How To Avoid Student Loan Collection Efforts
If you miss consecutive payments on your loan, the lender may place it with a collection agency. After receiving frequent reminders from agents, you’ll be liable to pay the additional cost incurred by the lender. The collection agency will also report the delinquency to the credit bureaus, thus lowering your score.
Ignoring or avoiding the debt collector won’t be of much help. It’s extremely important to know your rights as the borrower. Here are some ways to avoid these student loan debt collection efforts.
How Is Debt Collected?
Although most debt collectors work on behalf of debt collection agencies, some may work independently or through attorneys. These agencies collect delinquent debts of every type including medical, auto loans, credit cards, business loans, personal loans, unpaid utility or phone bills, and student loans.
At times, agencies play the role of middleman, collecting felonious debt from customers and remitting it back to lenders. In return, the lender pays the collection agencies a particular percentage of the amount collected, which is generally around 25% to 50%.
The agencies are experts in collecting such delinquent debts. Some agencies even negotiate clearances and other repayment options with borrowers for the tough-to-collect debt types. Debt collectors can also file lawsuits against the customers who refuse to make payments to the agencies.
The Treasury offset is an offset program centralized and administered by the U.S. Treasury Department. The offset program was formed to collect delinquent debts that are owed to state and federal agencies in the form of federal loan debts, social security payments, federal income tax refunds, and other payments.
Prior to offset, an intent notice is sent to the borrower’s last updated address. The notice informs that borrower of the offset that’s been scheduled. Notices of offsets are sent to borrowers only once before the offset begins. It will continue until the borrower starts paying the debt amount or until the default status turns resolved.
Withholding Disposable Pay
The lender company can also order your employer to withhold around 15% of the disposable pay. This is one method used by the lender to collect the defaulted debt without having to drag you to court. This continues until the entire defaulted loan amount is paid completely from default.
At the time of garnishment, the borrower’s rights include:
- Send a notice to object to wage garnishment, inspect debt records, or to request avoidance of garnishment by voluntary repayment
- Right to enter a written agreement created on particular terms that are agreeable to ED for voluntary repayment agreement
- Hold the garnishment action by filing a request for a hearing and until a decision is obtained
- Right to not be discharged from employment or subjected to disciplinary action and to withheld the information provided to your employer other than what’s required by law
Other possible ways of avoiding garnishment include:
- Making a written hearing request that’s postmarked 30 days before the garnishment date
- Requesting a hearing even if the document copies are requested to avoid delays
- Providing any proof that supports the objection made to the amount, enforceability, or existence regarding the debt
The Extra Costs Associated With A Collection Agency
After the default, various costs are levied on the collection regarding the federal student loan. A large portion of the costs usually involves placing the loan to any private student loan collection agency. The costs amount to around 17.92% of the total outstanding balance including the interest, fees, and the principal amount.
Before the defaulted loan is given to the private agencies, ED would start by explaining what necessary steps should be taken to best avoid it. If the borrower doesn’t opt for any repayment agreement for the defaulted loans, the ED will forward such loans to the student loan collection agencies.
Other costs related to the agency include processing fees for Treasury offsets and other collection costs. These will essentially be added to the total amount that you owe. If you have a delinquent federal student loan, the entire outstanding balance (principal + interest) becomes due immediately.
Once this happens, you won’t be eligible for forbearance, deferment, or a choice of income-based repayment plans. You’ll also have to pay an additional 17.92% of your loan amount to cover the costs of collection by the Department of Education (ED).
Contacting A Collection Agency
The Department of Education usually provides a list of agencies that they work with. You can check the official website to find out about the collecting agency that has contacted you. If you aren’t sure about the agency, you can contact the Default Resolution Group of the Department of Education to get the agency’s contact details.
It’s important to budget your monthly repayments. Defaulting on a loan can greatly impact your credit score and financial history, thus making you ineligible for more credit in the future.
If you’re being contacted by a collection agent, don’t avoid them. Instead, talk about the problems and consider the solutions that they offer.
Above all, know your rights and the Fair Debt Collection Practices Act to be able to obtain a good deal during the collection process.