Defaulted Federal Student Loan Collections
The U.S. Department of Education is a powerful debt collection entity – and it extends that power to the collection agencies it hires to recover unpaid federal student loans. The government doesn't have to sue you to garnish your wages, seize your bank accounts and place a lien on your home and/or automobile. Even so, the U.S. Department of Education typically sues before taking any of these actions.
While all creditors can use force to collect, provided they file the collection lawsuit within your state's statute of limitations, most creditors face limitations when doing so. Commercial creditors, such as credit card companies and banks, can neither garnish nor levy federal benefits you receive. The same is not true of government debts. Default on a federal student loan and a private collection agency wielding the power of the U.S. Department of Education can and will garnish and seize just about any income you possess. There is no "judgment-proof" when it comes to defaulted federal loans.
Student Loan Collection Fees
Most collection agencies try to get away with tacking fees onto collection accounts in order to pad profits. Collection agencies know that they are likely to have to settle the debt simply to receive payment. Because the government faces so few collection restrictions, settling a defaulted federal student loan is rarely possible. Unfortunately, this doesn't stop government collection agencies from adding fees to your debt – and student loan collection fees will shock you.
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| Student loan collection fees are hard to swallow |
If you're the parent of a student and took out a Perkins loan to help your child pay for his or her education, you're in an even worse situation if you default. Collection fees for Perkins loans equal 30% of the total balance. If you sign up for loan rehabilitation but default on the debt a second time, your collection fees climb to 40% of the total balance – almost half the loan amount!
Collection Law for Delinquent DIRECT, Stafford and Perkins Loans
Although collection agencies working for the federal government enjoy a wider range of debt recovery options, that does not mean they have the right to break the law. Like any debt collector, student loan collection agencies must follow the FDCPA or you have the right to file a lawsuit against the company. You can also file a formal complaint with the U.S. Department of Education if any government collection agency uses illegal tactics when trying to procure payment from you.
Defaulted Federal Loans and the Statute of Limitations
If you've ever had a debt held by a collection agency in the past, then you know the wisest course of action is often to simply dig in your heels, cross your fingers and wait out the statute of limitations on the debt. Once the statute of limitations passes, you are safe from a debt collection lawsuit.
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| Don't expect a bankruptcy discharge. |
Because of this, its crucial that you do everything within your power to avoid defaulting on your loan. Ask for deferment or forbearance, give up cable, sell your car...whatever you need to do, do it. If you don't, it will simply take you that much longer to pay off the debt – and probably cost you a fair measure of grief in the process. Student loan collection agencies are more ruthless than most when it comes to collection fees because they are well aware of the power they hold – don't let yourself become a victim.
The National Consumer Law Center's Student Loan Borrower Assistance Program contains additional information about defaulted federal and private student loans, loan rehabilitation, the collections process and how to get help.
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