In the early 2000’s, Sallie Mae, like many other lenders, eagerly lent money to those who needed it to pay for college. One popular loan program it issued was the Sallie Mae Tuition Answer Loan. '
That program's popularity can be partially attributed to the opportunity it gave undocumented immigrants.
If an undocumented could find a US Citizen or permanent resident to serve as the primary borrower, then they could cosign the loan and thereby borrow up to $40 thousand per year to cover education-related expenses.
Sounds great, right?
At the time, sure. But now? Borrowers are dismayed.
Or as one borrower complained to the Consumer Finance Protection Bureau:
“I have a Sallie Mae Tuition Answer Loan. I knew I was in for trouble when the fines for late payments were taken out in limbs from my body and I had to sign the paperwork in blood.”
Repayment options for Tuition Answer Loan
Your options for repaying the Tuition Answer loan are the same as any other private student loan:
- Pay as agreed
- Request a modification
- Refinance with a private loan
- Use a balance transfer to pay the loan
- Request a forbearance/deferment
- Strategically default to negotiate a settlement
Another option to consider is attempting to…
Discharge a Sallie Mae Tuition Answer Loan in bankruptcy
The general thinking when it comes to getting rid of student loans by filing bankruptcy is that it’s impossible.
That thinking, however, is flawed. It’s not impossible. It’s just difficult.
Usually, to discharge a student loan you have to prove that repaying the loan causes you an undue hardship. Exactly what constitutes an undue hardship depends on whom you ask. Some courts think you have an undue hardship if you’re likely to continue experiencing a “certainty of hopelessness.” Others don’t go quite that far. Instead, they look to see if you can maintain a minimal standard of living while repaying your loans.
Regardless of which standard a court uses, meeting that standard, as you can imagine, can prove difficult.
But there may be another way to get rid of the loan without having to prove undue hardship.
Examining a Sallie Mae Tuition Answer Loan under Section 523(a)(8)
The dischargeability of student loans is covered by Section 523(a)(8) of the Bankruptcy Code. Under that section, a loan is nondischargeable, absent a showing of undue hardship, if it:
- Was made or backed by the government or a nonprofit entity or
- Meets the IRS’s definition of a qualified education loan.
With that understanding, (Admittedly, this is an oversimplification of what debts Section 523(a)(8) covers.) let’s examine the Tuition Answer Loan through the lens of Section 523(a)(8).
Sallie Mae began originating the Tuition Answer Loan in the early 2000’s. At that time, Sallie Mae was, and still is, a nongovernment, for-profit entity.(Congress originally created Sallie Mae (The Student Loan Marketing Association) in 1972. In 1994, Sallie Mae privatized. It did so for many reasons. You can read about those reasons in this March 2006 report from the US Department of Treasury, Lessons Learned from the Privatization of Sallie Mae.) Because of that, the Tuition Answer Loan isn’t covered by the first provision listed.
But is the Tuition Answer Loan a qualified education loan?
Answering that question requires following a lengthy statutory trail covering an array of definitions.
For the purpose of this post, it’s enough to raise the question of whether the Tuition Answer Loan falls outside the expansive coverage of Section 523(a)(8). Whether it actually does or doesn’t is an argument left for you to make.
Investigations into the legality of a Tuition Answer Loan
Back in 2008, then New York Attorney General Andrew Cuomo subpoenaed Sallie Mae (actually, SLM Corp.) seeking documents and information related to the Tuition Answer Loan.
Cuomo expressed concern with the process for how borrowers obtained the loan.
Borrowers were able to apply for the loan without having to consult their school’s financial aid office.
As a consequence, some borrowers bypassed an opportunity to borrow a lower interest, federal student loan and instead borrowed a higher interest private student loan, which required a cosigner.
The ultimate resolution of this matter is unknown — at least to me. My search for a resolution proved fruitless.
What will you do about your Sallie Mae Tuition Loan?
There are options for eliminating a Sallie Mae Tuition Answer Loan.
Not all of them will be right for you.
The right decision for you may be trying to aggressively pay it off. Or it might be strategically defaulting on the loan to try to negotiate a settlement for significantly less.
Which option would you choose? Let me know what will you do about your Tuition Answer Loan in the comments.