Question: Due to some health problems of my father while I was in Law School and, following my eventual graduation, I ignored all my student loan notices and neglected following up on the optional deferrement and forebearance agreements.

Eventually, when I finally came to my senses and attempted to straighten out things, I noticed that I defaulted on one of my Private Student Loans (through Northstar and administered through Great Lakes). Although I’ve managed to get back on track with my other student loans (Citibank, Perkins School loan, and Northstar Stafford loans), my private school loan (“Alternative Student Loan”) is now being administered through a collection agency, called the Van Ru corporation. My original debt was about $63,000 and with the “added” collection fees, they are now stating it is up to $ 85,000, payable in full. Through pleading and begging, the collection agent I’m working with has stated that “due to my family’s hardship and your ordeal, we’re willing to settle this matter for $40,000).

Rather than settle, I’ve asked whether I can rehabilitate my private student loan and have been told both by the collection agent and through a phone call with someone at Northstar that unfortunately, “they do not have a rehabilitation program” for private student loans.

What are my options? If I do settle, what should I be aware of and ask for? Also, they claimed that there is “no Payment plan.” Why can’t I be given the option to rehabilitate the loan like other student loans (is it because one is government backed and the other is private?)

I’ve been losing sleep over this trying to figure out where I can come up with the money. They’ve stated over and over, “We’re lowering the amount owed because ‘we’re willing to work with you’” but I just want to make sure I’m not screwing myself by not knowing all my options.

Thanks for any help.

Answer: I would consider researching and possibly litigating from a contract law perspective. Depending on the story with your father, the amount of time that has passed, your good faith, etc., there may be a real case to be made that they should give you a break and allow those deferments and forbearances retroactively. You could look into the analogous deferments and forbearances available to people who take out federally guaranteed student loans; perhaps you could make an argument based upon standard industry procedures. I don’t know; I’m just thinking out loud. As long as you had a decent argument, you might find that merely starting the process would make them more willing to give you what seems like a reasonable first step on the thing. But I’m not sure if, after all this, you’d wind up with better than the $40,000 deal they’re offering already. I’m surprised they’re offering that much of a discount, if you have a bright future as a lawyer. I’m wondering what they might be up to. I’m leery of working with collection agencies, just because they have such bad reputations and my own experience was so unpleasant. If you were down and out, I’d be tempted to suggest telling them to go fly a kite, because there’s some chance that their collection fee would vanish if/when they gave up and handed your account back to the lender. But since it sounds like you’re on your way up, maybe you don’t really have that option — you have some incentive and possibility of getting your credit record shipshape — so perhaps getting on with it is the better approach. Private loans are just that, loans held by private corporations. They set the policies and procedures for the loans. The Feds set the P&P for their loans and all lenders have to follow them to be able to participate in the program.

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