When Student Loan Default Is Not Your Fault

Contact: Champions Companies    Phone: 480.222.4314    
Email: [email protected]


In 2011, servicing of certain Federal Family Student Loan Program (FFELP) loans was transferred from the private sector to the U.S. Government as part of the “transition to 100% direct student loan lending” and something went terribly wrong—nearly 403,000* student borrowers were MISTAKENLY placed in default status.

Mary Lyn Hammer has personally met with senior officials at the U.S. Department of Education (DOE) and congressional leaders, but five years later no action has been taken to correct the loan status and credit history, to relieve the borrowers from severe consequences of student loan defaults, or allow those students a chance to repay their loans with appropriate quality servicing.

Image_003Ms. Hammer published evidence of this data failure and many related events in her 312-page investigative report, Injustice for All. Americans need to know about this failure and deserve an answer to the question, “Why hasn’t this been corrected?” Perhaps the DOE has been focused on promoting its hero role by feeding the news media more pleasant narratives; for example, how the DOE is wiping out wrong-doers in the for-profit industry in sweeping blows or how the DOE is protecting students and taxpayers from predatory schools with new proposed rules known as Defense to Repayment where loans are forgiven when the schools are forced out of business.

For five long years Hammer has urged government officials to reverse the defaults (not forgive them—just put them back into repayment status) and correct related default rates for all affected institutions. Making officials aware of this error has not yielded results and now Hammer is reaching out to the media for assistance to bring the necessary awareness to the public by reporting on this subject. Hammer said; “These mistakes are not only harmful to the students who are suffering the consequences of defaults and ruined credit—if a school has lost federal or state grant and loan funding because of these default errors and they are still in business, currently enrolled students will have limited to no options for college grants and loans. Someone you know could be suffering direct or indirect consequences of these incorrect default statuses.”

Ms. Hammer encourages students to find and contact their congressional representatives if they believe their loans were incorrectly placed in default status. (http://www.house.gov/representatives/find/)

*After publication of Injustice for All, the estimate of 403,000 affected borrowers was updated based on methodology agreed upon in Congressional meetings.

Suggested Talking Points for Interviewers

Ms. Hammer, a pioneer in student loan default management, education advocate and industry expert warns that: “Defaults come with serious repercussions—wage garnishment, not qualifying to buy a home, unending compounded interest and, with student loans, even bankruptcy may not relieve you of the debt. When someone dangles low payments or loan forgiveness in front of you while you are suffering, or if you have little to no financial credit experience, of course you may pursue what appears to be the easiest path. But you need to consider the long-term money trap you may have entered into.”

In addition, to incorrect loan statuses, Hammer wants make sure student borrowers understand the loan repayment options, for example:

  • Some options increase payment length from 10 years to 20-25 years.
  • How to keep from paying MORE to the government in interest than you took out in loans.
  • Student loan forgiveness comes with a 1099 form (a.k.a. tax liability), or, in other words, it is like borrowing the money today and claiming it as income in 20-25 years when you are trying to send your own children to school—and the tax liability is a lump sum payment that doesn’t have all of the payment options that student loans do—it is a debt with the I.R.S.

Ms. Hammer can also answer questions on:

  • What do I do if I’m in default and I don’t think it is my fault?
  • How do I know how much to borrow for education?
  • What if I am in danger of defaulting?
  • Should I pay a company to help lower or consolidate your student loans?
  • Should I do interest only payments?
  • How can I lower my total interest paid which is the cost of the loan?
  • What are the pros and cons of the repayment options?
  • What do I do if I’ve been making additional payments to pay my loan off early and find out that the servicer has been applying the money to future payments?

Ms. Hammer is an expert resource for those who need reliable answers to complex questions about how the U.S. Government handles student loans, higher education loan regulations, what teaching accountability and financial literacy means and on education legislation.

Mary Lyn Hammer’s Bio