Millions of Americans are facing the same dilemma when it comes to student loans- dealing with student loan collections. What happens when you default on your student loans and they are sold to a collection agency? Collection agencies make a lot of money when they chase after a student loan debt, however, there are legal ways that you can fight back.
In this guide you will discover the different ways that you can fight back, what scenarios can arise when your loans go to collections, and what this all means to you.
If you are going through the process of student loans being in collections, we have financial planners that are experts in assisting anyone dealing with this type of debt.
What student loan collections mean?
It means that you went 270-360 days consecutively without making a payment on these student loans. This means that the clock is ticking before further repercussions are taken, including but not limited to the garnishment of your wages and interception of tax refunds, both federal and state.
Student loans being sold to collection agency occurs when these loans become defaulted on and loan service providers are unable to collect on this debt. What this means is that now no matter what you will pay, and you will pay hefty fees because of this.
This also means that you are probably wondering how this happens, and what can you do to rectify the situation.
What happens when your student loans sold to collection agency?
So what exactly happens when your student loans are placed with collections? To understand what happens when it goes to collections, you need to understand how your loans go to collections in the first place.
Here is what leads up to student loans placed with collections:
- Failure to communicate with your loan service provider
- Financial hardship causing you to miss payments consecutively for 120 – 360 days
- Ignoring or not responding to attempts to make arrangements to collect on your debt.
- Not following through with repayment options that you and your loan service provider agreed on.
All is not lost, however, you should know what happens when student loans sold to collection agency. Here is what happens when a collection agency grabs hold of your defaulted student loans:
- Motivate you to take action and work on getting your finances under control- which can be done with one of our financial planners.
- You will receive additional fees on top of the loan amount and interest. The collection agency will impose a collection fee for the trouble of collecting your loan. These fees can amount to 18%-40% of your remaining student loan balance. Just to give an idea of what kind of fees you could be looking at: Say that you owe $75,000 in student loans, at the bare minimum collection fees can be an additional $13,500.
- Wages can be garnished at 15% for federal loans and 25% for private loans.
- Not only can your wages be garnished, but your federal tax refunds can also be offset and taken.
- If you hold a professional license, this can be revoked, or hold can be placed on renewing your license.
- If you are a government contractor, there is a possibility that you can be prevented from obtaining a necessary security clearance.
- Some employers may choose to not hire you because of your defaulted student loans.
Here are some other things that you lose when your student loans wind up in collections:
- You lose eligibility for Federal student aid and you lose the option to defer your loans.
- Once you default on your student loans, subsidized interest and loan forgiveness becomes a thing of the past.
- As you read in the previous section, your career and career options can be affected. Not to mention your credit score will drop and it can take years to recoup.
Again, there are ways that you can fight back and not let the negative repercussions affect you. If you need help with this, you should contact our office to speak with a financial planner that can help go over what your options are and guide you through the process of having student loans in collections.
Can collection agencies chase student loan debts when the debtor is in a foreign country?
With all the negative effects that come from defaulted student loans, you may be considering leaving the country. You wouldn’t be the first debtor to have this thought cross your mind.
What happens when you leave the country and you have student loan debt? First and foremost, debt collectors may not have the financial means or the legal means to go after you in another country. However, with student loans, your default is reported to the IRS, and the IRS always has ways to reach individuals with student loan debt
Here’s what you should know when you choose to leave the country to avoid student loan collections:
- There are no statute of limitations when it comes to these loans- therefore when and if you return to the U.S. the debt is still here waiting for you.
- Private loans do have limitations on how long you can be sued for the debt, however, collection agencies can still contact you.
- Your credit score will continue to tank and the loan balance will continue to grow.
- You will need to reestablish yourself in that country, and some countries will look at your U.S. financial history to determine your worthiness.
To answer the original question, can you still be chased for student loan debts when you leave the country, yes collection agencies can still contact you. No laws are stating that they can not contact you, wherever you are. Do they have the manpower or the financial means to come after you? Probably not. So while you might be able to escape your debt for some time, it will be waiting for you when you get back.
If you are planning to leave the country and you still have this debt looming over you, speak with our financial planners to help you get through this process.
How to fight a student loan collection agency?
What recourse can you take to fight back against a student loan collection agency? First, it depends on whether or not your loan is a private loan or a federal loan. But if you feel that your rights have been violated, you can file a complaint with the Consumer Financial Protection Bureau.
You do have rights and you are protected by these rights regardless of your loans being private or federal. If you need help with this, contact our office to speak with a financial planner to help you with fighting back.
5 ways student loan borrowers can get student loan out of collections
There are many ways that you can get your student loan out of collections before you face additional repercussions. Here are 5 ways that you can get your loans out of collections:
- Dispute the debt- The collection agency needs to provide you with information to confirm the accuracy of the debt. If you feel your account was sent to collections by mistake, you can dispute the debt.
- Consider settling the debt with– a negotiated amount with the loan servicer or collection agency. The collection agency may agree to terms of a settlement for less than what you owe. However, keep in mind that going this route will require you to have the money on hand.
- Consider consolidating your loans or entering into a loan rehabilitation. Private loans can be consolidated by refinancing the loans. If your loans are federal loans, you can apply for loan rehabilitation, by making nine monthly payments on-time to be able to move loans out of default. You can also apply for a Direct Consolidation Loan for federal loans or attempt to enter into an income-driven repayment plan.
- Pay the amount that you owe. This option may not be as easy as the other options, because if you pay what you owed on the debt, these loans wouldn’t be in collections, to begin with. However, that doesn’t mean friends and family won’t let you borrow the money or you could come into a settlement to pay off the debt.
- File bankruptcy-This is an option that needs careful consideration, that can impact you for years. However, getting a defaulted student loan debt to be included in bankruptcy can be tough. You would need to be able to prove that a significant hardship is preventing you from working or you can’t repay the loans while maintaining a basic standard of living.
Whatever way that you decide to get out of collections, realize that you don’t have to do it alone. By contacting our office, a financial planner can help you through whichever process that you choose to get out of collections.
Whenever student loans end up in collections, it is a serious issue that needs to be resolved. We can preach about being proactive and making arrangements to prevent the collections, however, there is no use in crying over spilled milk.
The best thing that you can do at this point is to resolve the issue and get student loans out of collections. By contacting our office, one of our financial planners can help you through this process and get back your financial freedom