Student Loan Debt: Collections Practices

When you have regular unsecured debt, a lender has given you money on the basis you will pay it back. They used your credit history to determine the trust value of loaning money to you. When you default on payments, the lenders will pursue to get paid. The regular collection process for defaulted unsecured debt is that the lender will attempt to get payment and when unsuccessful they will sell it to a collections agency. If the debt continues to be unpaid, the amount may be sold to other collections. Throughout this collections process your debt does not invite threats against your home, car, your bank account or your wages. A defense for the consumer is that there is a statute of limitations for collections on the debt. There is a limit of years (depending on the state you live in) that a business can try to collect the debt. Eventually the collectors will stop calling.

A student loan is an unsecured debt given to a student for continued education and the borrower is expected to start paying off the loan after you finish schooling. These loans come from the Department of Education and this being a government lender, there is no statute of limitations.

What does this mean to the borrower? 

A person who received a student loan will owe the debt for the amount of time it takes to pay it off, and it will not go away until it is paid in full. There is no statute of limitations.A student loan that is in default may not be discarded in Chapter 7 bankruptcy. It would take proof of a severe financial hardship to make an exception to this rule.

How is collections different for student loans?

If you default on a student loan, the Department of Education has different options to collect their money. 

They can subtract money you owe from tax returns.Take money from Social Security payments.Have your employer withhold wages.They will sometimes send loans to outside collections agencies. Third party costs will be paid by the one in debt.If taken to court, the debtor will be responsible for court costs as well.

Is student loan debt disputable? 

There are three legitimate reasons one can dispute student loan debt.

If you can prove that you do not owe the debt, such as stolen identity or no signature on promissory note.If you have all ready paid the loan.If you have settled the debt another way.

Conditions will be made for those who become permanently and totally disabled and other rare circumstances.

Third party collections are highly motivated to collect on your debt if given the opportunity by the Department of Education. They get to keep 25 cents for each dollar collected. Some of these collections will step over the what is legal for collections line in order to get paid. In defense to the one in debt, these collections agencies must follow the same rules as any other according to the Fair Debt Collection Practices Act. No debt collector is allowed to threaten, harass, mislead or embarrass you deliberately in order to get you to pay.