Monday, August 16, 2010

Student Loan Collection

Student loan collection doesn't only involve phone calls from the U.S. Department of Education's account management department notifying you of your defaulted student loan debt. Granted, the long term consequences of defaulting on a federal student loan are far more severe than if you merely stop paying your credit card bills since the government can seize your tax refunds and do other equally nasty things that most collection agencies don't have the right to do.  But guess what? The U.S. Department of Education uses private collection agencies as a instrument in student loan collection.

Surprised? Don't be.

Check out this nifty news article: NCO Group to Pay Largest FCRA Penalty to Date

So, basically, NCO started re-aging accounts, got busted by the FTC (federal government) and got charged a 1.5 million dollar fine. Yet, on the other end, the federal government was paying NCO as one of its private collectors to collect defaulted student loan debts from consumers.

If you're being contacted by a collection agency due to being included in the government's database for defaulted student loan collection, the same rules apply that would apply otherwise. Private collection agencies don't get a free pass to harass you simply because they're collecting for the government. They still have to adhere to the FDCPA, they still can't harass you, they still have to validate your debt, etc. etc.

If you choose to rehabilitate your loan, those collection agencies must stop calling you. While student loan rehabilitation results in the U.S. Department of Education updating your loan status to "current" on your credit report, you can't expect the same treatment from a private lender. It also won't get rid of the collection agency notation. You'll have to work on that separately.

39 comments:

  1. Thanks for the info. I have a $70,000 student debt. When threatened with tax garnishment, I refinanced through the Dept. of Education. Now, I file for deferments and forebearances to keep them at bay. If the Dept. of Ed. uses a private collection agency, can the collection agency garnish tax refunds, too?

    ReplyDelete
  2. No private collection agency can garnish your federal tax refund. However, the federal government, unlike most creditors, won't sell the delinquent debt outright. They only give the collection agency a contract allowing them to collect on the debt for a fee. Because of this, the Dept. of Education is still within its rights to withhold your tax refunds even though your account is being handled by a collection agency. Hope this helps clear that up.

    ReplyDelete
  3. Thanks for the response. I'm a bit disappointed in the answer, but I'm not surprised. The only way to make student loan debt "go away" is to die, at least that's what my bankruptcy lawyer told me. Is it also true that the Dept. of Ed. can withhold all of your social security, disability and any other state and federal entitlements? And if the Dept. of Ed takes every asset you have, can the collection agency still come after you for future income?

    ReplyDelete
  4. Whoever gave you the idea that the government could withhold everything was wrong, but not too far off. The government is bound by the same wage garnishment laws as private creditors with the exception that it can garnish income exempt from private creditors.

    The exception to the rule is tax returns. They'll take the full tax return, every year, until the student loan debt has been paid in full.

    As far as the collection agency goes, that's a sticky situation legally since the agency doesn't technically "own" the debt. They're just an extension of the federal government's arm. If a collection agency attempted to garnish exempt funds, that would definitely constitute grounds for an FDCPA lawsuit, since working for the government doesn't alter the company's "third party collector" status.

    I hope this helps somewhat.

    ReplyDelete
  5. what do you do when you paid a student loan off 35 years ago but have no proof.My god who would have after all those years! Now the goverment says I owe and has me in default!

    ReplyDelete
  6. That's rough. I am going to refer you to this blog post by Thomas Schneider, a bankruptcy attorney. It lists some pretty ingenious ways of getting your hands on proof that your loan has been paid in full.

    http://iebklawyer.com/2011/01/help-ive-already-paid-off-my-student-loan/

    In addition to that, I recommend you write your state's attorney general a letter explaining your situation. Even if the AG can't directly help you (because lets face it, the federal government is a powerhouse no one wants to mess with), he may be able to provide you with additional ways to get proof that you paid.

    This is the first I've heard of the DoE doing this, but a little bit of research shows that it happens a lot more frequently than you'd think. Scary stuff.

    ReplyDelete
  7. I am trying tor epay my loans, but they are already with a collection agency. I tried contacting the lenders and the department on education, but they keep directing me to the collection agencies which are already ranking up fees. I've read to not deal with the private collection agencies at all. But how do I rehabilitate without having to? How do I make the Dep of Education take back my loan and allow me to pay them instead? Thank you.

    ReplyDelete
  8. What you've read about dealing with the original creditor and not the collection agency only applies to commercial debts. A defaulted student loan is a government debt. Unfortunately, you'll have to deal with the collection agency.

    The good news is you should be able to rehab your loan, provided you have not already attempted to do so and failed (you only get one shot at rehabilitation). Contact the CA and request to be put in a rehab program. It works the same way as a rehab program through the Dept. of Education. If the CA is difficult and won't work with you, contact the DOE, report the incident and request rehabilitation. It may take some work, but you can rehab a student loan even after its been sent to a collection agency.

    This only applies to federal student loans. Private student loan lenders have their own specific regulations regarding loan rehabilitation.

    ReplyDelete
    Replies
    1. I am trying to rehabilitate my loan and the CA is playing games and refusing to respond. They've stopped calling I assume because of my letters to them and now just send me the same letter over and over, but from different people within their company--I wonder if they are re-aging or somehow resetting a clock when they do that. I'm pretty sure it has no benefit to me. I will now pursue a complaint to the DOE.

      Delete
  9. It is a good idea to restructure your existing loan to a new one now, so that you can save some interest payable yearly. You will be surprise that you can save a lot and settle your loan faster through the debt consolidation process.

    ReplyDelete
  10. I have 8,000 in student loans, and rec'd a letter from the Finance Authority in my state, saying they were taking my state return. I checked my refund status at irs.gov, and they said my refund was set to be mailed on March 16th (in a few days). I called the Finance Authority, and they said my loans had been sent to a collection agency, who would most likely yoink my entire federal return. I have been out of school for 2 years, and have not had anything garnished thus far. I was told to call the collection agency, but I'm hesitant to do so, because I don't want to spotlight myself, in case they weren't going to take my return. I NEED this federal return, or I will be homeless at the end of this month, so this is a very important issue for me. Any advice? Will calling the collection agency, and explaining my situation, help my cause at all? Will they leave my return alone if I set up an arrangement?
    Thanks for your help.

    ReplyDelete
  11. One of the benefits of seeking the loan is that you can then head off that possibly a lower interest rate than what the IRS will charge. The key is to not let the debt continue to pile up and control your life.

    ReplyDelete
  12. Great talks about student loan collection. Consolidating your debt saves you time, summarizes your debt to make it more manageable, and help you manage your financial affairs before you take on more debt in home loans and mortgage bills.

    ReplyDelete
  13. The IRS took my federal tax refund last year (for 2010) and they will probably take my return again this year (for 2011). This week I received a letter from a collection agency that they are planning to garnish my wages. I lost my job in outside sales and have exhausted my unemployment benefits. I don't currently have a job or any income so what else can they (Gov. and/or collection agency) do? What should I do regarding a hearing and/or providing information, returning the forms they sent?

    Also, how do I know that the money withheld from my tax refund(s) has actually been applied to my student loans? I checked the website ~ https://www.nslds.ed.gov ~ and this site only lists the amount of my loans but not that any tax refunds have been applied to the balances.

    Thanks for all of the answers/help you've provided!

    Gina in Texas

    ReplyDelete
  14. I took out Federal Student Loans (Direct Stafford Loans) a few years back. I recently found out that Sallie Mae holds some of my loans and the Department of Education holds the remaining portion of my loans. My loans with Sallie Mae are in forbearance but the ones with the Department of Education were just sent to collection (I thought all my of my student loans were in forbearance). My questions are:

    1) If I apply for forbearance with one loan holder, would that forbearance apply to all of my Stafford Loans regardless of who is the loan holder? Or do I need to contact each loan holder and apply for forbearance separately, one for each?

    2) Is there anything I can do to take my loan out of collections and deal directly with the Department of Education or do I have to deal only with the collection agency?

    3) If I have no other option but to work with the collection agency, can I work out a payment plan with them and is there a cap on the amount I would need to pay them monthly? Can they request any amount they please as monthly payment?

    4) Is the collection agency required to grant me the request for loan rehabilitation?

    5) How does loan rehabilitation influence my ability to consolidate my loans at some later time?

    6) If I am required to pay a certain minimum of my salary to cover my Stafford Loan debt would that determined amount be for both my Department of Education and Sallie Mae held loans? For example, assuming that I have to pay a minimum of 20% of my salary to pay off my Stafford Loans. Since I have two loan holders would the 20% be calculated to pay both lenders or would they calculated 20% to pay one and then again 20% to pay the other (making it that way 40% of my salary)?

    I thank you in advance for your time and assistance in this matter.
    Best regards,

    Javier

    ReplyDelete
    Replies
    1. Javier,

      I'm going to try to answer your questions to the best of my ability in the order they were received:

      1.)I've never encountered this before but if you have more than one loan servicer, its a fair bet that one hand doesn't know what the other is doing,and its best to apply with both even if it isn't' required. I have a strong feeling, however, that you must apply for forbearance with both servicers.


      2.)Yes, rehab your loan. Contact the DoE and ask for loan rehabilitation. They make make you set up the rehab through the collection agency but, given how recently the account was turned over and the fact that you thought your loan was in forbearance, they may not. You can at least try.

      3.) Yes, you can work out a payment plan. They can't request any amount they please. The law says your payments must be "reasonable and affordable" in accordance with your income.

      4.) Yes, provided you have not rehabbed the loan previously. Each loan is eligible for rehabilitation only once.

      5.) It doesn't.

      6.) When calculating your rehab amount, they should take the payments of your other loan into consideration so that you won't be going above and beyond what you can afford. If your current loan is in forbearance, it should remain that way until the forbearance period ends, regardless of what circumstances you've worked out with the other loan holder.

      Keep in mind that you can always call the Department of Education. They have much, much more experience than I do in these matters and can better explain your rights and options. Best of luck.

      Delete
  15. Question: My husband has 2 loans with Sallie Mae and has been sent to some law firm sounding collection agency. He had originally set up to go into the rehab program by paying a monthly fee but then he wasn't able to make the first payment and they said they would start to garnish his wages. He then called a Student loan help company I think it's called Direct Student Aid and set-up something with them. I have called both myself to undertsand this process as my husband is working part-time at the moment and I will be helping to make these payments? Which one should we go with? The rehab said after 9 months of payment we will get set up to an income based payment and be in re-hab and stop the garnishment. The Direct Student Loan Aid said that if we pay them 200 up front and then a 400 balance they will refinance our loan, get us out of default and set us up on a low income payment plan and that the collection agency is just going to use our payments to go towards our interest? We don't know who to trust at this point? Please Help!!!!??

    ReplyDelete
    Replies
    1. Here's the deal, you have to pay that interest anyway. Refinancing with Direct Student Aid is not going to magically make those interest charges go away. Direct Student Aid, btw, is a scam operation. Go check their BBB report. They have an F. Run, and run quickly, all the way into that loan rehab program. The Department of Education will work with you, Direct Student Aid will just get you deeper into debt.

      Delete
  16. This comment has been removed by a blog administrator.

    ReplyDelete
  17. ok i got a letter from the us department of education. who the said that nco has my account. so i called them and talked to them but and they want me to send in all my info including my w2 from last year. i wanna know if this is a good idea and will they take my refund when i set up arrangements?

    ReplyDelete
  18. NCO is one scary beast. The DoE will absolutely take your refund if you're in default, but there's no way around that. If I were you, it would take a gun to my head or an act of God to make me send NCO my W2s. Try and get a loan rehabilitation through the DoE rather than dealing with NCO.

    ReplyDelete
  19. My wages have been garnished for the past four years. I tried to rehabilitate the loan; however, my employer took to garnished wages out of my check in the same pay period as NCO took out the agreed upon amount. This caused bank overdrafts that i was never reimbursed for and the loan fell back into delinquency. My problem now is that NCO will not give me a full and accurate reporting of what I have paid and what is still owed. Every time they contact me they claim the amount owed is still the original amount i owed. I don't understand how they can garnish my wages and not give me a full and accurate report of what they have taken.

    ReplyDelete
    Replies
    1. Here is one option for fixing this situation. Get your hands on one of the demand letters NCO sent you BEFORE you made your payment. Note the amount requested and circle it in red ink. Next, print out a bank statement showing when NCO withdrew the money from your bank and how much was withdrawn. Use a permanent marker to mark through ALL the personal information, including withdrawals and deposits. leave nothing clear on the statement but your name, address, and the transaction with NCO.

      Make copies of each document. Send them to NCO CRRR along with a letter stating that they did not apply your payment to your debt. Demand that they either do so or return the funds they seized. If they do not comply, bring this paperwork to an attorney and ask to file a lawsuit. NCO loves to play dirty, but if you make yourself enough of a thorn in the company's side, they may be forced to either adhere to the law or leave you alone.

      I know attorneys aren't cheap, but keep in mind that many offer free consultations and you can include the cost of your legal counsel in your lawsuit.

      Delete
  20. IS ICR COLLECTION AGENCY LEGIT? THEY HAVE BEEN CALLING FOR MONTHS AND THEY THREATENED WITH THE USUAL WAGE GARISH AND TAX GARNISH VIA MY FEDERAL STUDENT LOAN DEBT. THEY ALSO SAID THAT FEDERAL STUDENT LOANS COULD NOT AGREE TO SETTLEMENTS. IS THAT TRUE? THEY WANT ME TO CONSOLIDATE BUT ONLY WITH A MUCH LARGER STUDENT LOAN

    ReplyDelete
    Replies
    1. ICR could stand for anything. Without the actual name of the company (and they may say "ICR" when they call, but that stands for something, it has to)I couldn't tell you. What I can tell you is that there are several collection agencies that operate under that name. The collector calling you could be from any one of them.

      My guess is that yes, its probably legit. Scammers aren't patient enough to call you repeatedly for months. If they try to con you and you don't pay, they just move on to the next victim.

      The bit about not settling federal student loans is technically true. The federal government will not settle a loan for less than the principal balance. They just won't. In some cases, however, they will wave interest and collection fees. This can wipe away a considerable portion of your debt just like a settlement.

      Now, is it possible that the calls you've been getting have been from the Direct Loan's ICR department? If so, ICR stands for "Income Contingent Repayment" and they're offering you the ability to make payments based on your income. If so, talk to them. Defaulting on student loans has disastrous consequences and you want to take any break they offer you.

      Delete
  21. I'M IN THE REHABILITATION PROGRAM WITH (NES)AND THEY TOLD ME MY TAX REFUND WOULD NOT BE TAKEN BUT IT WAS AND NOW THEY WANT TO GIVE ME ALL THIS BULL ABOUT YOU HAVE TO MAKE SO MANY PAYMENTS FIRST, I WAS NEVER INFORMED OF THAT BEFORE UNTIL MY REFUND GOT TAKEN.... IS THERE ANYTHING I CAN DO ABOUT THAT?

    ReplyDelete
    Replies
    1. Unfortunately, that's what happens if your loan rehab period stretches into tax season. If, say, you started your program in the spring months, your loan would be out of default by tax time and you'd get your refund. Otherwise, you're still technically "in default," and they'll seize your refund.

      Customer service reps (and this is a particularly bad problem for collection agencies and credit bureaus) seem to have issues with making things up as they go to ensure that you pay them. Always get things like that in writing. If you had it in writing, you *might* be able to contest it.

      Also, if you're married and filed a joint tax return with your spouse that was subsequently seized, your spouse may be entitled to contest the offset and get his portion of the refund back. Copy and paste the website below into your browser for more information about how to challenge a tax refund offset.

      http://www.studentloanborrowerassistance.org/collections/government-collection-tools/tax-offsets/

      Delete
  22. I have loans that were put into forebearance. I was charged 150.00 to be equally disbursed to put all loans in forbearance until 5/3/13. I have a letter stating the forbearance period but still get harrassing calls and letters of default. Come to find out, salliemae left one loan off in error and went after the wrong cosigner harrassing him to make a pmt for forbearance on the loan they left off but he didnt even cosign on that specific loan. How deceptive. What can we do?

    ReplyDelete
    Replies
    1. Aside from calling Fannie Mae and raising six shades of hell? Tell the co-signer to tell Sallie Mae that he didn't co-sign that loan. He could send a Cease and Desist letter if the company calling to collect is a third-party collector instead of Sallie Mae directly.

      If explanations prove ineffective, consider providing him with a copy of the original loan paperwork for the loan in question. He can then send that information to Sallie Mae along with a letter illustrating: "Look, no co-signer." As for you, it sounds like its time to contact the individual who originally processed your forbearance and find out why one loan was left out.

      Delete
  23. SOMETHINGS GOTTA GIVE.... OR BREAK.

    ReplyDelete
  24. This comment has been removed by the author.

    ReplyDelete
  25. Without a solution now the student loan crisis is the next Bubble and it is going to Bust!

    Our lawmakers are going to try to tell us they tried to fix the student loan problem by keeping
    the interest rates low! They're going to tell us they have proof just read "lollypop news" you know the news where you pick your own favor! The problem is lower rates has never been the solution, and never will be! At best the lower rates have just prolonged the pain and destruction our lawmakers have allowed to happen to our graduates and Our Great Country!

    ReplyDelete
  26. Lee,

    My student loan is in default, however I am in the process of consolidating my loans. All of the information have been provided for consolidation except the one loan that is collection. Please advise if a collection agency can withhold information on account to prevent timely consolidation before wage garnishment.

    ReplyDelete
  27. Apparently my Fed Student Loan just went to Delta Collections... Can I still get a rehabilitation loan? Is there anything I should know specifically about Delta Collections?

    ReplyDelete
  28. I have a defaulted student loan and assigned to a collecton agency. Department of education has a tax offset so I been paying my balance with my federal income tax each year.I never had to deal with a collection agency and I don't wont to call the collection agency and ask them any questions because they might try to collect more money from me.
    My question is the balance amount from DOE have collection agency fees already added? It shows under my account only the principal amount and interest amount I owe.
    If my principal amount and interst amount is paid off by tax offset will they try to collect any other fees (collection fees) through the tax offset?

    ReplyDelete
  29. I have been contacted by Enterprise Recovery Systems and given until Feb 21,2014 to pay them $5.00 a mth on a defaulted student loan. If not paid dept of ED will garnish me. Due to income status they said they can do five a mth and the gov. is allowing this. Wont even touch the interest of course and if I wait until October 2014 to file my returns they will have me in status that is normal and the gov. wont take my return? Does ALL this sound right and legit ??? Please help asap. Thank you

    ReplyDelete
  30. In response to this Q and A

    3) If I have no other option but to work with the collection agency, can I work out a payment plan with them and is there a cap on the amount I would need to pay them monthly? Can they request any amount they please as monthly payment?

    3.) Yes, you can work out a payment plan. They can't request any amount they please. The law says your payments must be "reasonable and affordable" in accordance with your income

    This is the problem I'm dealing with now. The CA is threatening to garnish my wages, which the amount, in accordance with all my other bills totals more than my earned income. I called them to work out a plan but the only other option they give me is also not afforable. they are not willing to work with me at all on different payment amounts or time periods. They came up with both of the options and neither option is something I can afford. This has caused so much stress and when I call they are so rude and ruthless. I went through a credit rehab with a different CA on another student loan and they were actually very nice and worked with me on a payment plan I could afford. This place will not do any such thing. I'm about to move and will be supporting both myself and my fiance as I am the only one working. I am really scared and sick over this. Help!!!

    ReplyDelete
  31. In response to the following Q and A

    3) If I have no other option but to work with the collection agency, can I work out a payment plan with them and is there a cap on the amount I would need to pay them monthly? Can they request any amount they please as monthly payment?

    3.) Yes, you can work out a payment plan. They can't request any amount they please. The law says your payments must be "reasonable and affordable" in accordance with your income.


    I was recently contacted by a CA regarding one of my student loans as they were about to start garnishing my wages. I dealt with a similar issue before with a different CA, and they worked with me and we worked out a payment plan that I could afford.

    This company however, gives me two options only. And both of which I cannot afford. I'm about to move into a new ( and pricier ) place with my fiance, and I will be the sole supporter for the both of us. They are not willing to work with me at all though and what they are asking for, when added to my other bills, exceeds my monthly income. This has caused me so much stress and I have been getting sick over it. I don't know what to do about it. They are very rude and abusive on the phone and I've offered to pay different amounts over a longer period of time and they say "no!" You pay this or this! Those are your options. Help!!

    ReplyDelete
  32. Excellent blog you’ve got here.It’s difficult to find high-quality writing like yours nowadays. I really appreciate individuals like you! Take care!! Please check out my site.
    college books

    ReplyDelete