Student Loans: Collections Differ From Other Unsecured Loans

Loans fall into two categories, secure and unsecured. A secure loan is money which is tied to property such as a home or car used as collateral. This practice gives the lender more security. If you do not pay the lender back, your property will be seized. An unsecured loan does not use property for security, rather, it is based on your credit history and good faith that the money will be repaid. Lenders of unsecured loans scrutinize the applicants more closely because of the risk involved.

Student loans fall under the unsecured loan definition as it has no property tied to it as collateral. Defaulting on a student loan can bring many more problems than an unsecured bank loan would bring.

Defaulting on a regular unsecured loan will damage your credit history. If the lender sells your debt to a collections agency, you will receive letters and phone calls trying to put pressure on you to pay back the debt. During this time, a collections representative may not threaten to take away your property, garnish your wages or place a freeze on your bank account. There would need to be a court judgement for these matters. Every state has a statute of limitations, the amount of years vary on each state, but the results are the same. There is a set limit of years that the collections agencies can come after you to repay the debt.

Student loans are processed through the Department of Education which has no statute of limitations. With this unlimited time, there are many different ways that the Department of Education can retrieve their money. They can take money from your tax refunds or Social Security payments and the have the right to garnish wages if you are in default with the student loan. They may also take you to court and get a judgement against you. There are times that the loan will be sold to outside collections agencies. These agencies get to keep a larger percentage of the money they collect verses regular loans. Collectors have more incentive to recover the money, but are required to follow the same guidelines, under the Fair Debt Collection Practices Act, as when collecting on other loans.

Bankruptcy is a last resort option for people who have gotten themselves way over their head with debt. Defaulted student loans are not like other loans which can be included in Chapter 7 bankruptcy. Your student loan will not be discharged by filing for bankruptcy unless you can prove extreme financial hardship.

If you are not obliged to pay for the loan due to the listed reasons, you can dispute the loan obligation.

the loan not being yoursidentity fraudthe promissory note was not signedyou have proof that you already paidthe loan amount is incorrectclaim financial hardship

There are collection attorneys who work with student loan debt. Since you are obligated to prove your case, having a lawyer involved might be critical.

Receiving a student loan is crucial to many people in order to further educate themselves for the workforce. The Department of Education provides these loans for that reason. There are no payments while you are attending school. Once you finish, you will have only a certain amount of time, as stated in the contract, to get yourself a job and start paying back your loans. No matter what kind of financial contract, you will want to read and understand your role in the contract before you sign.