3OYS: Gilbert woman's $8K student loan balloons to $36K

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By Tami Hoey By Tami Hoey

GILBERT, Ariz. --  A Valley woman says her student loans are paid in full. So, why does she owe nearly five times the original amount?

Michelle Hudman says high school seems like a lifetime ago, but she does remember wondering what she was going to do with her life.

“I had no idea what I wanted to do in college. I had none," she said. "I was out of high school. I was a free spirit.”

But Hudman knew she liked photography, and she also knew she wanted to go to college. Paying for it, though, was another issue.

“I took out three student loans back in the '80s,” she said.

Hudman says those three student loans totaled about $8,400 at the time.

She claims she paid it all back over the course of several years, starting back in the '80s. She even started collecting duplicate checks as reminders.

“My mom paid off one loan. I paid the other loan off through payments,” she said.

Two loans, she believed, were paid in full. However, the third and final loan was challenging.

Hudman acknowledges missing a few payments but says things really got out of control when she received a notice.

"They took a tax refund from me that paid off that loan again, or paid off that loan and another loan for the second time,” she said.

After her tax refund was intercepted, Hudman received another notice saying "paid in full."

Even her original loan documents were stamped "paid in full." So, she was shocked when she recently received another notice.

“Now, at this point, it's 2014 and they're saying I owe them over $36,000, and they're going to garnish my wages again,” she said.

Hudman was told she's actually been in default for almost 30 years, and her loans racked up interest.

“I was also told that this will haunt me the rest of my life if I don't pay it, and they will take my Social Security check when I retire,” she said.

Hudman insists she's paid off these loans and has the documents to prove it.

So, 3 On Your Side contacted USA Funds, the guarantor for the loans.

They said they spent dozens of hours reviewing her account and gave this statement:

"...She has defaulted on -- failed to repay -- her student loans four times. As a result of collection costs -- which federal rules require be imposed when a student loan borrower defaults -- and the accumulation of interest ... her debt has grown significantly."

Hudman insists that's just not the case and believes it's another example of a government blunder that has spun out of control.

“These are the contracts of my student loan that shows that they are paid in full. They're stamped, and these are the original documents that were sent to me by USA Funds and Sallie Mae," she said. "And the third one is the letter saying that I paid it in full through the financial agency.” 

USA Funds say they'll continue to research the matter.