Managing Student Loans: Dealing With Collectors

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It is an unfortunate fact, but sometimes student loan servicers, private lenders and their collection agencies take advantage of borrowers when they are at their most vulnerable: dealing with the stresses of high student loan payments and not enough resources to cover all the obligations that need to be covered.

Recently, the Consumer Financial Protection Bureau (CFPB) issued a report with the results of its investigation in the practices of collectors of delinquent student loans.

That report comes on the heels of a Department of Education announcement that it was terminating the contracts of five collection agencies for lying to consumers.

Many borrowers believe that student loan lenders are exempt from collection laws that apply to other lenders. That is not the case. Just because lenders, servicers and collection agencies are granted certain special collection powers does not mean that they no longer have to comply with laws that prohibit unfair debt collection and reporting practices.

It also means that borrowers have rights and remedies when lenders and their agents become a little too enthusiastic in their attempts to collect past due payments.

Fair Debt Collection Practices Act

For instance, the federal Fair Debt Collection Practices Act applies to servicers of student loans, collection agents and lenders who purchased a loan while it was delinquent or in default.

It does not ordinarily apply to the original lender, unless the loan was sold and then repurchased by the lender.

The Fair Debt Collection Practices Act (FDCPA) is designed to provide a remedy for borrowers who are victims of unfair collection practices perpetrated by unscrupulous or overzealous collectors.

The Fair Debt Collection Practices Act is not the only statute that governs how student loan companies relate to borrowers. Every state has state-specific laws that may also apply. For instance, The Texas Debt Collection Act covers much of the same ground as the FDCPA, but it applies not only to collectors but to the original lenders, also.

Common Unfair Practices

According to the Consumer Finance Protection Bureau, these are four of the most common issues a borrower might experience when dealing with student loan collectors:

  • Numerous auto-dialed calls made at inconvenient times, like early morning or late at night
  • Allocating partial payments in such a way as to maximize late fees
  • Misstating minimum payments due
  • Charging late fees when payments are received during the grace period

Other common problems include:

  • Calling borrowers at work when they have been told not to
  • Continuing to call after you have hired a lawyer
  • Discussing your debt with family, friends or co-workers
  • Threatening to have you arrested
  • Threatening action that they may have no right to enforce, like threatening to sue after the statute of limitations has run on private loans.

Your Remedies

     Know Your Rights

What can you do when you think a student loan collector has crossed the line?

First and foremost, know your rights. You’re taking an important first step by reading and learning about what you should expect when dealing with collection agents and servicers. If you suspect that a collector is trying to take advantage of you, here are some positive steps you can take to protect your rights.

     Keep records

Document that the unfair practices occurred. Keep copies of all correspondence from the lender, servicer and collection agency. When they call, demand specifics on what loan or loans they are calling to collect, the name of the agency, the name of the person on the other end of the line. Jot down the time of the call and keep notes on what was discussed. You may want to make a chart or a spreadsheet to help you keep track. Make a note of calls even if you don’t answer the phone.

Many times people are harrassed by the sheer number of calls over the course of a day.

    Sue the Perpetrator

Under the FDCPA, you can sue the collector or the servicer. If found liable, the collector or the servicer will have to pay your actual attorney’s fees and costs of bringing the suit, an amount of automatic damages up to $1,000 per infraction, plus any actual damages you sustain.

     Department of Education Ombudsman’s Office

The Ombudsman’s Office is a neutral resource in the Department of Education designed to help borrowers of government-backed student loans in resolving disputes with lenders and servicers. This service applies to Direct, FFEL and Perkins loans. You can request their help or lodge a complaint about unfair collection activity conveniently online.

     Consumer Finance Protection Bureau

The CFPB takes complaints on federally-backed and private student loans and works to help resolve them. CFPB will forward your complaint to the appropriate company, which has 15 days to respond and generally 60 days to resolve the issue. Here’s a link to more information.

You can also file complaints against these companies with the Federal Trade Commission and with your state’s Attorney General.

For lots more information on managing your student loans during difficult financial times, see our articles on the following issues:

General Issues

What Kind of Loans Do You Have?

Your Options for Managing Student Loans in a Nutshell

Glossary of Helpful Student Loan Terms

When You Can't Make Your Payments

Delinquency and Default

Deferment and Forbearance

Repayment Strategies During Tough Times

Surviving a Student Loan Default

Dealing with Student Loan Collectors

Managing Private Loans

Loan Forgiveness

Loan Forgiveness for School Status

Loan Forgiveness for Disability or Death

Public Service Loan Forgiveness

Student Loans in Bankruptcy

Bankruptcy Discharge

Discharging Private Loans

Using Chapter 13 Repayment Plans