In 2018, $166 billion in federal student loans were in default. Private debt collection agencies helped to collect $10.4 billion of that outstanding debt.
In 2019, the federal student loan default portfolio grew to $195 billion. Of that total, just under $6 billion is scheduled to be recovered.
What do these numbers mean to you?
Not much I imagine.
I guess the two big takeaways are that (1) you’re not alone in having your student loans sent to collections and (2) the collection process is inefficient.
Setting that aside, in this article, I share a fair amount of what I know about federal and private student loans that have been placed in collections.
If there’s anything you wish to know that isn’t covered here, drop a comment below.
- How student loans end up in collections
- What happens if your student loan goes to collections
- The one good thing that happens when your student loan goes to collections
- How to get student loans out of collections
- Help with student loans in collections
- Who to call for federal student loan garnishments
- Mail payments to Department of Education National Payment Center
- Next Gen FSA and the end of student loan collections by private agencies
List of Private Collection Agencies for Federal Student Loans
Account Control Technology, Inc.
Action Financial Services
Bass & Associates
Coast Professional Inc.
Credit Adjustments Inc.
Delta Management Associates, Inc.
FH Cann & Associates
FMS Investment Corp.
General Revenue Corp.
Immediate Credit Recovery Inc.
National Credit Services
National Recoveries Inc.
Pioneer Credit Recovery, Inc.
Professional Bureau of Collections of Maryland
Reliant Capital Solutions
Windham Professionals, Inc.
How Student Loans End Up in Collections
Whether federal or private, your student loan is sent to collections after several months of nonpayment.
Federal student loan debt takes 9 months (more specifically 270 days) of missed monthly payments before defaulting.
The timeline for when a private student loan is sent to a debt collection agency varies wildly.
I’ve seen some private student loan lenders (e.g., MOHELA, Discover, Wells Fargo) hold onto their loans until more than a year has passed since a payment was made.
But I’ve seen others like Navient, SoFi, and KeyBank, that send their student loan debt to collections after 6 months of nonpayment.
Regardless of when the loan is sent to a collection agency, the result is the same:
- Your student loan is no longer with a loan servicer
- Your entire loan balance is due
- Your payment options have changed
- You can’t place your loan into a deferment or forbearance
- You’re no longer eligible for loan forgiveness
What Happens if Your Student Loans Goes to Collections
What happens when your loans go into default and collections depends on whether the defaulted loans are federal or private.
Three things happen when a defaulted federal student loan is sent to collections.
First, the entire loan balance becomes due and collection fees are added.
Second, the debt collection agency attempts to contact you to set you up monthly payments under either a voluntary repayment agreement or, if you’re eligible, the loan rehabilitation program.
Third, while they’re doing that, the debt collection agency is also beginning to explore involuntary repayment options available to them. Those involuntary options include: a wage garnishment, tax refund offset, and Social Security benefit payment offset.
👉 US Department of Education Defaulted Student Loans Aren’t Sold to a Collection Agency 👈
Federal student loans are never sold to a loan servicer or to a debt collection agency. Sure, federal loans move from company to company for payment and collections purposes. But the loans are never sold to those companies.
Unlike with federal student loans, a debt collection agency collecting on a defaulted private student loan cannot take your tax refund or garnish your Social Security benefits. That power is exclusive to federal student loans.
They also cannot issue a garnishment for your wages without a court order.
To get a court order, they first need to sue you and get a judgment from the court authorizing them to garnish your wages.
How long will they take to sue you?
In my experience, I rarely see loan borrowers sued soon after their loan is sent to collections. Typically, the collection agency or the lender wait to sue until the statute of limitations is about to run out.
The One Good Thing That Happens When Your Loans Go Into Default and Collections
Or at least the option to do so.
In 2018, I negotiated over $1 million in federal and private student loan settlements. In 2019, I doubled that amount.
In each of those settlements, it wasn’t until the borrower defaulted that settlement became an option. Until then, the borrower’s options were limited to deferment or forbearance or making interest-only payments.
Before you get excited, know this:
You typically won’t settle your student loan for pennies on the dollar.
And if you’re trying to settle a federal student loan, you can forget about saving a bunch of money. Federal student loan settlements are expensive. The Department of Education typically won’t settle for less than 85% of the current balance due (less collection fees) payable in 30 to 90 days.
How to Get Student Loans Out of Collections
The only way to get a private student loan out of collections is to pay it off or negotiate a settlement.
Federal student loans, thankfully, offer more options to getting loans out of collections. In addition to paying the loan off or negotiating a settlement, you can also:
- Enter into the loan rehabilitation program
- Submit a consolidation application
Which is right for you depends on a number of factors. When advising a client, I typically ask:
- How old they are
- If they’re married
- How many children do they have
- How much do they earn annually
- How much have they earned historically
- Are they likely to receive an inheritance
- How much have they saved for retirement
Knowing the answer to those questions and how much they owe in federal student loan debt, helps me decide whether settlement, consolidation, or rehabilitation are the right choice for them.