How to Handle a Student Loan in Collection
While student loans can mean the difference between a dead-end job and a college education, new graduates sometimes struggle with high loan payments. If you stop making payments altogether, your loan servicer will forward your delinquent account to a collection agency. Unlike other types of unsecured debt, there is no statute of limitations on defaulted student loans. Thus, unless you work out a payment plan with your lender, the unpaid debt can haunt you indefinitely -- leaving you subject to garnishment, liens and -- in the case of defaulted federal loans -- seizure of future tax refunds.
Other People Are Reading
Instructions
-
-
1
Gather financial records that illustrate your current income and expenses, such as pay stubs, the previous year's tax return and copies of your monthly bills. Determine how much you can reasonably afford to pay each month toward your total student loan debt.
-
2
Contact your loan servicer -- not the collection agency handling your account -- and explain that you want to make arrangements to bring your loan current. Answer any questions the loan servicer has about your finances and negotiate a monthly payment amount that fits your budget.
-
-
3
Ask that your loan servicer pull your account out of collections while you make your payments. If your loan servicer is not willing to do so, the Fair Debt Collection Practices Act gives you the right to send the collection agency a cease and desist letter preventing it from contacting you.
-
4
Send in the payment amount you agreed to on time each month. The U.S. Department of Education considers defaulted student loans rehabilitated after nine on-time payments, but the number of timely payments you must make to have your account removed from collections may vary if you owe private student loans.
-
5
Ask your loan servicer about your eligibility for such options as forbearance and deferment after you bring your loan current. Forbearance and deferment typically aren't available for student loans in collection, but once your loan is current you may be able to reduce your payment amount or defer your loan payments temporarily -- easing your financial burden while you build your new career.
-
1
Tips & Warnings
If possible, contact your loan servicer as soon as you realize you cannot afford your loan payments rather than allowing your student loan to fall into default and end up in collections. Loan servicers are often willing to work with struggling graduates until their financial situation improves.
You may need to make major changes to your budget in order to afford your monthly student loan payments.
If you allow a private loan to fall into default, your lender may sell the loan to a collection agency rather than merely hiring the agency to collect on its behalf. If the collection agency purchased your account from the lender, you have no choice but to deal with the collection agency directly when making payments.
References
- U.S. Department of Education; Frequently Asked Questions; 2011
- Bankrate; What To Do When You Can't Pay Student Loans; Christina Couch; June 2009
- National Consumer Law Center; Collection Agencies and Your Rights; 2011
- Federal Trade Commission; The Fair Debt Collection Practices Act (Section 805/p.5-7)
- U.S. Department of Education; Loan Rehabilitation; 2011
Resources
- Photo Credit Jupiterimages/Photos.com/Getty Images
