Student Loans and Debt Collector Harassment

Fallen behind on paying back student loans? Six million Americans are reported to be in excess of 12 months late paying back federal or private student loans. Student loan defaults have increased by one-third in the last five years. Some graduates accept jobs they are overqualified (and underpaid) for, if they are lucky enough to secure employment at all. Divorce and medical bills also account for part of the problem.

Underclass and Graduate Students are a collective $76 billion in debt from student loans.

Collection calls for student loans begin can begin six months after graduation. When loans go into default, the Department of Education (DOE) taps one of the many contracted debt collectors to obtain payment. In 2011 alone, the DOE spent nearly $1.5 billion hiring collectors involving defaulted loans.

Defaulted student loans are four times more likely to be repaid than are defaulted credit card bills.

The third party collectors for the DOE are used in cases involving “accounts that fail to establish and adhere to a repayment agreement.” They are in charge of determining reasonable repayment plans and enforcing them.

“Reasonable” repayment plans can garnish wages and social security benefits by up to 15% of disposable income and can intercept up to 100% of tax refund checks.

In cases where the consumer can’t afford to repay a loan, income and tax refund garnishments can fail to cover the interest alone – leaving the consumer short on money and as the size of the debt increases monthly.

Defaulting on a student loan can also have devastating effects on credit scores, financial relationships, and career opportunities. Buying a home or car will become more difficult and expensive, as interest rates rise dramatically higher as credit scores go lower. Applying for a credit card under the cloud of defaulted student loan debt, can turn into a nightmare. Worst of all, even professional license renewal can be denied in many cases, such as New Jersey, where more than 80 occupations ranging from accounting to hairstyling to optometry and architecture, can see licenses denied.

Even if you have fallen behind on your student loan repayment, Debt collectors may not harass, abuse, deceive or intimidate.

Debt collectors must follow certain standards of behavior. The Fair Debt Collection Practices Act defines harassment for example as:

  • Phone calls before 8:00am or after 9:00pm
  • Repeated phone calls while you’re at work
  • Profane or abusive language
  • Phone calls after you’ve asked them to stop
  • Contacting you before responding to your request to validate the debt
  • Attempting to collect a debt that is too old to enforce legally
  • Contact from a collector who knows that you are represented by an attorney
  • Disclosing information about your debt to a third party

Under the FDCPA, debt collectors are also forbidden from using deceitful methods to contact you or collect money from you, such as:

  • Failure to identify themselves as a debt collector
  • Claiming to be affiliated with the government
  • Claiming to be an attorney
  • Claiming to be a police officer or any other authority
  • Filing any legal action without properly serving the party being sued

Finally, the FDCPA prohibits from making threats to encourage you to pay your debt sooner. Common threats include:

  • Threatening to report false information to a consumer credit report, which is illegal
  • Threatening to publish your name or address to a “bad debt” list, which is illegal
  • Threatening to harass your family, friends, or co-workers about your debt, which is illegal
  • Threatening to come to your house, which is illegal

Student Loan Rehabilitation

Student loan rehabilitation is an attractive option for those individuals seeking to repair their credit report. This is because loan rehabilitation restores your student loans to their pre-default state and can erase any negative information listed with the three major credit bureaus. This of course will likely raise your credit score, making you a better candidate for obtaining future credit. While student loan rehabilitation is an extremely attractive option for those in default, it is only available once and thus a person must be financially prepared to meet the various conditions.

In order to rehabilitation a student loan, the debtor enters into an agreement with the loan holder that defines monthly payment amounts and due dates for a 9-month qualification period. This rehabilitation agreement will set reasonable/affordable monthly payments, often times just 1% of your outstanding balance. Though it is possible to qualify for lower monthly payments, the debtor must demonstrate financial hardship and this may indicate that rehabilitation is too risky a proposition (as it is only available once).

Once the rehabilitation agreement is entered into, the debtor is obligated to make all 9 monthly payments on time (i.e. within 20 days of the due date) and cannot make early/extra payments to attempt to speed up the process. If the debtor fails to fulfill the terms of their rehabilitation agreement, their loans will stay in default.

The rehabilitation process is finalized once a new lender purchases the loan. Although there is no set timeframe for when this will occur, it opens the door to having all negative information regarding those loans removed from the debtor's credit reports. In addition, all loan information is updated on the National Student Loan Data System website. When this occurs, it makes the debtor once again eligible for deferments, forebearances and Title IV financial aid.

What Types Of Loans Qualify For Rehabilitation?

Unfortunately, only federal student loans qualify for loan rehabilitation. The various types of student loans include:

Federal Stafford loans (formerly GSL)
Federal Perkins loans (formerly NDSL)
Federal PLUS (Parent Loans for Undergraduate Students)
Federal Grad PLUS (PLUS loans for graduate and professional students)
Federal Consolidation loans
Federal SLS (formerly ALAS)
Health Professions Student Loans (HPSL), and
Nursing Student Loan (NSL)

What Are The Benefits Of Student Loan Rehabilitation?

There are many benefits associated with the rehabilitation of defaulted student loans, including:

The termination of all collections activity and legal proceedings,
The prevention of wage garnishment and seizure of state and/or federal tax refunds,
The restoration of those student loans to "current" status,
The restoration of eligibility for deferment, forebearance and alternative repayment plans,
The restoration of eligibility to apply for additional loans, and
The potential repair/erasure of negative credit reporting.