student loan and collection agency

Discussion in 'Credit Talk' started by frankowes, May 18, 2001.

  1. frankowes

    frankowes Well-Known Member

    I recently got a letter from a collection agency about some federal student loans that I owe. They are in default. I am now starting to make money and want to start paying them back. My question is: I tried looking for some sort of form letter to send the agency to start negotiating with them, I couldn't find one. Does anybody have one? Should I even be dealing with the collection agency? Should I hire someone to do this for me? The debt is a large amount >$55,000 probably 1/3 is interest.

  2. Erica

    Erica Well-Known Member

    My suggestion is to call 1-800-4fedaid. They can lead you in the right direction. DON'T PAY THE CA!!!!!
    Call the number and tell them that you want the department in student loans that will enable you to rehabilitate your defaulted student loans.

    Again, Roni has more experience with rehabilitation than I do, but one thing I've learned from her is that when you rehab. your loans, all of the negative stuff goes away. This might be a better option than negotiating payment on a student loan.

    Roni? Can you offer anything else?
  3. frankowes

    frankowes Well-Known Member

    Thanks for the info. I will call that number. Should I send anything to the collection agency? It says I need to respond within thirty days. I don't want to get sued or have my wages garnished. Also did a search on this site and someone had posted this link:

    They have alot of info about defaulted student loans
    good stuff.
  4. Erica

    Erica Well-Known Member

    I would send the CA a letter stating that you are going to deal directly with your guarantor, and to leave you alone. That is how you can respond.
  5. Mozilla

    Mozilla Well-Known Member

    Hmm. I don't see any advantage in dealing directly with the guarantee agency at all. If I were you, I would be very careful in how to proceed. Keep in mind that if it has been less than 60 days from the time of default (date the guarantor paid the claim to the lender), you can enter into a repayment plan without having to pay any collection fees and they are forbidden from reporting derogatory stuff to the CRA's. If it has been after the 60 days, you will have to pay the collection fee. But be careful to know exactly what the percentage rate and amount of the collection fee is. Also, the most important factor in getting your student loans taken care of is the status code entered into their system. What state are you in, and who is the guarantor? I won't tell you what happened to me because it is too involved. But, I would definitely not "settle" your account, or let them think for a minute that your account was paid at a lower amount than was initially billed.
  6. roni

    roni Well-Known Member

    I am assuming that the 60 days is up. That 60 day interval is the only time that you can negotiate removal of the loan from the default status. From the tone of your post I think this has been in default for a little while.

    First you MUST do 2 things when dealing with this loan. Do not make a payment with the lender until you call them and tell them that you want to do. The two options are:

    A. Consolidate the loan with US Dept of Education. This would take the loan(s) out of their (your lender or guarantor) hands and you will then have 0 balances on the loan. Some guarantors offer consolidation services. I do not like to deal with Collection agencies or Guarantor agencies when consolidating. They make too many mistakes in my opinion. I prefer to send my payment of the dept of ed and I feel much safer from getting screwed. Let me give you an example. I had someone call me 2 months ago about my former defaulted student loans which I had consolidated in 4/2000. They were acting like I still had a loan in default and where trying to collect, NOT!. They asked me fishy questions like "well who did you consolidate with and when." When I said the dept of ed, they got off my back and left it alone. I havenot heard from them since. The bottom line, I feel the dept of ed consolidation is accurate and safe.

    B. Rehabiliate the loan. This is when you call the guarantor agency and tell them that you want to make 12 ontime payments to remove ALL negatives from the account and to take the loan out of collection status and put it in a regular repayment status. In other words, it is like starting over. You must set up this agreement with the original lender and the guarnator agency. GET ALL IN WRITING.

    ***Consolidation will get your loans 0 balanced in about 3-4 months but you will still have the default status on my credit report for 7 years from the default date with 0 balances. This is the easiest but it is not better in the long run. This only requires you filling out a consolidation application. The program is called the William D. Ford Direct Loan Program with the dept of Education. An application for that program can be requested at <>
    In essence, the dept of ed would purchase your loan and then you start paying them.

    Rehabilitation will clean your credit. After the 12 consecutive ontime payments your negatives will be removed. The Higher Education Amendment of 1998 created a Loan Rehabilitation program for Federal Student loans (perkins or GSL). Under this program you can have the opportunity to request the rehabiliation of a defaulted loan(s). Rehabilitation means that , after 12 on-time consecutive monthly payments of an amount agreed to by your lending insitution, your loan will get returned to regular repayment status, the default will be removed from your credit history and you will be again eligible to borrow title IV funds. If you have problems getting this done with your lender or guarantor call the us dept of education ombudman's office at 1-877-557-2575 or file a complaint online at <>. They will assign someone to your case to resolve your dispute.

    In review you can either consolidate or rehabilitate. Your loan will be out of default with either option. You are eligible for either program by law dispite how old this loan is.

    Good Luck!
  7. frankowes

    frankowes Well-Known Member

    Ok Thanks, This is very confusing. Yes the loans are over 60 days default.
  8. frankowes

    frankowes Well-Known Member

    I called the guarantor agency, they said the only choice i had was to deal with the CA. I called the collection agency. They want direct access to my checking account. Nothing in writeing. They would rehabilitate my loan.
  9. Nave

    Nave Well-Known Member

    That is ludicrous.
    • Do NOTHING without getting it in writing!
    • Never give a thug direct access to your checking account!
    Don't get screwed...that sounds like a surefire way to getting the shaft (not Richard Roundtree either).

  10. frankowes

    frankowes Well-Known Member

    He said the only thing I will get in writing is a letter authorizing the withdraws from my account. Shouldn't he send me something that says I will be going into loan rehab?
  11. marci

    marci Well-Known Member


    By LAW, the collection agency MUST send you a letter agreeing to rehabilitate the loan (I'm assuming this is a once defaulted federallu guaranteed Stafford or Perkins loan). If the CA refuses to do this, speak with the CA supervisor to get a rehab letter sent to you. If the supervisor refuses to send it, then call the guarantor agency stating that __________ supervisor refused to send you a rehabilitation agreement for your eligible defaulted loans and that they ar ein direct violation of the Higher Education Act which makes a provision for such rehabilitations. Ask the guarantor to send you a rehab agreement letter (they will have to call the CA and get the CA to send it to you.)

    Call 1-800-4FEDAID to make sure your loans are eligible for rehab and then call the Student Loan Ombudsman's office to request a specialist to intervene. Someone posted the website above. Be very specific that the CA and the guarantor agency refuse to cooperate with the HEA and send you the rehab letter.

    Then FAX a letter to both the CA and guarantor agency stating your understanding that on such and such a date ________ CA supervisor refused to send a rehab agreement as outlined by the HEA and that you will follow up with the Dept of Ed to make sure that provisions protecting your right to rehab will be followed through. Then stay on the Ombudsman's case until you get your letter.

    BY NO MEANS give them any checking account info UNTIL you have signed, photocopied and returned the rehabilitation agreement by rr/certified mail. Save all correspondence.

    Then when you do rehab and give them checking info, give them 12 specific checks or check numbers (photocopy them before you send them off) for the rehab so that you can keep track of what goes out of your account. If they have checks, they should not be able to authorize untraceable ACH/electronic drafts. I.E. You'll have paper proof that only 12 specific checks can be drawn against the account.
  12. frankowes

    frankowes Well-Known Member

    Ok, thanks. Sounds good. I want to get this taken care of.
  13. tom65432

    tom65432 Well-Known Member

    I agree. You need to get it in writing or don't do it. I dealt with these people and learned two things. They always lie. And, they never get anything right. They are trained to say anything to get you off the phone so they can move on to the next call. They will tell you what they think you want to hear. And then when you call back, that person quit (or, the person you talk to says the person you previously talked to never worked there).

    Get everything in writing. The student loan people make most bill collectors look like saints. When bill collectors get too sleezy, they go into student loans.
  14. frankowes

    frankowes Well-Known Member

    Should I fill the checks out myself? Signed and dated with the correct dollar amount?
  15. marci

    marci Well-Known Member


    A rehab agreement letter (from the CA) will state the principle amount of the loan(s), the outstanding interest on the loan(s), and the servicer (guarantor) of the loan(s).

    It will say that you are enteriing a rehabilitation agreement for 12 months to bring your loan out of default and remove all negative data wrt loan from your credit reports.

    It will say that at the completion of 12 on time payments, the guarantor will assess your loan and then sell it to a new servicer in a rehabilitation sale.

    At the end of the 12th month - you will need to call the guarantor and ask for a rehabilitation completion letter and a detailed rehabilitation contract (i.e. with amounts and info on the new servicer) to be sent to you. Sign the contract, photocopy it, send it rr/certified and then you should be good to go.

    Make sure that this rehabilitation is one that covers your principle, collection costs, and ALL interest - i.e that it will be paid in full by the new servicer. (For a horror story, read the posts by Mozilla on the PD v. PF designations). You can always check the status and designation at the website under "financial aid review".

    KEEP MAKING PAYMENTS like clockwork - never late - until the sale is complete. This means you may make up to 15 payments before it is complete. But if you stay on them, they should have it completed after the 13th payment.
  16. marci

    marci Well-Known Member


    I had one reasonable collection manager and one who was very unreasonable. With the reasonable one, I gave her 12 check numbers in advance on the phone and each month her company simply withdrew the funds using that check number. But, I had a letter from her - in addition to the rehab agreement - stating that I agreed to have 12 payments deducted from my checking account, one on the first of each month, for _________ amount (the amount was written on the letter). I felt secure that I was not going to get screwed - and I didn't.

    The other person with another agency, tried to pull stuff like your agency. She was so blatant about breaking the law. I sent her company 12 physical checks - fully written out for the amount, dated and signed. IInthe memo section I put "rehabilitation payment for __ month". I made photocopies and then sent them the checks.

    In retrospect, I probably should have sent photocopies of my signed agreement and checks to my account manager at the guarantor agency as well.

    I had a lot of grace. The account manager at the guarantor agency was VERY nice to me and intervened and stopped a lot of the BS the CA was trying to pull on me. He was also somewhat careful b/c he knew that I was in contact with the Ombudsman's office and that I was pro-active.

    Don't be scared of these people. The CA is trying to break the law. If the CA jeopardizes the rep of the guarantor agency with the DOE over not complying with the HEA - then the guarantor agency will not look too kindly on that. Put a LOT of pressure on the guarantor agency to force the CA to do the right thing.

    Hope this helps,
  17. frankowes

    frankowes Well-Known Member

    They just faxed over a rehab agreement. part of it says:

    Collection costs of 18.5% will be included (capitalized) with the outstanding principal and interest balance due on you account upon rehabilitation.

    Refusal to agree to the capitalization of collection costs renders you ineligible for participation in this program.

    No where in the agreement does it breakdown principal, interest or collection costs. I think I need to speak to my guarantor.
  18. roni

    roni Well-Known Member

    It sounds like you are on the right track by getting the rehab agreement in writing. However, rehabiliation does not eliminate the late charges or interest or collection charges. You did default and you must pay those. Rehabiliation just protects your credit rating. I hope it all works out.
  19. marci

    marci Well-Known Member


    Roni's right. There's no way around the 18.5% collection costs and accrued interest. But in terms of saving your credit report and giving you non-defaulted status, I think it is worth it.

    May I make two suggestions?

    1. Have the CA mail you a real copy of the rehab agreement. I personally don't care for faxed documents when doing business.

    2. If the rehab agreement from the CA doesn't specify itemize principle, collection costs and currently accrued interest, speak with a CA supervisor and ask that a letter detailing these items be mailed to you. Also speak with the guarantor asking for the same information as well as copies of the original promissory notes you signed to get the loans. I think they have to send you a breakdown of how much you owe and where, but you may want to post a question to "Mozilla" on that.

    I'm glad that they did fax that agreement over. Some collection reps really don't know their jobs or don't care...
  20. frankowes

    frankowes Well-Known Member

    Yes, I just want to get my credit straightened out. It's going to be tough, the payments are pretty steep but I can handle it. I had to speak to a second rep to get the rehab agreement. She has been very helpful. The first guy was trying to take advantage of me. Thanks to your help everything is starting to go smooth. The first rep told me the only way they would set rehab up for me is if I let them do ACH. I told him I didn't want them to have access to my checking account and he said that would be the only way they would do it since they were doing me a favor. That was also the reason he wouldn't send me a rehab agreement...because he was doing me a favor to take payments instead of the whole amount. I hung up on him and dialed the number again after I knew he would be gone (he gave me his hours) and got another agent, I told her I didn't want to allow them access to my checking account and she said I could send in postdated checks already filled out for them to deposit. She was also the one to send the rehab agreement.

    So far so good.

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