Sallie Mae Charge Off: What It Means and How to Handle It

• A Sallie Mae charge-off occurs when your loan is seriously delinquent, typically after 120-180 days of missed monthly payments.

• Charge-offs severely damage your credit score and can remain on your credit report for up to 7 years.

• Even after charging the debt off, Sallie Mae may still attempt to collect it or sell it to a collection agency.

A Sallie Mae charge-off occurs when you’ve fallen significantly behind on your private student loan payments. Here’s what you need to know:

• Definition: Sallie Mae writes off your loan as a loss on their books, typically after 120-180 days of missed payments.

• You still owe the debt: Despite the term “charge off,” you remain legally obligated to repay the loan.

• Account status: Sallie Mae will likely close your account and may move your student loan debt to its internal recovery unit. This will change its relationship from being your loan servicer to a debt collector. It could also sell your debt to a collection agency.

• Different from default: Charge-offs on private loans can happen more quickly than defaults on federal loans (which occur after 270 days of non-payment).

• Last resort: Sallie Mae prefers to find payment solutions before charging off a loan. While those options won’t include income-based repayment plans like the government offers with federal student loans, they may include an interest rate reduction deferment or forbearance.

Related: Sallie Mae Financial Hardship Options

When Sallie Mae charges off your loan, several immediate consequences come into play. Understanding these can help you prepare for what’s ahead and take appropriate action.

Credit Score Impact

A charge-off delivers a severe blow to your credit score. This negative mark can cause your scores with all credit bureaus to plummet, potentially by 100 points or more. The impact depends on your credit profile, but it’s significant regardless.

Duration on Credit Report

The charge-off will remain on your credit report for up to 7 years from the date of the first missed payment that led to the charge-off. It can make obtaining new credit, securing favorable interest rates, or even passing employment background checks difficult during this time.

Legal Obligations

But don’t be misled by the term “charge off.” You’re still legally responsible for the debt. Sallie Mae, or a debt collector, can continue to pursue payment through various means.

Wage Garnishment Process

Unlike federal loans, Sallie Mae can’t automatically garnish your wages. But they can sue you to obtain a court judgment. If successful, they may then be able to garnish your wages. In California, for example, wage garnishment is capped at 25% of your disposable earnings or the amount by which your disposable earnings exceed 40 times the state minimum wage, whichever is less.

Impact on Professional Licenses

Some states allow creditors to petition for the suspension of professional licenses if you default on student loans. But this typically applies to federal loans, not private loans like those from Sallie Mae. In California, for instance, no law allows the revocation of professional licenses due to private student loan default.

Collection Efforts

Expect increased collection efforts. When private student loans go into collections, you’ll likely receive frequent calls, emails, and letters from Sallie Mae or a collection agency. They may offer settlement options or payment plans, but be cautious and understand your rights before agreeing to anything.

Related: What Happens If You Default On a Sallie Mae Student Loan?

After a Sallie Mae charge-off, you’re not out of options. Here are several paths you can consider:

Negotiating a Settlement

What it is: A student loan settlement involves paying a lump sum that’s less than the full amount owed to resolve the debt.

How it works: Sallie Mae or the collection agency may be willing to accept a reduced amount to close the account. This could be anywhere from 40% to 70% of the original balance.

Who qualifies: Anyone with a charged-off Sallie Mae loan can attempt to negotiate a settlement.

How to apply: Contact Sallie Mae or the current debt holder to discuss settlement options. Get any agreement in writing before making a payment.

Deadline: There’s no set deadline, but acting sooner can prevent further collection efforts.

Dealing with Potential Legal Action

If Sallie Mae or a collection agency threatens to sue:

1. Don’t ignore any court summons. Failing to respond can result in a default judgment against you.

2. Consider consulting with a student loan lawyer who can advise you on your rights and potential defenses.

3. If you’re sued, gather all your loan documentation and any records of your attempts to pay or communicate with Sallie Mae.

4. Be aware of your state’s statute of limitations on debt-collection lawsuits. In California, for example, it’s four years for written contracts.

Bankruptcy as an Option

What it is: A legal process that can help manage overwhelming debt. How it works for student loans:

• Automatic stay: Filing bankruptcy stops collection efforts and lawsuits immediately.

• Negotiation tool: This can also be used to negotiate more affordable settlements.

• Potential discharge: While rare, private student loans may be discharged if you can prove undue hardship.

• Chapter 13 bankruptcy: Allows you to reorganize debts and make affordable payments over 3-5 years.

Who might consider it: Those unable to afford settlements or facing lawsuits. How to explore this option: Consult a bankruptcy attorney specializing in student loans. Important note: Bankruptcy has long-term severe consequences and should be considered carefully.

Hardship Forbearance Options

Even after a charge off, you might be able to negotiate a hardship forbearance:

1. Contact Sallie Mae and explain your financial situation.

2. Provide documentation of your hardship (job loss, medical issues, etc.).

3. If granted, you might get a temporary pause on payments or reduced payment amounts.

4. Be aware that interest may continue to accrue during forbearance.

Impact on Loan Forgiveness Eligibility

Unfortunately, private student loans like those from Sallie Mae aren’t eligible for federal loan forgiveness programs. However:

1. Some employers offer student loan repayment assistance as a benefit. Check if your employer (or potential employers) offers this.

2. In rare cases, private loans may be discharged due to permanent disability or the closure of your school before you can complete your program.

A Sallie Mae charge-off can have far-reaching consequences that extend well beyond the immediate aftermath. Understanding these long-term implications can help you plan for your financial future.

Future Credit Applications

The charge off on your credit report can significantly hinder your ability to obtain new credit for years to come. Here’s what you need to know:

1. Loan applications: You may need help getting approved for mortgages, car loans, or personal loans.

2. Credit cards: If approved, you might only qualify for secured credit cards or those with high interest rates.

3. Rental applications: Landlords often check credit reports, potentially making it harder to rent an apartment.

4. Rebuilding credit: Focus on making timely payments on any remaining accounts and consider secured credit cards to rebuild your credit.

Potential Wage Garnishment

If Sallie Mae or a collection agency successfully sues you:

1. They may be able to garnish your wages, typically up to 25% of your disposable income.

2. Garnishment can continue until the debt is paid off or you reach an alternative agreement.

3. Certain types of income, like Social Security benefits, are generally protected from garnishment for private student loans.

Impact on Cosigners

If you had a cosigner on your Sallie Mae loan, they’re equally responsible for the debt. This can lead to severe consequences for them:

1. Credit damage: The charge off will also appear on your cosigner’s credit report, damaging their credit score.

2. Collection efforts: Debt collectors may pursue your cosigner for payment.

3. Legal action: If Sallie Mae sues, they may name your cosigner in the lawsuit.

4. Financial strain: Your cosigner may feel obligated to pay the debt to protect their own finances, potentially causing them financial hardship.

For cosigners who are elderly or on fixed incomes (like a retired grandparent), the impact can be especially severe. They might face:

1. Garnishment of retirement income (though some retirement income is protected).

2. Difficulty qualifying for needed loans or credit.

3. Emotional stress from constant collection calls.

To protect your cosigner:

1. Communicate openly with them about the situation.

2. Consider prioritizing a settlement to release them from the obligation.

3. If possible, try to handle communications with Sallie Mae or collectors yourself to minimize their stress.

The statute of limitations is a key concept when dealing with a Sallie Mae charge-off:

• Definition: The student loan statute of limitations is the time period during which Sallie Mae can legally sue you to collect the debt.

• State-specific: Varies by state. For example, California’s SOL is four years for private student loans.

• Clock starts: Typically begins on the date of your last payment or when the debt first became delinquent.

• Time-barred debt: Once the SOL expires, Sallie Mae can’t sue you but may still attempt collection.

Key considerations:

• Know your state’s SOL for private student loans

• Be cautious: Making a payment or acknowledging the debt in writing can restart the SOL clock

• Weigh the pros and cons of making small payments versus halting payments entirely

A Sallie Mae charge-off is serious, but you have options. From negotiating settlements to understanding the statute of limitations, taking action can help you regain control.

Each situation is unique. Our team of student loan experts can provide personalized guidance to help you find the right strategy.

Book a consultation with one of our experienced advisors today. We’ll analyze your situation, explain your options, and help you develop an action plan. Don’t face this alone – invest in expert advice to secure your financial future.

UP NEXT: How to Get Sallie Mae to Stop Calling