August 05, 2019

Everything You Need to Know About Student Loan Collections

In March 2019, it was announced that borrowers owed more than $1.5 trillion in student loan debt. Just a few months later, Bloomberg released an article stating $3.3 billion of this astronomical figure was in collections, and that collecting on this debt was now a top priority for the U.S. Treasury Department. If you’re someone […]

In March 2019, it was announced that borrowers owed more than $1.5 trillion in student loan debt. Just a few months later, Bloomberg released an article stating $3.3 billion of this astronomical figure was in collections, and that collecting on this debt was now a top priority for the U.S. Treasury Department.

If you’re someone whose student debt is in collections, you’ve probably felt the pinch from Uncle Sam already. After all, collections can have serious consequences, especially when you’re dealing with the federal government. But keep in mind – you can fix your situation and get back in good financial shape.

Here we’ll cover how collections start, how it can impact your life, and what options you have as a borrower once you’re knee-deep in the collections process.

How Student Loan Collections Starts

When you’re late making payments on your federal student loans for 270 days or more, your loans will automatically go into default. This means your entire student loan balance will become immediately due – which includes both the principal and interest – unless you’ve made other repayment arrangements with your lender.

Once you’re in default, your lender can send your loans to a collections agency that will attempt to reclaim the debt. In fact, the Department of Education works with multiple collections agencies just for this reason – and these companies usually tack on additional fees beyond your original debt, many times in the neighborhood of 18 to 40 percent. And the same goes for the DOE’s line of federal student loan servicers: Navient, Nelnet, Great Lakes and FedLoan.

The Impact of Student Loan Collections

You’ll often hear stories about the aggressive tactics of student loan collectors. And it may be why there have been over 27,000 complaints to the Consumer Financial Protection Bureau aimed at collections companies just from January to August 2019.

For the most part, however, the collections process starts with companies offering borrowers a repayment agreement. But if you don’t sign an agreement, or you don’t make payments after an agreement is signed, things can escalate quickly.

While lenders are prohibited from harassing borrowers, making false or deceptive claims about debt, and making repayment unreasonable, they do have a few ways to take legal action. This includes keeping you from enjoying the benefits and protections federal student loans offer.

Here are some ways your life could be impacted when your student loans go into collections:

  • Your wages could be garnished (learn more about How to Stop Wage Garnishment)
  • Your tax refunds could be withheld to repay the debt
  • You may not be eligible for federal financial aid
  • You may lose access to student loan deferment
  • You could lose any subsidized interest advantages
  • You could see a substantial drop in your credit score
  • Your credit report will show the defaulted loan for up to 7 years
  • You may have trouble getting loans for years afterward

All said and done, collections agencies have the upper hand when it comes to delinquent student loans. The good news is, there are some things you can do to repair the situation, because ignoring it could just make things worse.

How to Stop Student Loan Collections

Having your student loans in collections isn’t the end of the world. In fact, it could give you an opportunity to change your repayment plan to a more affordable option – once your loans are out of default. Here are some ways you can repair your collections status:

  • Get your loans caught up before payments are 270+ days late to avoid default altogether
  • Talk to your lender to see what repayment options are available and what you qualify for
  • Sign a student loan rehabilitation agreement with the DOE to get back on track
  • Consolidate multiple loans into a single loan to simplify repayment and stop the default process
  • File for student loan bankruptcy to have your debt wiped away completely – if you qualify

When your loans are out of default, you’ll have more alternatives to choose from. But once you do recover your loans from default or collections, the important thing is to avoid defaulting on your loans a second time so you can take advantage of these options:

  • Income-driven repayment programs like PAYE, REPAYE, IBR, IBR for New Borrowers and the ICR plan can help you secure a repayment plan based on your discretionary income if you qualify – and they may make you eligible for one of several student loan forgiveness programs
  • Deferment can put your loans on hold temporarily until you’re able to start repaying, plus interest won’t accrue while they’re in deferment
  • Forbearance can also put your loans on hold for up to 12 months during a financial hardship; however, interest will accrue during this period

The best thing you can do when your students loans are in collections is get them out immediately. By taking a few simple steps, and then finding a more affordable option, you can get your student loans to a place where they have less impact on your finances.

Need more information on getting your loans out of default or collections? Our student loan specialists are happy to help! Simply fill out our online form or call (800) 771-6358 to speak with an expert right away.