How to Stop Student Loan Harassment and Deal With Debt Collection

Note that the situation for student loans has changed due to the impact of the coronavirus outbreak and relief efforts from the government, student loan lenders and others. Currently, collections have been halted on all federally held student loans, and interest-free deferment has been extended on repayment. Check out our Student Loan Hero Coronavirus Information Center for additional news and details.

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More than 75,000 consumers wrote to the Consumer Financial Protection Bureau (CFPB) in 2019 to complain of shady debt collection practices, alleging everything from threats to lies and beyond. In fact, student loan harassment, specifically, might not be so uncommon when you consider that the student loan delinquency rate in America is 11.1%.

Fortunately, by learning about your rights, you can stop student loan debt collection harassment in its tracks.

To understand why collections agents are barraging you in the first place, let’s look at the following three topics:

What happens when student loans go into default What to do when a debt collector calls for your student loans How to stave off student loan harassment from debt collectors What happens when student loans go into default

Federal student loans come with more benefits and protections than private student loans. But the moment federal loans go into default, the entire balance of the loan comes due — a phenomenon known as “acceleration.”

You’ll also lose your right to forbearance, deferment and different repayment plans. And if you don’t contact your servicer to get your loans back into good standing, they’ll go to collections.

At that point, a debt collector might ask you to enter into a voluntary repayment agreement, rehabilitation or consolidation. If you don’t come to an agreement — or if you don’t make your payments under the new agreement — the wage garnishment process begins.

Once that happens, you could lose up to 15% of your disposable pay — and what’s more, you’ll be on the hook for the costs incurred if your student loan debt goes to collections. The only way to avoid this is to contact your servicer before your loans get sent to a debt collector and work out a plan to get out of default.

As for private loans…

If you have outstanding education debt with a bank or other private lender, there’s no standardized process for handling student loan default.

Leslie H. Tayne, a New York-based debt settlement attorney, told Student Loan Hero that the best thing to do is:

Negotiate a settlement of the total amount due Create a payment plan that’s manageable for your budget

And unlike with federal student loans, a debt collector going after private student loans can’t garnish your wages or tax refund without a court order.

What to do when a debt collector calls for your student loans

If a debt collector is trying to reach you about your student loans, ignoring their call is the worst thing you can do. The problem will only be exacerbated as fees rack up and your credit score dives.

According to Sean Stein Smith, an assistant professor at Lehman College and a member of the AICPA Financial Literacy Commission, it’s wise to “address the issue head-on” with frank conversation.

“It might be a difficult conversation to have,” Stein Smith said, “but the first step toward addressing these issues is to start the dialogue and to get yourself on a payment plan.”

As for federal student loans, there are three universal options for removing the default status:

Rehabilitate your loans: Agree to rehabilitation, and the debt collector will pull your loans out of default after you make nine consecutive payments at an amount that will be no more than 15% of your income (it’s possible to get a payment amount as low as $5 per month during the rehabilitation period). Consolidate your loans: Apply for Direct Loan Consolidation to pay off your federal loans by getting one new loan to cover them all. Repay your loans in full: This is also an option to rectify the situation, although it might be unrealistic, depending on the amount of your debt. As for private loans…

Besides negotiating with a debt collector, consider the statute of limitations on private student loan debt (note that federal student loans don’t have a statute of limitations). After the statute of limitations is up, a debt collector can no longer win a collections lawsuit against you. That said, your debt will still exist beyond the statute of limitations, so this shouldn’t be considered a way to get rid of your debt.

If you feel the collector’s information about what you owe is incorrect, check the numbers yourself. Go to AnnualCreditReport.com to see what’s being reported on your private (or federal) loans.

How to stave off student loan harassment from debt collectors

There’s no question that this is a difficult situation to be in, but don’t let it also become a disempowering one. Even if your loans are in default, being the victim of student loan harassment isn’t OK — you still have rights.

Debt collectors are not allowed to harass you, lie or obfuscate the truth about what you owe, or use “unfair or unreasonable means” to get you to repay your debt.

According to the CFPB, consumers in 2019 complained of the following practices:

If you think debt collectors are doing any or all of these things, you can file a complaint with the Department of Education (for federal loans) or the CFPB (private).

Just because you lost track of your education debt doesn’t mean you deserve to face student loan harassment. Know your rights, and do what you can to get pay off student loans in collections.

You might start by requesting your collection agency offer proof of your outstanding loans by writing a debt validation letter.

Andrew Pentis contributed to this report.

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