Past events may spell default due to high fees, no co-signer
Sallie Mae claims to be the number one financial services company specializing in education, but one New York student has stood up to the company in order to alleviate what she believes to be an unfair fee.
When Stef Gray was 12 years old, both of her parents died. When she was 18 she, like most 18-year-olds, needed money for college. She took out private loans with Sallie Mae for the three years she attended school. When she graduated, she had three loans that she had to pay back. Each of these loans held almost 10 percent interest because she had no one to co-sign for her.
According to Sallie Mae spokesperson Patricia Christel, most loans have a co-signer, and the company actively encourages co-signers to help with payments.
Because Gray’s parents had died, she had no one to co-sign with her and had to make all of the payments herself. She had two years to find a job, and begin making these payments or else she would be charged a $50 forbearance fee per loan every three months.
“For our customers experiencing severe financial difficulty, we encourage customers to first take advantage of a modified repayment plan at no cost. For those customers who request forbearance to stop making payments but keep their account in an approved status, the fee is $50 per loan, up to a maximum of $150, for three months,” Christel said. “We ask for a good faith payment to emphasize the terms and long-term implications of their decision to use forbearance.”
Gray did not find a job in this two year grace period, and now has to pay the $150 fee.
“Yes, my debt is my responsibility and yes, I read the terms and conditions when I took out my loans but at 18 years old I did not have the working knowledge of a veteran debt employer. There is no way I could have known that Sallie Mae has spent millions to strip away vital consumer protection and financing rights that would have protected me from financial ruin,” she said.
According to Gray, the forbearance fee is not charged to those that hold federal loans through Sallie Mae, but is charged to private loans holders. These loans cannot be consolidated, and because Sallie Mae has a dual role as lender and collector they directly profit from this fee.
If she can’t make all of these required payments, then she must default.
A loan default occurs when a person cannot pay back a loan that they have taken out, whether it be a private or federal loan.
“Even if you do default, Sallie Mae will eventually get that money – whether it comes from garnishing wages or tax returns, and if you’re disabled they will garnish your disability check,” Gray said.
According to Sallie Mae, the private education loan defaults have been declining; however, if you do default, the repercussions may affect your future.
“If you default, you may never be able to buy a home, rent a car, buy a car or even get a job with 60% of employers that check credit when hiring,” Gray said.
It is this forbearance fee that prompted Gray to start her petition “Tell Sallie Mae: Stop the Unemployment Penalty Fee,” through change.org.
“Change.org is the world’s fastest-growing platform for social change,” said William Winters, the website’s senior organizer. “Students are no longer limited to simply have to sit back and deal with whatever a large corporation decides they want to impose.”
“I started the petition on change.org because I wanted Sallie Mae to stop charging me a $50-per-loan fee,” Gray said. “All I want here is for Sallie Mae to give the same rights and protection to its private loans customers that it guarantees free-of-charge to its federal loan customers.”
The petition’s webpage shows that it has received more than 117,000 signatures from people in all 50 states across America, and has sparked some change in Sallie Mae’s policy regarding this fee.
“We have been giving careful consideration to our policy for some time, and we are changing it to apply the good-faith payment to the customer’s balance after they resume a track record of on-time payments,” Christel said. “This change will be retroactive for forbearances granted on or after Jan. 1.”
According to Gray’s petition’s webpage, less than three hours after Gray turned in 76,000 petition signatures to the Sallie Mae office in Washington D.C. the fee’s policy changed. While it is still being charged, it is now going toward student debt rather than to the company itself.
“I’m amazed that we’ve made this kind of progress against a financial behemoth like Sallie Mae,” Gray said, “but it’s also clear that their action wasn’t enough. It does nothing to help borrowers, like me, who are in real financial trouble.”
Gray encourages anyone looking to take out loans for school to ask as many questions as possible when doing so.
“Go to financial aid and look at materials and fact check them on everything. Ask about colleges’ default rate, and if the financial aid office receive benefits for promoting Sallie Mae,” Gray said.
“For families who need a private education loan, Sallie Mae offers among the lowest rates in the country and the most choices to help customers save money and pay off faster than a conventional private loan,” Christel said.
Anyone wishing to sign Gray’s petition may do so at change.org. Student debt stories can be submitted at occupystudentdebt.com.
“Sallie Mae always advises families to use a ‘1-2-3 approach’ to paying for college,” Christel said. “First, use grants and scholarships, second, explore federal loans, and, third, fill the gap with responsible private loans.”
“My story is not about me personally, it’s a cautionary tale. The student debt crisis is a big, hairy, tangled, awful mess,” Gray said, “I hope to bring it to light so people can live the life they want to live and follow their dreams like they were told to when they first went to college.”
By CHRISTINA CLARCK | The South End