What are my options if a debt collection agency contacts me about my student loans?

Okay, you've just been contacted by a debt collection agency. Or you've just received a nasty phone call or voicemail. Or you've just received a scary letter. 

What do you do? Panic? No. Breathe. Just breathe. 

You have options. Read below for help in sorting through all the options. 

For starters, federal and private student loans are not the same. They are subject to entirely different sets of rules and laws. More on this below ... 

What are my options if a debt collection agency contacts me about my student loans?

Here are some options for you to try out:

Debt Collection Options #1 DISPUTE THE DEBT 

There's a possibility that you never borrowed the debt. If this is a possibility, you should definitely dispute the debt. 

If you’re concerned that you never borrowed these loans, check the National Student Loan Data System. You can also contact your student loan servicer. 

If you’re not sure who services your loan, you can find that information on this Department of Education website. 

The debt collection agency may also be able to help you determine your servicer. Inquire with the debt collection agency about the original source of their claim against you. 

How to Contact the Debt Collection Agency 

If appropriate based on the previous steps, contact the debt collection agency about your debt. You can submit a dispute or a request for information about the original creditor. 
Don't just assume the debt is legitimate. 
Also, don't just assume you know which debt the debt collection agency is pursuing against you. A debt collector may be contacting you about any of the following kinds of loans: 

1. Private student loans
2. Federal student loans, i.e. a student loan owed to the federal government, or 
3. Debt owed directly to an educational institution, e.g., for books, courses, or student fees. 

Regarding that last one, number 3, if the particular educational institution is operated by your state, the debt collection agency may be your state's Attorney General. 

Debt Collection Options #2 REPAYMENT 

This is the quickest way to resolve your best, if you can afford it. That's not always an option. If you can afford to pay off your defaulted federal loan, repayment represents the fastest way to resolve your debt. 

The federal government offers a lot of forbearance options. This is why it's better, whenever possible, to keep your student loan debt with the federal government. If you consolidate your loans with a private loan company, a lot of these options go out the window.   

Under certain circumstances, your debt collector may be authorized to waive some of your outstanding fees and collection costs. You should always ask and ask again about the possibility of waiving these costs. It's not always possible, but you should definitely ask. 

For some borrowers, repayment can be the cheapest way to bring a federal student loan out of default. But repayment isn't an instant fix for your credit score. 

Even after you’ve repaid your debt in full, the debt will remain on your credit report. It will be listed as a defaulted loan that has been repaid. Paying off a defaulted loan will help rebuild your credit history and will improve your credit score. It just won't be immediate. 

For more information about repayment, visit the Department of Education’s repayment information page.

Federal Student Loan Repayment Options: REPAYE Plan, PAYE Plan, IBR Plan, ICR Plan, and IDR Plans

Federal student loan servicers offer some great repayment options: 

• Revised Pay As You Earn Repayment Plan (REPAYE Plan)
• Pay As You Earn Repayment Plan (PAYE Plan)
• Income-Based Repayment Plan (IBR Plan)
• Income-Contingent Repayment Plan (ICR Plan)

Personally speaking, I use the IDR Repayment plan. Because I have 6 kids, my discretionary income is pretty low. So guess what my monthly payment is?

Now, remember if I pay this amount every month, the balance of my loan is forgiven after 20 or 25 years, depending. 

Guess how much I pay per month? $0.00 per month. That's a great repayment plan, right?    

Consolidation of Public Student Loans:

For more information about student loan consolidation, visit the Department of Education’s consolidation information page.

Again, I would not recommend consolidating your loans with a private company. You may get a lower interest rate, but you lose out on a lot of options. Like student loan forgiveness. Like personal liability only, not community liability for the debt.  

However, if you have outstanding private student loans, you may have the following options:

• Negotiate Resolution by Full Repayment: Depending on how much you owe, work with the debt collection agency to negotiate a payment plan. Your negotiations may include full waivers of accrued interest and fees, but not always
• Negotiate a Payment Plan: If you can’t negotiate a full repayment based on available funds, etc., you may be able to negotiate a payment plan. These might be similar to those offered for federal student loans.

Remember: for private student loans in default, a debt collector engaged to recover private student loan debt does not work for, represent, or collect on behalf of the U.S. Department of Education, nor any other branch of the federal government. 

Because of this, a debt collector trying to collect payments on behalf of a private student loan creditor is generally forbidden from doing the following:

• Garnish your wages: garnishment takes a court order
• Seize or intercept your federal or state tax refund
• Seize of garnish your Social Security or Social Security disability payments; nor
• Prevent you from receiving future federal student aid, such as to go back to school 

Hope this helps you in your journey to become debt free!

Comment below with any questions or additions you might have.