Beautiful morning. You have a phone call and your heart starts beating fast at once. Even the number is unknown, but you know who is calling – loan collection agency. A familiar case, right? If you fail to make payments of your student loan, most probably you will find yourself in student loan collection. What it means is that if your student loans go into default (unable to repay for nine months), your account of the student loan debt will be due immediately. This is called acceleration processes and exclude your access to get a choice of repayment plans. If you do not rearrange the repayment with your student loan holder, a guaranty agency – U.S. Education Department will shift your loans into a collection agency. The Government possesses exceptional authority for the student loan collection. Actually, most common tools the government use to collect loans are Tax Refund Offsets, Administrative Wage Garnishment, and Federal Benefit Offsets.
All three of them are out of court. In the case of student loan in the collection, the Government could be able to take hold of tax refunds, reject to give new student loan and grants, put his hand your Social Security benefits and charge a large number of collection fees. The most preferable way the Government uses is hiring a private student loan collection agency which charges additional high fees. Soon after you fail to make the payment, the collection process begins and is getting worse and worse as long as you miss the payment. It will cause you additional costs incurred by your student loan holder to get paid back.
What happens if your student loans go to collections?
When your student loan default, there is a range of potential consequences which really causes financial pain.
In case you fail to make the payment, your loan will be placed with a private collection agency. It could be expected that the collection agency offers you an alternative choice to enter into a voluntary repayment contract. But if you do not agree with the voluntary repayment contract or you do not obey the rules of voluntary repayment arrangements, the collection agency will garnish your wages. It means that agency has the power to withhold your disposable income up to 15% until repaying your defaulted debt without the court order. In case the agency cannot garnish your wage ( because you are self-employed for instance), the agency could indirectly refer to the U.S Department of Justice to sue for legal action.
Also, depending on the type of loan and place you live, there are could be another consequence of loan default. For example, some states have permission to allow professional boards to deny to validate, validate with limitations or cancel a member’s professional license when member failures to pay. It is better to check the legislation of the state where you live.
On the other hand, additional issues of a student loan collection are to be ineligible for federal financial aid (which lasts until you pay 6 months) and deferment on loans. Defaulted loans will be on your credit report for up to 7 years and lower your credit score. Also, it will challenge you to get other types of credits.
How Do Collection agencies work?
A loan student collection agency is an organization or entity hired by lenders to recover delinquent debts and accounts which is in default. It has a range of tools to track down a borrower regardless of he/she changes living place or phone number. These agencies apply different strategies and tactics such as calling a borrower’s personal or work phone, even coming up on the individual’s personal doorway again and again in order to make debtor to make his payment. Also, the agency could contact family members, relatives, friends and neighbors of the borrower in order to have access to the required contact information. Besides this, they can conduct searches for a borrower’s assets such as bank accounts to identify whether the debtor is able to pay back the loan or not. Authority of the collection agencies is regulated by the Fair Debt Collection Practices Act (FDCPA).
How to deal with collection agencies?
If you miss paying your bill on time, a loan holder begins the collection of debt process by sending a friendly message and pleasant calling to you. It is just to determine your intention whether you are going to pay your debt or not. Otherwise, the agency may offer you to rearrange your payment plan. But following kindly notification such as phone call and mail, the agencies may act in a dirty way. When your bill is delinquent over 30 to 60 days, collection agencies start to send your missed credit report to any credit bureaus which will lead to strict financial pain.
However, the first thing to struggle with the collection agencies is knowing your rights. Debt collectors should play nicely, so they are regulated by The Fair Debt Collection Practices Act enforced by the Federal Trade Commission. FTC restricts debt collectors to use abusive, unfair or misleading practice. For example, the agency is not allowed to contact you at an inappropriate time such as early morning and night. Moreover, it is legally prohibited for debt collector act in the following ways:
-Harassing or abusing you and any other third parties they contact;
-Releasing false statements ;
-Threaten you that you will go to prison if you do not pay.
If you see any violated act or abusive manner from an agency, you have the right to report any problem with a loan holder or debt collector to state’s Attorney General’s office and the Federal Trade Commission.
Can you get student loans out of collections?
If you find yourself in student loan collection, the best way recommended is to take action to get out. Disregarding the problem will not be the solution. But, if you are unable to control your financial situation, you still have some other options:
Loan consolidation -This option allows you to combine several loan balances into one. If you hold several student loans, and you want to make your payment in an easy way, you could simplify it by consolidating your different student loans. Also, it can include loans in default; however the Education Department demands you to make at least three successive, voluntary and on time payments to consolidate your loans.
Discharging student loans with bankruptcy – is another way of a possible solution. You can get a discharge on your student loans if you declare bankruptcy. But you are required to prove undue hardship which implies that you are not capable of paying your debt. US Department of Education’s Federal Student Aid office evaluates undue hardship by specific criteria. For instance, you will be unable to continue a basic living standard if you have to pay your loan. Also, you should prove that your hard conditional period will continue as long enough as your repayment period. Please note that it is evaluated that you have really honestly tried to pay your federal loan or not before applying to discharge of the loans.
Loan rehabilitation – is one of the alternatives to get your loans out of a student loan collection. It means that you arrange an agreement with a payment plan with the Education Department. Based on this agreement, once you have made the required payment defined within a certain time period, your loan could probably be rehabilitated.