment, she thought things were settled. Then in January, the bank apparently wrote off the loan, meaning it was sent to its collections department. She began receiving bills for the total amount, plus interest and fees: $11,338.60.</p>

<p>By April 1, the Hugheses’ checking account showed the bank deducted $140 in overdraft fees, even though it still held $4,302. The next day, the bank registered an “account transfer, zeroing out the account, and then charged $245 more in overdraft fees.</p>

<p>A few days after that, the Hugheses received a letter from Wells Fargo saying they were eligible for “a considerable settlement reduction” on the loan. The next day, yet another letter advised them the bank had exercised its right of setoff. The balance of the loan, nearly $7,300, is still due.

</p>

[jym626]

<p>I bank with these folks. Might just ask a few questions next time I am in the branch…</p>

[goaliedad]

<p>Thinking about the situation, I believe their mistake was appealing the start date with the bank. The regulation as to when student loans are required to be paid upon is very clear - 6 months after the last degree seeking term is completed (either by completion or withdrawal date). </p>

<p>I believe lenders verify with the Federal Government as to the “student status” of all students whom they have loans for periodically. The Federal Government gets the student status (enrolled, study abroad, not enrolled, etc.) from the schools. Lenders are not required and are not equipped to look at your student paperwork (bursar statements, grades, etc.) to determine when you start paying.</p>

<p>If the borrower was truly enrolled in a degree seeking status (taking classes for fun does not defer a loan), it was either not reported correctly to the Federal Government or the Federal Government did not report it correctly to the lender. </p>

<p>When the bank says you weren’t enrolled in X term, it is the borrower’s responsibility to follow up first with the school to make sure their status is correct (degree seeking), that it was reported as that to the Federal Government, and then to check with the Federal Government to make sure that is correctly being reported to the lender.</p>

<p>There isn’t enough info here, but if in the last term, perhaps the borrower was considered part-time (perhaps because borrower only needed 3 units to graduate and was only taking 3?) and therefore no longer eligible for deferment.</p>

<p>It is still the responsibility of the student to understand the rules of the game and if they don’t, be responsible for getting with the program.</p>

[thumper1]

<p>DD is a senior in college. She has ALREADY gotten her info regarding the date her payments will begin with a note that if her graduation date is incorrect to deal with it NOW. I can’t imagine these folks didn’t get the SAME kind of “warning” and advance notice to correct this. DS got the same last year…and also when he got out of undergrad (but he was continuing so his loans were not due until after grad school).</p>

<p>I’m sorry…but unless the mail got lost (and YES it is the borrower’s responsibility to keep addresses current)…then this was a mistake they hoped wouldn’t happen…but it did.</p>

<p>Their loan payments would have been about $125 a month on a $10K loan. I hope they can get this somehow reconciled.</p>

[jym626]

<p>Can’t speak for the people in this article, and don’t know when she tried to reconcile teh graduation date or if she did qualify in that last semester, but I can say that there have been a few glitches in the Wachovia/Wells Fargo merger, so its possible there could have been snafoos on both ends.</p>

[juillet]

<p>Yeah, this - also, even if the bank had their date of deferment screwed up, it’s a $10,000 loan. Like thumper said, $125 a month. I can pay that NOW and I’m in graduate school. Unless they were really indigent, they could’ve been paying this off even if they did have a 6 month grace period if they wanted to avoid issues with the bank.</p>

[worried_mom]

<p>I think this might be another one of those stories where the reporter (or perhaps the “victims”) haven’t given us the whole story. As others have pointed out, $125 a month is a very modest amount to be paying back. The couple in question had a house and over $4,000 in their checking account, so they aren’t exactly poor. Something just doesn’t smell right to me; I think there’s much more to this story.</p>