Find out where you are right now on your student loans and then you can plan for where you need to go next.
This is especially true when dealing with student loan collection issues -- sometimes it can be very confusing on which loan is being collected upon by which collection agency.
If you live in Alabama and have questions about student loan issues, please feel free to give us a call at 205-879-2447.
You can read a recent Alabama consumer lawsuit against the large debt collector Allied Interstate. This lawsuit relates to alleged abusive collection practices related to a federal student loan.
If you have any similar experiences, let us know as we are curious to see how widespread the problem is with Allied Interstate -- we know Allied Interstate has been fined in the past for student loan abuses and we doubt this is an isolated event.
It is no secret that there is an explosion of debt collection related to student loans and it is fairly common knowledge that student loan collectors have some greater powers than a typical collector has on a credit card debt or medical debt. We want to look at the additional powers these collectors have and the difference it makes whether the student loan is a private or federal student loan.
I have seen attorneys flatly say to people that there is no statute of limitation for private loans.
That you cannot discharge any student loan in bankruptcy.
That any student loan collector can garnish your wages or tax refunds or other government benefits whenever the collector wants to.
Not true.
Let's look at this way.
Similarities In Collection Of Federal And Private Student Loans
Under both types of loans, you can be sued by the proper party if you default on the loan.
You can face collection activities. This includes negative credit reporting. Collection calls. Collection letters.
Under both types of loans, it is very difficult (but not impossible as collectors will often lie and say) to file for and receive a bankruptcy discharge.
Student loan collectors have to follow the Fair Debt Collection Practices Act (FDCPA). The Telephone Consumer Protection Act (TCPA) also applies to calls to your cell phone.
Differences In Federal And Private Student Loan Collection
Statute of limitation -- none for federal loans. Private loans will be based upon the applicable state law and what the contract says.
Options to rehabilitate or consolidate to bring out of default -- on a federal loan you can rehabilitate or consolidate (i.e. refinance) one time each if you meet the requirements. A private student loan collector does not have to allow you to do either unless the contract requires it (I've never seen that).
The definition of default -- a federal loan is in default if you go 270 days without making a payment. A private loan is in default whenever the contract says it is. This usually is one missed payment. Or moving without providing a new address. Or filing for bankruptcy. Or any number of other items.
Ability to wage garnish -- under a federal loan, you do not have to be sued. You do have to receive a notice letter and have an opportunity to request an administrative hearing. (Note many collectors will lie about this -- they say they can garnish you whenever they want). A private student loan collector cannot do this -- instead you must be sued, lose the suit, and then you can be garnished if allowed under state law. This is the same as a credit card debt, mortgage loan, etc.
Ability to intercept government benefits or tax refunds -- a federal student loan default can result in your government benefits being intercepted. There are some exceptions but this is a very powerful tool. A collection agency for a private student loan company cannot do this. Instead it is simply the same as a credit card debt, car loan, etc.
Powerful Collection Powers But Still Governed By The FDCPA
Yes it is true that even private student loan collection activities are powerful but they are not unlimited. The main benefit to collectors is the difficulty of filing bankruptcy.
But even collection agencies on federal loans have limits.
And all of these guys, if they are considered debt collectors under the FDCPA, are governed by the FDCPA and cannot violate that law.
Well, they can violate the law. But if they do you can sue them.
So appreciate the powers they have -- especially if collecting a federal student loan -- but understand these collectors are not all powerful and can be brought down when they violate the law.
If you have been abused by student loan collectors or have any questions, get with a consumer lawyer in your state. If you live in Alabama, feel free to call us at 205-879-2447 or you can fill out a contact form on our website.
Our friend Denise Richardson of givemebackmycredit.com has posted an article that discusses the huge percentage of student loans that defaulted last year. The national default rate on student loans was about 7% last year, credit cards defaulted at 8.8% and mortgages were defaulting at 9%. That 7% of defaulted student loans equals to roughly $876 billion, which is actually more than what national consumers owe on their credit cards.
The financial experts in the US are least worried about the rise in the student loan default rate. They are of the opinion that the student borrowers just can't ignore the huge amount of student loan debt level with such a huge amount of educational loans.Student debt reached $880 billion by the end of the summer in 2010, and that number is estimated to raise $2800 every second. The lack of gainful employment opportunties is also causing recent graduates to default on their student loans. The government is trying to help the situation by trying to increase job opportunities for students.
Here is some advice from financial experts for students who have taken out loans to finance their college education.
-Seek Federal Aid. If you owe a lot from federal educational loans be sure to apply for federal student debt consolidation loans. One of the benefits of that type of loan is that it helps student borrowers repay their federal loans by setting up easy monthly payments.
- Look for scholarship entries. Most scholarship money is claimed by students, but every year millions of scholarship dollars still go unclaimed. Looking at all your scholarship options is an easy way to obtain easy and free money.
-Don't rely too much on private student loans. Financial advisors usually advise students to steer clear of private student loans because of the high, unfixed interest rates. Payments you make tend to go toward interest and very little goes toward the actual loan.
-Use a student budget calculator. A budgeting calculator can help you set up a budget tailored to your needs, lessening the chance that you will default on it. You can also change your budget every year, which is much more practical than following the same budget even after your needs have changed.
-Make the minimum monthly payments. The easiest way to protect yourself from destroying your credit score and financial future is to make the minimum monthly payment for your student loan. Even if it doesn't feel like it's doing any good, it's saving your credit score.
If you have had problems with debt collectors, or have been harassed by one, and have questions or concerns, feel free to contact us through our website or by calling 205-879-2447.
You can join our Facebook Fan Page - Alabama Consumer Protection Attorneys where we share useful information about the same types of issues that we cover in this blog.
You can also sign up for our free email newsletter sent out every Thursday morning - we cover topics such as the one in this post. We would love to include you! Just fill out the form below:
InsideArm.com has posted an article that discusses how private student loan companies have been very inefficiently collecting debt payments. Just a few years ago, debt losses in the form of student loans were extremely low because of benign credit conditions, strict underwriting, and the existence of guarantees for the loans.
Back then, traditional student loan collection practices -- copied and pasted from check-the-box federal standards for collections practices -- were a ticking time bomb, albeit with a very slow fuse. Deferments and forbearances could delay a loan from requiring a first payment for five years, and even longer in some cases. This meant the collection manager did not see the impending explosion of losses for some time.
Because of this, many companies weren't in a rush to collect and some adopted a very laid back approach. But it caught up to them beginning in early 2007 and continuing into the middle of 2009 when the normal rate of delay of 120 days went up 7 times. This prompted some companies to step up their debt collecting by more frequent calling and other methods to more readily pursue payment.
But old habits die hard and many firms are still way behind, using anachronistic collections practices based on the federal check-the-box standards. This means as few as four attempts per month at borrower contact in Buckets 2 and beyond. Credit card portfolios with similar loss expectations of 3-5% annually are making more attempts than that per day! Many also still use ineffective letters, don’t measure the effectiveness of segmented strategies (or try new ones), and don’t monitor their agencies for performance. One issuer was surprised to find that their agency, which was paid by the hour with no incentive for cures, had set up a dialing strategy to minimize the likelihood of making contact in order to reduce their own expenses. They did this by setting the dialer to redial an account right after it received a no-answer.
Debt buyers stand to make a large profit from this. Since several loans are defaulting every month and are not being collected on by the original loaner, it's hard for a debt buyer to pass up since it's the money is just "sitting there to be scooped up." If they were to find a student loan pool that hadn't been touched in several years, a debt buyer could make quite a profit. Sales of defaulted student loans have been rare in the past but it has been gaining popularity and there is little to no competition in the market yet.
If you have had problems with debt collectors, or have been harassed by one, and have questions or concerns, feel free to contact us through our website or by calling 205-879-2447.
You can join our Facebook Fan Page - Alabama Consumer Protection Attorneys where we share useful information about the same types of issues that we cover in this blog.
You can also sign up for our free email newsletter sent out every Thursday morning - we cover topics such as the one in this post. We would love to include you! Just fill out the form below:
The Florida Bankruptcy Attorney Blog has posted an article that discusses the effect bankruptcy has on student loans. Previously it was possible to discharge student loan debts after seven years if someone couldn't make their monthly payment. However, amendments passed by the BAPCA (Bankruptcy Abuse Prevention and Consumer Protection Act) recently have made that more difficult.
These amendments require the person to prove to the court that you are undergoing "inordinate hardship" for bankruptcy to include student loans. The requirements for "inordinate hardship" are very strict and most people simply cannot fulfill the conditions.
We do not cover bankruptcy, but would be happy to discuss options with you if you have questions. Feel free to contact us.
You can also sign up for our free email newsletter sent out every Thursday morning - we cover topics such as the one in this post. We would love to include you! Just fill out the form below:
The BKBlog has posted an article that discusses the effects bakruptcy has on student loans. Student loan creditors have become more active in collecting their money in light of the current economic decline. Different "collection resources" are available for student loan companies looking to collect their money, however
There is one statute that permits student loan creditors to garnish wages without the need to first go to court.Student loan claims can also offset tax refunds.
The blog cites an email that was sent to them.
I am unemployed and have defaulted student loans. I was married last April and my husband's tax return was offset as a lovely wedding gift. I am researching how to file for bankruptcy for my other debts and also looking into how to prove "undue hardship" regarding the student loans. In the meantime, we were curious about whether or not my husband's wages could be garnished? Since I am unemployed, this would devastate us. Also, once I get a job, if they are garnishing my husband's wages, would they be able to garnish mine as well — at the same time?
According to this article, both spouses are subject to wage garnishment, as well as having their tax return seized. Bankruptcy would do little good.
If you are considering or dealing with bankruptcy and have questions or concerns, feel free to contact us.
You can also sign up for our free email newsletter sent out every Thursday morning - we cover topics such as the one in this post. We would love to include you! Just fill out the form below:
Another resource for you is to join our Facebook Fan Page - Alabama Consumer Protection Attorneys where we share useful information about the same types of issues that we cover in this blog.
The Michigan Collection Law Blog reminds us, however, that there is one time in which a collector can make this statement without violating the FDCPA - when certain types of student loans are being collected. As Gary Nitzkin puts it:
I learned about the Administrative Wage Garnishment for the first time today. I understand that since this law was passed in 2003, it has been a huge success in recouping defaulted student loans. Well why shouldn't it? After all, a collector simply has to locate a debtor's place of employment and whammo.....he can garnish the debtor's wages without a judgment.
But just because the debt collector may be able to legitimately threaten garnishment without a judgment, other violations of the FDCPA can still form the basis of a legitimate lawsuit to stop abusive collectors.
Please feel free to contact us if you have any questions about a debt collector's conduct towards you.
You can also sign up for our free email newsletter sent out every Thursday morning - we cover topics such as the one in this post. We would love to include you! Just fill out the form below:
Another resource for you is to join our Facebook Fan Page - Alabama Consumer Protection Attorneys where we share useful information about the same types of issues that we cover in this blog.
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