There are trillions of dollars of student loans currently in the U.S. market, and $67 billion is in default with student loan collections. Student loans are one of the few things that can’t be written off in bankruptcy, doesn’t go away after seven years, and must be paid off at some point. Though there are programs to help loans in default, federal student load debt collectors may not be offering those programs to troubled lenders.
Student Load Debt Collectors
The Department of Education does not directly collect on overdue student loans. Instead, the Department of Education contracts out with debt collection agencies that earn a commission on the debt that they collect. Government estimates say that these debt collection agencies recovered $11.3 billion in overdue student loan debt last year. For collecting that amount, the collection agencies earned about $1 billion.
Why student loans are attractive
For debt collectors and investors, a student loan is particularly attractive debt for a few reasons. First of all, student loans cannot be discharged in bankruptcy. Student loan debt can also be paid for with wage garnishments and other forced payments that are simply not available for most other types of debt.
An incentive for payment
The problem brought to the attention of the Department of Education and Federal Trade Commission is that these contracted debt collectors are not necessarily offering indebted borrowers the programs and services that the federal government has created specifically to help individuals in their situation. Instead, because the debt collectors are paid a percentage of the debt they collect, they have no incentive to help borrowers.
What the law requires
For borrowers who are behind on their student loans, there are several payment programs and assistance programs that the federal government has created to help. Debt collectors do not always inform borrowers of these options before insisting on payments higher than the minimum. Federal aid laws require that debt collectors offer payments that are “reasonable and affordable.” The law also requires that borrowers be offered entry into repayment advantaged programs, with no minimum payment.
How to address collectors
If you have a student loan that is behind on payments, then you have rights under both federal debt collection laws and federal student loan laws. The first thing you should do when your student loan falls behind on payments is contact your lender. Who your lender is depends on the type of loan you have, but debt collectors are required to provide documentation of the debt that they are trying to collect. Request that documentation of the loan owner be sent to you. Contact the lender and the Department of Education and request information about income and ability-based repayment programs, or short-term forbearance.