Student Loan Debt Collection: Know Your Options

If you're a college student or college graduate, you know how expensive it is to go to college. More likely than not, you have student loans that are due for repayment - if not know, then within the next year. Being a federal student loan recipient isn't a cakewalk these days - particularly when debt collection agencies come calling.

If you're behind in your loan payments, you're not alone. In fact, you're in the company of five million other Americans who have defaulted on their student loans. It's not hard to understand why this situation exists. After all, if you graduated sometime in the past four years, you faced a double whammy - student loan payments and an unemployment rate that would make the most qualified and educated applicant cringe.

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But, regardless of what you owe, you do have options. You may be surprised to answer the phone and hear a representative from a private debt collection agency on the other end of the line. But the fact of the matter is that the U.S. Department of Education contracts out their debt collection activities to 23 outside debt collection agencies, which receive a percentage of the amount they're able to collect. This is a powerful incentive for them to collect every penny - even if you qualify for lower monthly minimum payments. If they collect payments that equal a certain percentage of the total amount you owe, they receive a commission. If they collect a monthly payment lower than that, they only receive a flat administrative fee.

Here's what you need to know in order to effectively deal with student loan debt collection agencies. Congress passed a new law about student loan repayments, saying that you can make payments based on your income. Unfortunately, debt collectors won't always tell you that you have that option, so you have to know your rights and assert them.

Moreover, some debt collectors will call you with threats of wage garnishment. They may say that, unless you pay a certain minimum amount, your paycheck will be garnished. While it's true that the federal government doesn't need a court order to garnish your wages in a student loan default situation, a debt collection agency has to provide you with a written notice that says it intends to garnish your wages and that you have the right to an administrative hearing.

Increasingly, some student loan debt collectors are making the threats, but not sending the notices. Although there isn't a lot of caselaw regarding this these types of student loan threats, the courts will likely rule that making such a threat is a violation of the Fair Debt Collection Practices Act. The FDCPA says that a debt collector cannot threaten an action that he isn't able to take or planning to take. So, for example, with a regular consumer debt, a debt collector can't threaten to take you to court unless he has the ability and the intention to do so.

If you've been on the receiving end of threatening phone calls by debt collectors attempting to collect a student loan, you should talk to a fair debt attorney. You may have a cause of action under the FDCPA, and could be entitled to damages of up to $1,000, plus court costs and attorney fees. While a student loan is something you need to pay off, you should be treated with dignity and respect, and be able to avail yourself of new laws and regulations that enable you to set up a payment plan that doesn't cause undue hardship.

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