How to Get Student Loans Out of Collections: Federal and Private

 November 30, 2021
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If you stop making payments on your student loans, they could fall into default and even get sold to a debt collector. Having student loans in collections can cause a heap of bad consequences, so it’s crucial to learn how to get your student loans out of collections and back into good standing.

Here’s the rundown on how to get student loans out of collections, and stay out.

Student loans in collections: How they get there

If your student loans end up in collections, it’s because you’ve entered student loan default. Federal student loans go into default if you haven’t made payments on your loans for 270 days. Rules for private student loans vary, but they can go into default even sooner, sometimes after a single missed payment.

Once this happens, the balance of your loan is due immediately, which is commonly known as “acceleration.”

What happens once you’re student loans are in collections

If your student loan is in collections, there are a ton of potential consequences — and several of them can cause real financial pain.

If your account goes to collections, you’ll be assessed collection fees in addition to the student loans you owe. These fees vary depending on who holds your loans, but they can be anywhere from about 18% to 40% of your outstanding balance. Just to put that in perspective, adding an extra 40% to a student loan balance of $30,000 would mean your new balance is $42,000.

And if these fees aren’t bad enough, it doesn’t end there. As long as your loans remain in default, the following can also happen:

  • Wages can be garnished and income tax refunds can be taken to repay debt.
  • You can become ineligible for federal financial aid.
  • You can become ineligible for a deferment on loans.
  • You can lose subsidized interest benefits.
  • Defaulted loans will appear on your credit report for up to seven years, negatively affecting your credit score and your ability to get other types of loans.

Student loan collection agencies will attempt to collect this debt from you. As you’ve probably heard, debt collectors sometimes use aggressive tactics to get you to pay the money you owe. If you’re being contacted regularly, make sure you understand your legal rights under the Fair Debt Collection Practices Act.

Knowing these laws can affect not only how much you owe, but also how and when debt collectors can contact you to recover what you owe. There’s a lengthy list of what student loan collection agencies aren’t allowed to do to get you to pay.

Student loans in collections: Here’s what debt collectors are barred from doing…
● Harassment, like threatening you or using obscene language
● Lying to you or tell you you’ll be arrested if you don’t pay
● Hounding you at inconvenient times, such as early in the morning or late at night
● Calling your place of employment if they’ve been told in writing or over the phone not to call you at work
● Contacting your employer
● Sharing your debt information publicly
The debt collection agency also must send you a written debt validation letter telling you how much you owe, who you owe it to and how to dispute the charges if necessary. You can find the full list of practices prohibited by the Fair Debt Collection Practices Act on the FTC website. If you feel that a debt collection company has violated your rights, you can file a complaint with the Consumer Financial Protection Bureau.

Hopefully, these alarming consequences have convinced you to do all you can to stay out of default. But what if you’re already dealing with student loan collections? You probably want to get out.

How to get federal student loans out of collections

If you’re in collections, you’ll need to take action to get out. Ignoring the problem won’t make it go away.

One simple way if you’ve just landed in default is to get caught up on payments quickly. If you make a qualifying payment on a federal student loan that will result in your being less than 270 days delinquent, you may be able to remove the default and collections status immediately. If not, you still have four other options for reviving federal student loans:

1. Rehabilitation means agreeing to a payment plan with the Department of Education. Once you’ve made the required number of payments on time, your loan may become rehabilitated.

2. Student loan consolidation can help by combining the balances of several loans into one, and this can include loans in default. However, the Department of Education says you’ll typically be “required to make at least three consecutive, voluntary and on-time payments prior to consolidation.”

Collections agencies for federal student loans
● Action Financial Services
● Bass & Associates
● Central Research
● Coast Professional Inc.
● Credit Adjustments Inc.
● FH Cann & Associates
● Immediate Credit Recovery Inc.
● National Credit Services
● National Recoveries, Inc.
● Professional Bureau of Collections of Maryland
● Reliant Capital Solutions

3. Discharging student loans with bankruptcy may be an option, too. While it may be difficult to have your loans discharged in bankruptcy, it’s not impossible if you meet the right conditions.

4. Full repayment: You could just repay the entire amount of the loan. However, given the size of most loans, this probably isn’t a feasible option.

How to find your federal student loan debt collector
Either contact your loan servicer or contact the Education Department’s Default Resolution Group.

How to get private student loans out of collections

Private student loans unfortunately don’t qualify for the federal loan-specific programs above.

If you have private loans in default, it’s important to take action right away to get your debt out of collections. If your account has already been sent to a debt collection agency, here are five steps you can take to get back on track:

1. Dispute the debt
2. Settle your debt
3. Pay the amount owed
4. Consolidate or rehabilitate your loans
5. Declare bankruptcy

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 didn’t take out, you’ll need to open a dispute with both the loan servicer and the three major credit reporting agencies.

2. Settle your debt

If you defaulted on private loans, you might be able to get your loans out of debt collections by settling the debt.

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.

However, getting a settlement can be difficult. If the agency agrees to your terms, you’ll likely 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 — even better if you can have a certified student loan counselor or lawyer review the contract.

3. Pay the amount owed

Although it might sound impossible, paying off debt in collections is the quickest way to resolve your loans.

If you’re able, consider asking friends or family for help paying your outstanding balance. Or, you can 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 student loan collections as quickly as possible will get you back on your feet much faster.

4. Consolidate or rehabilitate your loans

Another way to resolve debt in collections is by consolidating your loans.

Note that only federal student loans are eligible for consolidation and rehabilitation (as detailed above). Private student loans are eligible for consolidation through refinancing with a private lender, but you’ll probably have a tough time qualifying if you’re in student loan collections.

You could try speaking with a lender about your options, and find out if adding a cosigner to your refinancing application could help.

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. You’ll also 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.

Your alternative option is waiting until the statute of limitations on your debt runs out – but the debt collector could sue you in the meantime.

How to avoid having student loans in collections

Once your loan is out of default, be careful not to end up in the same spot again. Hopefully, you’re now on a manageable payment plan that lets you repay without missing payments and falling behind again — but it’s possible that could change. The key is to be proactive and get help if you do run into problems, before you end up in collections again.

To start, make sure your payment plan is the right option for you. There are various student loan repayment plans (for federal loans) that can bring the monthly payment amount down based on a variety of factors. Just keep in mind that many of these payment plans could increase the total amount you’ll have to repay.

And for federal and private loans, look into loan repayment assistance programs that could deliver meaningful benefits, depending on your career and home state.

If you can’t pay or otherwise need to pause payments, see if either student loan deferment or forbearance is an option for you. Deferment means you can temporarily stop making payments on your loans, and interest doesn’t accrue on federal direct subsidized loans during that time. You’ll typically be eligible if you’re enrolled in college at least half time or in other cases like unemployment or military service.

Forbearance isn’t as advantageous as deferment, as you’ll have to pay interest on all loans (federal and private loans), but it will keep you out of default. With forbearance, you may be able to stop making monthly payments for up to 12 months due to financial hardship, illness or other reasons. Confirm details and eligibility with your federal loan servicer or private lender.

Bottom line: Always take action to find potential alternatives to ending up in default. You’ll be glad you did.

Interested in refinancing student loans?

Here are the top 9 lenders of 2022!
LenderVariable APREligible Degrees 
1.74% – 6.52%1Undergrad
& Graduate

Visit Splash

1.99% – 5.89%2Undergrad
& Graduate

Visit Earnest

2.50% – 6.85%3Undergrad
& Graduate

Visit CommonBond

1.89% – 5.90%4Undergrad
& Graduate

Visit Laurel Road

1.74% – 7.24%5Undergrad
& Graduate

Visit SoFi

1.90% – 5.25%6Undergrad
& Graduate

Visit Lendkey

1.88% – 5.64%7Undergrad
& Graduate

Visit NaviRefi

1.86% – 6.01%Undergrad
& Graduate

Visit Elfi

2.13% – 5.25%8Undergrad
& Graduate

Visit PenFed

Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Splash Financial.

Splash Financial Disclosures

Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount

The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.

To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of January 19, 2022.


2 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest.

Earnest Disclosures

Interest Rate Disclosure

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 2.69% APR to 6.04% APR (excludes 0.25% Auto Pay discount). Variable rates range from 1.99% APR to 5.89% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, and using the daily interest rate based on actual days in the year and rounding up, plus a margin and will change on the 1st of each month. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 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%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX.


3 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. ‍All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Jan 1, 2021 and may increase after consummation.


4 Important Disclosures for Laurel Road.

Laurel Road Disclosures

All credit products are subject to credit approval.

Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.

As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.

  1. Checking your rate with Laurel Road only requires a soft credit pull, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
  2. Savings vary based on rate and term of your existing and refinanced loan(s). Refinancing to a longer term may lower your monthly payments, but may also increase the total interest paid over the life of the loan. Refinancing to a shorter term may increase your monthly payments, but may lower the total interest paid over the life of the loan. Review your loan documentation for total cost of your refinanced loan.
  3. After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship. During any period of forbearance interest will continue to accrue. At the end of the forbearance period, any unpaid accrued interest will be capitalized and be added to the remaining principle amount of the loan.
  4. Automatic Payment (“AutoPay”) Discount: if the borrower chooses to make monthly payments automatically from a bank account, the interest rate will decrease by 0.25% and will increase back if the borrower stops making (or we stop accepting) monthly payments automatically from the borrower’s bank account. The 0.25% AutoPay discount will not reduce the monthly payment; instead, the discount is applied to the principal to help pay the loan down faster.

Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.

Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.

Interest Rate: A simple annual rate that is applied to an unpaid balance.

Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.

KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.

This information is current as of April 29, 2021. Information and rates are subject to change without notice.
 


5 Important Disclosures for SoFi.

SoFi Disclosures

Fixed rates range from 2.49% APR to 7.59% APR with a 0.25% autopay discount. Variable rates from 1.74% APR to 7.24% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.


6 Important Disclosures for LendKey.

LendKey Disclosures

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.

Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of  5 years and is reserved for applicants with FICO scores of at least 810.

As of 11/15/2021 student loan refinancing rates range from 1.90% APR – 5.25% Variable APR with AutoPay and 2.49% APR – 7.75% Fixed APR with AutoPay.


7 Important Disclosures for Navient.

Navient Disclosures

1. NaviRefi loans are made by Earnest Operations LLC, a member of the Navient family of companies, subject to individual approval and underwriting criteria. California residents only: Loans made or arranged pursuant to a California Finance Lenders Law license. Additional terms and conditions apply.

– To qualify, you must be a U.S. citizen or non-citizen permanent resident of the United States, reside in a state we lend in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.navirefi.com/help-and-questions. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Loan terms are subject to eligibility. Approval and interest rate depend on the review of a complete application. Loan approval is subject to confirmation that your debt-to-income, free cash flow, credit history and application information meet the minimum requirements. You must have a minimum FICO score to be considered.

– You can choose between fixed and variable rates. Fixed interest rates are 2.75% – 6.04% APR (2.50% – 5.79% APR with Auto Pay discount). Starting variable interest rates are 2.13% – 5.89% APR (1.88% – 5.64% APR with Auto Pay discount). Variable rates are based on an index, the 30-day Average Secured Overnight Financing Rate (SOFR) plus a margin. Variable rates are reset monthly based on the fluctuation of the index. We do not currently offer variable rate loans in AK, CO, CT, HI, IL, KY, MA, MN, MS, NH, OH, OK, SC, TN, TX, and VA.

– You can take advantage of the 0.25% Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. NaviRefi rate ranges are current as of June 1, 2021 and are subject to change based on market conditions and borrower eligibility.

– Loan cost examples: These examples provide estimates based on payments beginning immediately upon loan disbursement. Variable APR: A $10,000 loan with a 20-year term (240 monthly payments of $72) and a 5.89% APR would result in a total estimated payment amount of $17,042. For a variable loan, after your starting rate is set, your rate will then vary with the market. Fixed APR: A $10,000 loan with a 20-year term (240 monthly payments of $72) and a 6.04% APR would result in a total estimated payment amount of $17,250. Your actual repayment terms may vary.

– The information provided on this page is updated as of 06/1/2021. Earnest Operations LLC reserves the right to modify or discontinue (in whole or in part) this loan program and its associated services and benefits at any time without notice. Check www.navirefi.com for the most up-to-date information. Terms and Conditions apply. Call 855-284-4893 for more information on our student loan refinance product.

– Earnest Operations LLC – NMLS #1204917, CA CFL #6054788 – 535 Mission St., Suite 1663, San Francisco, CA 94105.
Navient Solutions, LLC – NMLS #212430 – 123 Justison St., Wilmington, DE 19801. Visit https://navirefi.com/lending-licenses for a full list of licensed states.


8 Important Disclosures for PenFed.

PenFed Disclosures

Annual Percentage Rate (APR) is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rates range from 2.89%-4.78% APR and Variable Rates range from 2.13%-5.25% APR. Both Fixed and Variable Rates will vary based on application terms, level of degree and presence of a co-signer. These rates are subject to additional terms and conditions and rates are subject to change at any time without notice. For Variable Rate student loans, the rate will never exceed 9.00% for 5 year and 8 year loans and 10.00% for 12 and 15 years loans (the maximum allowable for this loan). Minimum variable rate will be 2.00%. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.