What Does it Mean to Assign a Student Loan to a Collection Agency?

If you default on your student loan, your lender may refer your account to an outside collection agency. While this can have serious consequences for your credit history, you are still protected by the Fair Debt Collections Practices Act, which regulates collections tactics.

Student Loan Collections

Lenders usually send student loans to collection agencies when your account is in default. If your loan is held by the U.S. Department of Education, it will only be turned over to a debt collector if you don't work with them to set up, and adhere to, a repayment plan. Other lenders may have different criteria for turning your account over to a third-party collector.

Consequences

If your loan is turned over to a collection agency, your credit score will suffer and you can expect ongoing calls from a debt collector trying to get you to pay your bill. You may also have to pay "reasonable" collections fees and costs, which can be as high as 40 percent of what you owe.

Your Rights

Even if a collection agency is working for the federal government, it is still regulated by both federal and state debt collection practices laws. A debt collector cannot contact you at odd hours, call you at work if you tell her that your employer doesn't permit such calls, or use abusive language toward you or family members.

Prevention/Solution

Don't allow your student loan to go into default. At the first sign of trouble, contact your lender to talk about your options. You may be eligible for a forbearance, a deferment, or a repayment plan that is based on your current income. If your account is already in default, call your lender and ask about student loan rehabilitation.

References

• Federal Student Aid: Collections Guide to Defaulted Student Loans
• FinAid.org: Defaulting on Student Loans
• Student Loan Borrower Assistance: Collection Agencies & Your Rights

Resources

• Student Loan Borrower Assistance