Total student loan debt in the USA is more than $1.5 trillion, college grads with loans owe about 30,000 on average. Unlike elementary school debts which are easier to collect, student loans for engineering, management and medical courses carry a much larger balance and are a lot harder to collect.
Diplomacy is important in the debt-recovery process for colleges. Even to maximize its government-aid, it is important that the college has a sound collection process in place.
Unlike other loans, student loan obligations do not go away even if the borrower files for bankruptcy. A private student loan is considered to be in default after three straight months of non-payment. This delinquent debt is usually forwarded to a professional Debt Collection Agency.
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Student loans are rising, and so are the defaults. It is undoubtedly an unfortunate scenario for students, but even the lenders are taking a big financial hit and in some cases, are forced to completely write-off these loans. Private student loans are primarily issued by Banks and Credit Unions. After the 2008 recession, many lenders have cut back on their student loan programs.
A Collection Agency will seek repayment from the borrower and even from the cosigner (or the guarantor) if required. Education loan collection requires sending collection demands and making a series of collection calls and sometimes escalating for legal action. A collection agency has to follow many debt collection laws like the ones specified in the “Fair Debt Collection Practices Act (FDCPA)”. Upon lender’s request, a college collection agency may report this debt to the Credit Bureaus, damaging the borrower’s ability to take further loans like mortgage, credit card etc.
Check this: Cost of hiring a college debt collection agency
The collection agency fees can be added to the principal amount. All these clauses are defined in the promissory note, which is signed during the initial processing of the student loan. Some state laws set a lower limit. The borrower is still responsible for any unpaid interest, late fees and principal, which keeps getting more significant as the time passes by.
Higher education is expensive in the United States. It is crucial to involve a Collection Agency ASAP because as the interest adds up, the amount becomes too big to repay. In such a scenario, the borrower often gives up entirely on repaying the loan, ready to face whatever consequences that may follow.
Even if the lender/collection agency gets a court judgment against the borrower or cosigner for wage garnishment, for the private student loans this garnishment can be only up to 25% of disposable pay in most states. With the court order, a lender/collection agency is sometimes able to seize assets, bank accounts and place liens against property owned by the borrower or cosigner. Laws vary a lot from state to state and of course getting a “highly favorable” judgment is understandably hard because the lender, the big guy, is often seen as the bad guy and the borrower is seen as the victim of circumstances.
Furthermore, there is a difference in approach when collecting medical debt versus collecting a non-medical debt. Therefore you cannot just hire any collection agency; you must engage a debt collection agency that has extensive experience recovering money from these higher value student loans.
Collection agencies are experts in collecting debt, including private student loan. They do a far superior job, provided the account is transferred early enough. Another huge disadvantage of waiting in the case of private student loans is that the “Statute of limitations” applies here, and could shield the borrower eventually. The statute of limitations does not apply to Federal loans. For courses like Under Grad, Graduation and Post Graduate courses are far more challenging to collect by engaging in-house staff and eventually require the intervention of a professional collection agency.