If you fail to pay your debts regularly, they may default and be sold to student loan debt collectors. And having your student loans in collections can have many negative effects.
Besides that, student loan collection agencies can make you feel powerless. You may not be aware, but there are regulations in place that control how debt collectors can go about their business. But, of course, debt collectors who breach your rights can face severe penalties.
Even if you owe them money, these regulations apply to all consumer debts. The issue is making sure that the system is fair and honest. That way, student loan debt collectors don’t use coercion or deception to get you to pay them.
So learning how to get your student loans out of collections and back into good standing is critical. This guide will show you everything you need to know.
Let’s begin.
What Happens When Student Loan Debt Collectors Gets Hold Of Your Loans?
When a student loan goes into collections, the lender adds collection costs to the debt and, through a procedure known as acceleration, the loan amount is due immediately. Deferment, forbearance, income-driven repayment plans, and loan forgiveness programs like Public Service Loan Forgiveness will all be unavailable to you.
You lose access to these federal benefits. However, your credit report will also reflect a student loan default. Unless you get out of default with the loan rehabilitation program, it will be there for the next few years, along with the late payments.
Finally, without a court order, the federal government can garnish your salary, confiscate your tax refund, deny you financial aid, and prevent you from receiving a home loan from the Federal Housing Administration.
You can’t be arrested for not paying a federal or private student loan, but your lender can sue you to recoup the student debt, including your cosigner.
So, in summary, If you keep your loans in default, the following things can happen:
- Wages can be withheld, and tax returns can be used to pay off debts.
- You may lose your federal financial aid eligibility.
- You may lose your eligibility for a loan deferral.
- Subsidized interest advantages may be lost.
- Defaulted debts can stay on your credit report for up to seven years, lowering your credit score and making it challenging to receive other forms of loans.
Hopefully, these dire implications have persuaded you to do everything possible to avoid default. But what if you’re already dealing with a collection agency for student loans? You’re probably itching to leave.
But how do your student loans get into collections? Let’s find out.
How Do Student Loan Collection Agencies Get Hold Of Your Loans?
If your student loans go into collections, it’s because you’ve defaulted on them. For example, if you haven’t paid on your federal student loans for 270 days, they will default. Private student loans have different rules, but they can default much sooner, sometimes after one missed payment.
When this happens, your loan balance is due immediately, which is referred to as “acceleration.”
How To Get Your Federal Loans Out Of Collections
You’ll need to take action if you’re in collections. Ignoring the issue will not solve the problem.
If you’ve recently fallen behind on your payments, a straightforward solution is to catch up immediately.
You may be able to eliminate the default and collections status on a federal student loan if you make a qualified payment that puts you under 270 days late. If not, you still have four alternatives for getting your federal student loans refinanced:
- Rehabilitation entails reaching an agreement with the Department of Education on a payment plan. Your loan may be rehabilitated if you make the required amount of payments on time.
- Consolidating student debts can aid by consolidating the sums of numerous loans into one, including defaulted loans. However, before consolidation, you’ll usually be “must make at least three consecutive, voluntary, and on-time payments,” according to the Department of Education.
- Bankruptcy may also be a possibility for paying off student loans. While getting your loans erased in bankruptcy may be challenging, it’s not impossible if you fulfill the necessary criteria.
- Complete repayment: You could repay the entire loan amount. However, given the amount of most loans, this is unlikely to be a viable alternative.
How To Get Your Private Loans Out From Student Loan Debt Collectors
Unfortunately, private student loans do not qualify for government loan programs.
If you have defaulted on private loans, it’s critical to move quickly to avoid going into collections. If your account has already been turned over to a debt collection agency, follow these five actions to get back on track:
1. Dispute Your Student Loan Debt
First, double-check that the debt collection agency’s information is correct – you could not owe any money at all. It’s possible that your loan servicer made a mistake and reported your account as delinquent or that someone took out a loan in your name.
Examine your credit report for accounts, such as student loans that have been opened in your name. Verify that the dates and amounts mentioned are correct.
If there are any problems, or if you see a loan on your report that you did not take out, you must file a dispute with the loan servicer as well as the three major credit reporting agencies.
2. Pay Off Your Debts
If you default on private loans, you may be able to settle the amount and avoid going to collections.
Using this strategy, you negotiate with the debt collection business to pay less than what you owe.
Obtaining a settlement, on the other hand, can be challenging. If the agency agrees to your terms, you’ll probably have to pay the entire amount in one go, so have plenty of cash on hand. It’s also crucial to get any agreement you make in writing - even better if you can have it reviewed by a professional student loan counselor or lawyer.
3. Pay What You Owe
Paying off debt in collections is the quickest way to pay off your loans, even though they may seem unattainable.
If you’re able, consider enlisting the support of friends or relatives to pay off your debt. You can also supplement your income by taking on a second job or a side hustle. However, having debt in collections might ruin your credit and have long-term effects.
So those solutions may not be optimal. Getting out of student loan collections as soon as possible can allow you to get back on your feet much more swiftly.
4. Rehabilitate Or Consolidate Your Student Loans
Consolidating your loans is another option for resolving debt in collections.
Consolidation and rehabilitation are only available for federal student loans. Private student loans can be consolidated by refinancing with a private lender, but you’ll have a hard time qualifying if you’re in default on your payments.
You could discuss your alternatives with a lender and see if adding a cosigner to your refinancing application will help.
5. Declare Bankruptcy
If debt collectors are harassing you and you cannot resolve your debt through other methods, bankruptcy may be an option. In bankruptcy, getting rid of student loans is challenging but not impossible.
To be eligible, you must show the court that you are experiencing considerable hardship, such as a medical condition that prohibits you from working. You’ll also have to show that repaying the loans while maintaining a decent level of living is impossible.
Declaring bankruptcy is a big decision that can have a long-term influence on your life, so make sure you’ve looked into all of your other options first.
You can wait until the statute of limitations on your debt expires is another possibility, but the debt collector may sue you in the meanwhile.
Debt Collection Laws Secures You
Remember that these student loan debt collectors are third-party collection organizations, and there are regulations governing what they can and cannot do.
The Fair Debt Collection Practices Act (FDCPA) is a federal statute that restricts debt collectors’ ability to collect certain types of debt.
The federal Fair Credit Reporting Act governs how debt collection is recorded in credit reports. Furthermore, there is state legislation that provides safeguards.
These collections agencies may not:
- Contact you before 8 am or after 9 pm. Furthermore, if a debt collector is aware that you are not permitted to receive debt collection communications at work, the debt collector is not permitted to contact you there.
- The debt collector cannot contact you or anyone else about the debt.
- If you advise the debt collector to stop contacting you in writing, they must do so unless they have legal grounds, such as bringing a lawsuit. Now, if that happens, you’ll have to get a lawyer as soon as possible.
If a debt collector contacts you regarding a student loan debt, they must provide you with the following information:
- Creditor’s name.
- The outstanding balance
- You’ll be able to dispute the student debt.
- If the original creditor’s name differs from the current one, you request it.
In addition, borrower rights have been strengthened in several jurisdictions.
The Laws That Govern Student Loan Debt Collectors
Companies attempting to recover past-due student loans are governed by several consumer protection rules. The following are the most important of these laws:
- The Higher Education Act controls all aspects of federally-originated and federally-guaranteed student loans. In addition, the law outlines various repayment choices and strategies to get out of default and back on track.
- The Fair Debt Collection Practices Act (FDCPA) is the primary federal legislation controlling consumer debt collection. Congress passed the Fair Debt Collection Techniques Act (FDCPA) in 1978 to prohibit abusive debt recovery practices by creating ethical principles for collecting consumer debts.
- The Fair Credit Reporting Act, or FCRA, governs how student loan collectors report information to credit bureaus and ensure that your credit report is accurate.
- The Telephone Consumer Protection Act (TCPA) restricts student loan creditors and debt collectors from contacting you by text messages, faxes, or phone calls.
- The Servicemembers Civil Relief Act (SCRA) applies to active duty military personnel, including those undergoing full-time training. Payments on student loans can be deferred, and interest rates decreased for those covered by SCRA until they return from active duty.
- The United States Bankruptcy Code safeguards a method of resolving financial concerns, such as student loans, free of collection action.
Consumer protection legislation is also in effect in several states, including New York, California.
When taken together, this legislation and regulations provide a powerful set of safeguards to protect you from harassment by student loan debt collectors.
How To Avoid Prevent Student Loan Debt Collectors From Getting Your Loans
Once your debt is no longer in default, take caution not to fall into the same trap. Hopefully, you’re on a sensible payment plan that allows you to repay without missing payments or falling behind - but that could change at any time.
The idea is to be proactive and seek assistance if you encounter difficulties rather than in collections again.
First, double-check that your payment plan is the best option for you. Depending on several criteria, several student loan repayment programs (for federal loans) can reduce the monthly payment amount.
However, keep in mind that many of these payment plans may increase the overall amount you owe.
Also, look into loan repayment aid programs for federal and private loans, which may provide significant benefits depending on your profession and home state.
See if student loan deferment or forbearance are a possibility for you if you can’t pay or otherwise need to put payments on hold. Deferment means you can cease making payments on your loans for a while, and interest on federal direct subsidized loans does not accrue during that time.
You’ll usually be eligible if you’re enrolled at least half-time in college or if you’ve been laid off or served in the military.
You’ll have to pay interest on all loans (federal and private), so forbearance isn’t as good as deferral, but it will keep you out of default.
Due to financial hardship, sickness, or other circumstances, you may be allowed to suspend paying monthly payments for up to 12 months under forbearance. Check with your government loan servicer or a private lender to confirm facts and eligibility.
What To Do When Student Loan Debt Collectors Call About Your Student Loan
You won’t like hearing this, but you must pick up the phone when it rings. You will remain at the top of the collector’s list of persons to call if you do not answer the phone.
It’s easy to let your emotions run wild when you pick up the phone rather than keeping calm and sensible. However, allowing your “fight or flight” instinct to take over increases your chances of doing what the collector wants.
When communicating with collectors about an outstanding student loan debt, observe these strict criteria to preserve your calm:
- When the phone rings, note the date and time and the number displayed on your caller ID (if applicable).
- Use your complete name to identify yourself to the caller.
- Request the caller’s complete name and direct phone number, being sure to repeat and record the information;
- Request the entire name of the company for whom the caller works, as well as the account or reference number of the collecting agency;
- Find out the identity of the current student loan owner, as well as the total amount owed;
- Inquire about the breakdown of the current balance between principal, interest, and collection fees.
- Make a list of everything you learn, and then write it down.
- If you don’t recognize the loan, you have the right to demand validation and verification within the legal time frame.
How To Stop Student Loan Debt Collectors From Calling
It’s stressful enough to be behind on your student loan payments without having to cope with the constant assault of phone calls and letters. Fortunately, the laws give you an easy solution to prevent debt collectors from contacting you.
You can have a debt collector stop contacting you by submitting a formal request. The letter doesn’t have to be fancy; all it needs to say is that you don’t want the collection agency to contact you about your defaulted student loan.
The letter will stop the
- phone calls
- and mail
but it will not prohibit the loan holder from moving the account to another collection firm. There’s also no reason they can’t file a lawsuit or take other legal action against you. Even yet, you could discover that having a silent phone and an empty mailbox gives you the peace of mind you need to get through this challenging period.
Final Thoughts
Student loans can be stressful, but it doesn’t give student loan debt collectors the right to abuse and harass you. You must be aware of your rights, watchful, and vigilant at all times. Taking charge of the issue, whether on your own or with the help of an attorney, allows you to regain financial stability and live a happy life. You can go through this guide and take the necessary steps to your financial freedom.
