Thursday, May 29, 2014

Q&A: Federal Student Loan Collection Scam?

I have a very old federal student loan (Over 15-20 years). They suddenly are calling begging me to pay "Anything" on it. They are down to $100 a month. This debt should be about $86K but they are saying it is almost $200,.000. 
I have been sick for the past few years, my credit is already shot for the rest of my life, I owe more than I can ever pay back in a life time now. Literally my health is so bad I don't expect to be around in 5 years or so.  So I don't care about my credit at all, but I am suspicious.
If I send them money, Anything, does that validate the debt and reset the clock to sue me and allow them to start suing and me for the money?
I am afraid to send them even a dollar at this point.

They won't give me any information on it and demand that I pay them over the phone. It is a company called Revcrest. If one of my clients came in and told me this story I would recommend that they not pay them until they send some kind of information. I told the guy on the phone once, Why am I going to give a credit card number or run and get a pay card and give it to someone that calls me out of the blue and demands it with nothing else? Interestingly they do know that I tried to make a payment deal years ago for $750 a month, but I got sick (Heart trouble, brain tumor, it has been a bad decade) and couldn't pay anything to them. So they have some information that a scammer wouldn't know. That was with AEA I think though. This is the first that I have heard from these guys.
The amount is so much unless I hit the lotto I will never be  able to pay even the interest on it now. I was going to file for BK when I got out of the hospital last time and try to negotiate cause I was 100% disabled and not expected to go back to work ever, but silly me, I got better. I am at about 40% on a good day and can work "Really" about three days a week. They finally removed the tumor, gave me tons of medicine for my heart - silly me, I started to recover. Five years sick, now I have tax issues that would scare anyone and owe everyone money. 
But I am glad to just be alive - seriously, it was bad last year. No one can believe that I am up and walking around let alone working again.
Yes, I really need some good advice.



I have some good news and some bad news. The bad news is that there is no statute of limitations on federal student loans. There used to be but when the lender (our government) is the one making the rules, you have to expect the deck to be stacked in its favor. The good news is that if they thought you were worth suing or thought they could get anything out of you at all, they probably would have already sued. Lawsuits for collection agencies are a last resort. Lawsuits for the government...well...that's just an everyday matter of course.

Under normal circumstances, having exempt income, such as Social Security, and not owning any property would protect you from the financial consequences of losing a debt collection lawsuit. Unfortunately, the rules governing federal student loans don't provide debtors with the same protection they'd receive if they were fighting a defaulted credit card or regular loan. The government can and will garnish exempt income to satisfy a government debt. There are limits to how much they can take, but anyone who has ever had to eek out a living on Social Security or government assistance will tell you--they need that extra 15% just to survive.

I have to admit, its very odd that this company is so adamant about you paying something--anything. That really does sound like a commercial collection agency trying to trick you into making a payment and resetting the statute of limitations so they can sue you. If you're 100% positive this loan is federal, they don't have to wheedle and whine and threaten and beg--they can just take. They could sue you, but technically they don't have to. They can garnish, levy and lien as much as they like without even bothering to take you to court.

At first I had an "A-ha" moment when I realized that the SOL on your student loan must have expired before the federal government eliminated the statute of limitations. Thus, you'd have to restart the SOL yourself before they could touch you. But that cannot be the case because the existing statute of limitations was eliminated in 1993 and you claim this debt is no more than 20 years old. Plus, that nasty bit of smacking-the-American-taxpayer was retroactive--allowing the government to chase down and collect billions in student loan debt from people whose statutes of limitations had already expired.

That makes me feel physically ill.

So John, that brings us to an impasse. Why are they calling you if they clearly have no intention to force you to pay up? You have an income and they have the legal right to take it. Why don't they? Unless, of course, they're scam artists, like you suggested. Scam artists can get a wealth of information about you and, unlike the government, they only get their money if you offer it up voluntarily. There is a real Revcrest and they do collect defaulted federal student loans, but that doesn't mean that the people who are calling you are actually working for Revcrest. It's also highly suspicious that they want you to send them a prepaid card or give out your credit card number over the phone. Most collection agencies demand a direct bank draft, so this prepaid card nonsense is a huge red flag. Bank drafts leave paper trails. Prepaid cards do not. And yes, a scammer can get information about your previous payment attempt with your lender. If the records exist, they can be found, read and exploited.

Collectors are about as predictable as a rabid housecat, but still....from what you've told me so far I can't help but think someone's trying to scam you, and there's a surefire way to find out. Go pull your free credit report (you can get it from without having to put in any credit card information). Your credit report will list your current creditors. If Revcrest is on there, this could be legit. The next time they call, try asking them for their mailing address. A real collector will give out this information, but a scam artist may balk. You can always use Google to double check any information they give you.

If the worst case scenario is true and you do owe Revcrest $200,000, there may still be a way out. Federal student loans generally cannot be included in a bankruptcy unless the debtor's situation meets very strict guidelines. You're no longer technically disabled, but you may qualify for an undue hardship discharge. Basically, if you can prove to the court that paying this $200,000 would place an undue hardship on you and those you support (if anyone), you can have the loan discharged. It's not easy to get an undue hardship discharge, but given your health and your work capacity, I'd say its worth a shot. What's the worst that can happen at this point? Heck, if you meet the guidelines, you  may be able to take care of that tax debt along with it. At the least its worth a free consult with a few bankruptcy attorneys to see what they make of the situation.

I don't generally do this but, on a personal level, grab happiness wherever you can. Your situation is frighteningly similar to what happened to my father. I was too young back then to know how to help him and ultimately, it was the stress and threats from the collectors that killed him, not his illness. So now I spend my life trying to help others not fall into the same pattern of emotional destruction and stress that killed my father. Remember, they can take away everything, but they can't take YOU.

And if you have the resources to make the move, consider moving to Canada. Not joking here. It's a total fresh start, the ground is clean, the water is clean, the people are nice, your credit history can't follow you and the healthcare is amazing. Even without a Canadian heath card, you pay less out-of-pocket than American insurers charge for co-pays and co-insurance. Hang in there. It can only get better.

Best of Luck,

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