Differences in Collection Powers for Federal and Private Student Loans


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.

Contact Information