Both the government and guaranty agencies often hire private collection agencies to collect defaulted student loans. For a list of collection agencies with contracts to collect government student loans, click here. Private lenders frequently hire collection agencies as well.
These agencies may engage in abusive or deceptive behavior that violates state or federal fair debt collection laws.
Some causes of problems with collection agencies working for student lenders include:
- Tactics available to collect on government student loans are often both unique and misunderstood, and collectors often misrepresent the exact nature of these remedies when they send collection letters.
- The complexity of the student loan programs leads to confusion about who is collecting on a debt, and makes it easy for an independent collector to misrepresent itself as the government.
- Private collection agencies are delegated the responsibility for determining the size of a reasonable and affordable payment plan for loan rehabilitation. In addition, these collection agencies help determine if students have defenses to wage garnishments and tax refund intercepts, even though most collection agencies have no financial incentive to offer reasonable and affordable plans or to acknowledge defenses.
- Government oversight of collection agencies is generally weak.
YOUR FAIR DEBT COLLECTION RIGHTS
It is against the law for collection agencies to harass you. There is a federal fair debt collection practices law and similar laws in most states. In some cases, state laws are more powerful than the federal law. One of the most important protections in the federal fair debt law is your right to send a letter and request that a collection agency stop contacting you. This sample letter can be used, but you can also create your own. There are no magic words that you must use, but the request must be in writing. It is a good idea to keep a copy for yourself, send it by certified mail, and get a receipt. Once you send the letter, the loan holder can still sue you, but it can no longer send letters or call you. You can also use this self-help packet to find out more about sending a “Cease Communication” letter.
Other important rights in the federal fair debt law include:
1. Privacy Protections
- Collectors are prohibited from communicating with third parties. Your spouse, parent (if you are a minor) guardian, executor or administrator are not considered to be third parties. Third parties include non-immediate family members, coworkers, neighbors, etc.
- No communication is allowed at any unusual time or place. In the absence of other information, the law assumes that after 8:00 a.m. and before 9:00 p.m. is the only admissible time.
- No communication is allowed if the collector knows you are represented by an attorney. The agency must communicate with the attorney.
- No communication is allowed at your place of employment if the collector knows or has reason to know that the employer prohibits such communication.
2. Harassment and Abuse Is Prohibited
The law makes it illegal for debt collectors to harass or abuse you. Some examples include collectors that:
- Use obscene or insulting language,
- Refuse to disclose their identity,
- Threaten violence,
- Call over and over again, or
- Make intimidating statements such as threats to investigate you or telling you that you should not have children if you can’t afford them.
3. False or Misleading Representations Are Prohibited
For example, collectors may not make false representations of the character, amount, or legal status of any debt. They cannot threaten to take any action that cannot legally be taken (e.g. foreclosing on your house, garnishing your bank account, putting your children into foster care, arrest or incarceration, impounding your car).
In addition, the collector must disclose in the initial written communication with you (and in addition, if the initial communication is oral, in that oral communication) that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose, and must disclose in subsequent communications that the communication is from a debt collector. (See sample).
4. Validation of Debts
Within five days after the initial communication, debt collectors must provide information about your right to validate the debt. You have thirty days to dispute validity. (see sample 1 and sample 2). The collector must cease collection if validation is requested until the collector obtains verification of the debts.
COMPLAINTS ABOUT PRIVATE COLLECTION AGENCIES
It is a good idea to let the Department of Education, guaranty agency, or other loan holder know if you are having problems with a collection agency. The agencies all claim that they take complaints seriously. The only way to test this is to try it. You should keep a copy of your written complaint and any responses you get.
The Department of Education doesn’t make it easy for borrowers to file complaints about collection agencies. You can file an on-line complaint with the Office of the Inspector General, but this may actually delay a response from the Department of Education. It is a good idea to consider filing complaints with the Department, the collection agency, and with the OIG. To file a written complaint with the Department, you should send a letter and any evidence to:
Chief of Contract Analysis and Compliance
U.S. Department of Education
61 Forsyth St., SW 19T89
Atlanta, GA 30303
We also encourage you to tell us about your experiences with student loan collectors and your efforts to resolve problems.
U.S. Department of Education Collection Agencies
Each of the Department’s contracted collection agencies has set up a “Special Assistance Unit” to address customer concerns. If your account is assigned to one of the contracted collection agencies, and you have concerns about their servicing of your account, the Department of Education requests that you call the Default Resolution Group call center at 1-800-621-3115. They will direct you to the correct Special Assistance Unit personnel.
If the Special Assistance Unit is not able to resolve your concern, you may file a written complaint. The Department of Education says that the Default Resolution Group takes all complaints seriously and takes action as necessary to resolve the issue. To file a written complaint, you should send a letter with any evidence to:
Chief of Contract Analysis and Compliance
US Department of Education
61 Forsyth Street, SW 19T89
Atlanta, GA 30303
Collection agencies should give out this information in their communications with borrowers. You should keep a copy in your records of this letter and any responses you get. You can also file an on-line complaint with the Department’s Default Division.
According to the Department’s 2009 Private Collection Agency Manual, each collection agency is required to have at least two people designated to receive and manage complaints. If you are having trouble dealing with a collection agency, ask for the designated “complaint” person. You should let the Department of Education know if their contractors are not complying with these requirements.
We released a report in May 2012 highlighting problems with the private collection agency complaint process.