Student Loan Collection Agencies and You
Student Loan collection agencies are one of the most feared and dreaded elements in the world of loan repayments. If you’re a student then it’s very likely that you have come into contact with one of these collection agencies at least once or twice in your lifetime. These agencies exist to prey upon financially naive graduates, promising repayment on student loans for a fixed monthly fee, but offering no contact information or even a way of contacting the borrower. These student loan collection companies are the main cause of alarm among graduates everywhere, as their practices result in harassment, legal action, and sometimes even bankruptcy.
Thankfully, if you’ve received a notice from a student loan company or other authority telling you that you will owe repayments for a fixed amount of time, this is unlikely to be a genuine notice. More often than not, these collection notices are bogus. However, even the real ones may be taken seriously enough to cause action against the defaulter.
The student loan industry has suffered much damage in recent times, and many lenders have tried to back stab each other. For example, banks have recently started asking for early repayment fees. Many students find themselves under the mistaken impression that they can now defer payments without any penalty. This is, in fact, illegal in many states. Some lenders have resorted to issuing statements demanding payment before the student has begun any repayment of the loan.
Most student agencies that take defaulted student loans are completely illegal, although some still exist. They operate outside of the law, using illegal collection tactics and questionable methods to pursue borrowers into debt. Collection agencies may harass the student, threatening court action and all kinds of other harassment to get the money. Many have even gone so far as to threaten lawsuits for not paying. Such extreme measures should be illegal.
It is not just the legal angle that is questionable; some collection agencies use unscrupulous business practices as well. The practice of collecting student loans from willing and eager college students is nothing new, but it is getting more notoriety lately. In some cases, these collection agencies have put up attractive advertisements, promising to help students who owe money on their loans. They offer a hefty sum to the debtor, promising that the college won’t report the debt to the credit bureaus.
When the student accepts the offer, the lenders contact the collection agencies. The lenders then demand that the student pay the full amount owed – including penalties and interest. At this point, many students start to panic. This is because, while most student loans are exempt from bankruptcy protection laws, there are very few student loans that do not have some sort of repayment structure.
This is where loan collection becomes problematic. If a student defaults on a loan, the lending institution can pursue collection efforts until the full loan is paid off. While the federal government offers a fairly standard “guaranteed to pay” option that allows them to take back the loan if no payment is received within six months, most private student loans do not have similar provisions. For private loans, the Department of Education is able to take possession of the property used to obtain the loan (even if the student has already graduated from college) and sell it to recover the outstanding balance.
Because federal loan repayments do not have to be reported to the credit bureaus, collection agencies may go after any of the student loan debt owed to another party. In rare cases, these agencies may even go after the parents of the borrower, in an effort to recoup money they may owe for the college tuition of their offspring. This situation presents student borrowers with a quandary: should they agree to repay their loans, they run the risk of being reported to the credit agencies, which could severely damage their credit rating; or should they seek to negotiate the debt itself? Unfortunately, while the federal government offers helpful programs to help students with their financial troubles, the options for student loan borrowers are often limited, and many students find themselves without any options at all once it becomes difficult to refinance or consolidate their student loans.