The first time you get a call from a debt collector, it can feel like your entire world is crashing down. As you realize your financial situation has escalated to a new level, you might also know from stories about debt collectors that you’re about to get barraged with calls and letters trying to collect on your debt.
What’s worse, every letter and phone call can serve as yet another reminder that your finances aren’t where you want them to be.
You’re not alone. The current student loan delinquency rate in America is 11.2 percent. That means there are a lot of people struggling to maintain control of their student loans. But you can stop the spiral before it begins.
The more you understand your options, the easier it will be to handle a call from a debt collector.
So a debt collector is calling on your student loans — what now?
Getting calls from a debt collector on your student loans? Here’s what can happen next and what you can do about it.
What happens when student loans go into default
Federal student loans come with more benefits and protections than private student loans. But the moment federal loans go into default, the entire balance of the loan comes due. This is known as “acceleration.”
At the point of acceleration, you lose your right to forbearance, deferment, and different repayment plans. And if you don’t contact your servicer to get your loans back into good standing, they’ll go to collections.
At that point, a debt collector might ask you to enter into a voluntary repayment agreement. If you don’t come to or don’t make your payments under a new agreement, the wage garnishment process begins. Once that happens, you could lose up to 15 percent of your disposable pay.
What’s more, you’ll be on the hook for the costs incurred if your student loan debt goes to collections. The only way to avoid this is to contact your servicer before your loans get sent to a debt collector. That way, you can work out a plan to get your loans out of default.
As for private student loans, there’s no standardized process. Leslie H. Tayne of Tayne Law Group P.C. says the best thing to do is negotiate a settlement of the total amount due or create a payment plan. And unlike federal student loans, a debt collector going after private student loans can’t garnish your wages or your tax refund without a court order.
What to do when a debt collector calls for your student loans
If a debt collector is trying to reach you about your student loans, ignoring their call is the worst thing you can do. The problem will only deteriorate as fees wrack up and your credit score dives.
Dr. Sean Stein Smith, assistant professor at Lehman College and member of the AICPA Financial Literacy Commission, talks about taking the first step.
“My one best piece of advice for anyone facing default is to address the issue head-on and have the conversation. It might be a difficult conversation to have, but the first step toward addressing these issues is to start the dialogue and to get yourself on a payment plan.”
Besides negotiating with a debt collector, consider the statute of limitations on private student loan debt. (Federal student loans are exempt from this.) After the statute of limitations is up, a debt collector can no longer win a collections lawsuit against you.
That said, your debt will still exist beyond the statute of limitations, so this shouldn’t be considered a way to get rid of your debt.
- Agree to rehabilitate your loans. The debt collector will pull your loans out of default after you make nine consecutive payments. The amount of each payment will be no more than 15 percent of your income. (It’s possible to get a payment amount as low as $5 per month during the rehabilitation period.)
- Consolidate your loans. Apply for Direct Loan Consolidation to pay off your federal loans by getting one new loan to cover them all.
- Repay your loans in full.: This is also an option to rectify the situation, although it might be unrealistic, depending on your debt amount.
And if you feel their information about what you owe is incorrect, check the numbers yourself. Log into the National Student Loan Data System to get information on your federal loans. You can also go to AnnualCreditReport.com to download the report on your private or federal loans.
Don’t forget you still have rights
There’s no question that this is a difficult situation to be in, but don’t let it also become a disempowering one. Even if your loans are in default, and even if you’re getting calls from a debt collector, you still have rights.
According to Federal Student Aid, debt collectors are not allowed to harass you, lie or obfuscate the truth about what you owe. They also cannot use “unfair or unreasonable means” to get you to repay your debt. If you think debt collectors are doing any or all of these things, you can file a complaint with the Department of Education.
Just because you lost track of your student loan debt doesn’t mean you deserve abuse. Know your rights and do what you can to get back on track with your student loans.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 6.30%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.48% – 6.25%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|