Student Loan Collections: What It Means and How To Get Out

Student Loan Collections

Ending up in student loan collections is like the “penalty box” of student loans. To get there, you’ve done something wrong, and now you’ll have to face the consequences.

Typically, you have ended up in student loan collections because you haven’t made payments on your student loans for an extended period. If you thought that the only consequences were calls and letters from your loan servicer, I’m sorry to say that the penalties can be much worse.

That said, ending up in student loan collections isn’t the end of the world. You can still get out, but you’ll need to take action and once you’re out, there are steps you can take to stay out.

Here’s the rundown on how to get out—and stay out—of collections.

How your student loans end up in collections

If your student loans end up in collection, it’s because you’ve defaulted on them. If the distinction is confusing, just remember: All loans in collections are in default, but loans in default aren’t necessarily in collections.

Student loans go into default if you haven’t made payments on your loans for 270 to 360 days. Once this happens, the balance of your loan is due immediately. This is commonly known as “acceleration.”

What happens once you’re in collections

If your loan is in default, which includes 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 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.

If these fees aren’t bad enough, it doesn’t end there. As long as your loans remain in default, FinAid says 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 (which continues until you’ve made 6 on-time monthly payments).
  • 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 7 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, these 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 cannot do to get you to pay. It includes harassment, like threatening you or using obscene language. They also can’t lie to you or tell you you’ll be arrested if you don’t pay.

You can find the full list of practices prohibited by the Fair Debt Collection Practices Act on the FTC website.

Hopefully, that’s enough to scare you into doing 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 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 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 other options.

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.

Student loan consolidation can help by combining the balances of several loans into one. This can include loans in default. However, the Department of Education says you’ll typically be “required to make at least 3 consecutive, voluntary, and on-time payments prior to consolidation.”

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.

Finally, you could just repay the entire amount of the loan. However, given the size of most loans, this probably isn’t a feasible option.

Once you’re out, how to avoid going back to 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 joining collections again.

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

If you can’t pay, 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 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, 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. For additional information, see our post on student loan deferment and forbearance.

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

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Published in Federal Student Loan Repayment, Pay Off Student Loans, Rehabilitate Defaulted Student Loans, Student Loan Bankruptcy, Student Loan Repayment, Student Loan Repayment Options

  • Ranger

    What once was, is no longer. The days of growing up, going to school, graduating, going to college, getting a degree, and finding that good job/career are long gone past dreams.

    The majority of graduates today can’t find the jobs/career they took courses for. The degrees offered in most colleges are useless and not worth the time spent to get them. Sadly, the Student Loan Program(s) are now designed to merely keep debt flowing and putting people in a seat at the enormously growing diploma factories all over the U.S.. No longer is it in the best interest of the student, but now is in the best interest of profit and gain for the banks and government.

    The growing number of defaulted loans has grown exponentially in the last 10 years alone. Most graduates are working for wages well below their degree expectations, and some have even moved back in with their parents. Ever wonder why no colleges or universities in any country teach anything or offer any course in fractional reserve banking? There’s a reason for that!

    The days are now long gone of going to college and getting a degree for a well paying career. The College and University System is a debt machine for profit and gain, and no other reason. Student Loan Defaulted Debt has now surpassed the $1 Trillion Dollar mark. Why do you think that all Student Loans are now controlled by the Federal Government and today can not for any reason other than complete disability to work, or you are a servant of the government after 10 years of service be excused?, Nor, can it be excused in any bankruptcy proceeding. And, don’t forget that even when you are a servant of the government or disabled from working and the loan is “forgiven”, you get a nice fat notice from the Internal Revenue Service letting you know that you now have to claim the amount forgiven as income and you are liable for taxes on that amount. How kind of them.

    Student Loans today are nothing more than a debt trap.

  • rich1051414

    Man. I have about 2000 dollars in collections, a student loan from 2005, and I cannot find who to contact to pay it off in full, as I have no problems doing so. It makes me wonder if they are actively preventing me from doing so, in order to make me take out another loan to consolidate it, but I don’t want another loan, i just want to pay it off in full…

  • Leroy Smith That website should show you exactly how much you owe and who to.

  • Justin Holmes

    Here you say, “If you make a qualifying payment that will result in your being less
    than 270 days delinquent, you may be able to remove the default and
    collections status immediately.” Where can I learn more about this process?

  • Justin Holmes

    Here you say, “If you make a qualifying payment that will result in your being less than 270 days delinquent, you may be able to remove the default and collections status immediately.” Where can I find out more information about how to do this?

  • Hi Justin,

    I’m not sure where you can find more information other than by talking to your servicer. The Student Aid website has more info on default here in general: or check here:

    Other than that, it could be as simple as bringing your student loans within 270 days of being current by making payments to catch. You’ll likely want to speak with your servicer about if and how this is possible in your case as it’s not an option for all borrowers.

    If there’s anything else we can do, let us know!



  • Antoinette Harris

    I have a questions. I was recently contacted regarding a student loan I had taken out in 1989. I did not have a record of this and it did not show up on my student loan history report (NSLDS). But the company sent me an promissory note that I signed. The lender was Citibank, but I call them and they have no records. I called the student loan default department with the department of education and they don’t have a record of it. This is the first time I have been contacted about this, which came after I purchased a home. I am in school now and I have current loans. I know if I was in default, I would not have been able to get a new loan. How do I get this off my record?