A student loan collection agency is a commercial organization, working in tandem with financial institutions that are into the business of lending. The organization in question can be a bank or a lending agency.
Both banks and lending bureaus offer loan to consumers with interest rates and terms and conditions attached.
Several types of loan are available in the market. Home loan, auto loan, personal loan, small business loan, payday loan are some of the types. Among these loan types is a student loan. It is quite prevalent in the US. In fact, the United States is one country that’s far exceeded other countries in the magnitude of student loan.
Before we discuss the role of a student loan collection agency in recovering student loan, here’s a quick look at recent student loan statistics:
Student loan stats
Up to 2018, more than 40 million students have borrowed money to further their education. The cumulative debt owed by them is roughly 1.50 trillion. In 2017, the average loan debt for each graduate student was $39440. The delinquency rate is slightly over 11%. The total student loan debt amount was $600 billion more than the total credit card debt.
These are impressive stat figures as they show to what extent America is burdened by student loan debt. Considering the delinquency rate and the growing accumulation of other types of debt, it’s not hard to fathom why a student loan collection agency is sought after by financial institutions these days. Their job is to recover the loan, that’s why.
How they operate
A student loan collection agency collects the borrowed money from the students. They play an important role in the debt collection process. Debt collectors are hired by creditors.
Debt collectors first contact the borrower. At this point, many borrowers intentionally avoid the collector or don’t receive their calls. This could prompt the student loan collection agency to resort to abuse or harassment, which are clearly against the law.
However, harassment is not as rampant as people think. Collectors normally work according to the law. They have efficient attorneys who instruct them on how to send lawsuit to summon to the borrower.
Students don’t have any extra privilege as borrowers. They have certain rights, but they can exercise those rights only when the debt is already paid, yet the creditor is pushing them for paying it again and the collector is taking the side of the creditor.
In that case, a student can respond to the student loan collection agency informing them that the debt has already been paid. They must use the sample letter format issued by the Consumer Financial Protection Bureau (CFPB). They can complain online. Click here to file an online complaint.
In case of dispute
Things could get complicated in case of a dispute. For example, if the loan issuing company changes payment terms and interest rate out of the blue and insists you pay more than what you are supposed to pay according to the contract, you may want to deliberately withhold the debt payment unless you get a proper explanation from them.
An unscrupulous creditor might refuse to give you an explanation and hire debt collectors instead to put pressure on you. Don’t get intimidated. Ask the student loan collection agency and the creditor for a debt validation request. Additionally, complain to the CFPB and the Attorney General of your state.
Private and Federal loans
What is the difference between a federal and a private student loan? A federal loan is issued by the Department of Education. The interest rate for this kind of loan is fixed and the same for every borrower. A private loan is issued either by a bank or a credit union or a lender.
Federal loans have some advantages over private loans. First, a private student loan collection agency won’t come knocking at your door. The federal student loan is collected by a federal debt collector. Borrowers have a couple of options dealing with the federal debt collector. One option is rehabilitation. It’s like good behavior. You’ll be considered a defaulter and have to pay on-time in the future.
Student loan debt consolidation is yet another option. You have to take a new loan with new terms of repayment and the existing loan is paid off. Choosing between debt consolidation and debt settlement is tough. So take your time and decide.
If you have taken a private loan, you don’t have the said options.
If you default
Defaulting on your student loan. There are some leeways if you default on a federal student loan. You have a longer borrower default window period – 5 months longer than private student loan repayment period. Besides, co-signers are not needed for a federal student loan. So in case of default, debt collectors won’t press your friends and family for repayment.
The biggest problem of student loan default is a stain on the credit report. It will stay there and minimize your odds of getting another loan in the future.
Hence if you have taken a student loan, do your best to repay it as early as you could.