Your phone starts to ring. You immediately feel your heart rate pick up and get a pit in your stomach as you try to cancel the call quickly. Even though it’s an unknown number, you know exactly who keeps calling: a debt collection agency.
You can avoid calls from debt collectors, but you can’t hide from your debt.
5 ways to get your student loans out of collections
Having your student loans in collections can have serious consequences.
“[While in collections] your tax refunds and federal benefit payments may be withheld and applied toward repayment of your defaulted loan, and your wages could be garnished,” said Joe DePaulo, CEO and co-founder of College Ave Student Loans. “Whether it is a federal or a private loan, your credit rating will suffer.”
Whether you have federal or private student loans, it’s important to take action right away to get your debt out of collections. So if your student loans have been sent to a debt collection agency, here are five things you can do to get back on track.
1. Dispute the debt
First, ensure that the information the debt collection agency has is accurate. You might not owe money at all. Your loan servicer might have reported your account as in default by mistake, or someone could have taken out a loan in your name.
Review your credit report for accounts opened in your name, including student loans. Make sure the dates and amounts listed are accurate. If there are any issues, or if you notice a loan on your report that you did not take out, you’ll need to open a dispute with both the loan servicer and the three major credit reporting agencies.
DePaulo recommends gathering documentation and reaching out to your school right away to clear up mistakes.
“If you feel you’ve been turned over to collections unfairly, then contact your school registrars and get a record of your dates of attendance,” said DePaulo. “Ask your loan servicer for the last date of attendance they have on file. If it’s incorrect, provide them with a copy of your documentation.”
If your federal student loans were in deferment or forbearance, contact your loan servicer and provide them with the letter or email you received from them agreeing to postpone your payments.
2. Settle your debt
If you defaulted on either private or federal student loans, you might be able to get your loans out of debt collections by settling the debt.
“Contact the collection agency that notified you immediately, and explain your situation,” advised DePaulo. “Discuss your options — you may be able to negotiate a reasonable solution.”
Under this approach, you negotiate with the debt collections company to pay off less than what you owe. For example, if you owed $20,000 in student loans, you might be able to pay just $15,000.
Getting a settlement can be difficult. If the agency agrees to your terms, you likely will have to pay the amount you owe in one lump sum, so you’ll need a good amount of cash handy. It’s also important to make sure any agreement you make is in writing.
3. Pay the amount owed
Although it might sound impossible, paying off debt in collections is the quickest way to resolve your loans.
If possible, consider asking friends or family for help paying your outstanding balance. Or, take on an extra job or side hustle to increase your income. Those options might not be ideal, but having debt in collections can damage your credit and have long-term consequences. Getting out of collections as quickly as possible will get you back on your feet much faster.
4. Consolidate your loans
Another way to resolve a debt in collections is by consolidating the loans. With this approach, you take out a new loan for the amount of your current ones and use it to pay off the debt in collections. Your debt will no longer be in default, and you’ll have just one easy payment going forward.
For those with federal loans, a Direct Consolidation Loan can be a big help. If your loans are in default, you must contact your loan servicer to work out a repayment plan.
The company will work with you to determine a monthly payment you can afford. You need to make those payments on time for three months to be eligible for consolidation or agree to enter into an income-driven repayment (IDR) plan.
If you have private student loans, you don’t qualify for a Direct Consolidation Loan. However, you can still consolidate your debt and get it out of collections by refinancing your student loans with a private lender.
However, you might not be able to get approved on your own for a refinancing loan since your debt is in default. You will likely need a cosigner — a friend or relative with good credit and a stable income — on the loan application to be eligible.
5. Declare bankruptcy
If you’re being hounded by debt collectors but are unable to resolve your debt by other means, bankruptcy could be an option. Student loans are difficult to get rid of in bankruptcy, but it’s not impossible.
To qualify, you’ll need to demonstrate to the court significant hardship, such as a medical issue that prevents you from working. Also, you’ll have to prove that it would be impossible for you to repay the loans while maintaining a basic standard of living.
Declaring bankruptcy is a huge decision that can impact your life for years, so make sure you’ve exhausted all of your other options before exploring it.
Know your debt collection rights
Having your student loans in debt collection and dealing with aggressive collectors can be scary, but you do have rights that protect you.
Debt collectors cannot hound you at inconvenient times, such as early in the morning or late at night. They can’t call your place of employment if they’ve been told in writing or over the phone not to call you at work. They can’t contact your employer either.
The debt collection agency also must send you a written validation letter telling you how much you owe, who you owe it to, and how to dispute the charges if necessary.
If you feel the debt collection company has violated your rights, you can file a complaint with the Consumer Financial Protection Bureau.
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