Student Debt is dragging me down!

NOTE: Our Module 8: Student Loans, goes into this subject in detail. For a real quick introduction, keep reading.

If your student loans are in collections, you have several options to address and resolve the situation. Here are the steps you can take:

1. Understand Your Loan Type

Federal vs. Private Loans: Determine if your student loans are federal or private. The strategies available to you may depend on the type of loan.

2. Contact the Collection Agency

Verify Information: Contact the collection agency to get details about the loan, including the total balance, fees, and any interest accrued.
Negotiate or Validate: You can also request validation to confirm the legitimacy of the debt if you're unsure or negotiate for better terms.

3. Rehabilitation (Federal Loans)

You can rehabilitate your loan, which involves making nine consecutive, on-time payments agreed upon with the collection agency. Rehabilitation removes the default status from your credit report, although late payments leading to the default may still be present.
Payments can be as low as 15% of your discretionary income.

4. Consolidation (Federal Loans)

You can choose to consolidate your federal loans into a new Direct Consolidation Loan. This allows you to get out of collections faster (typically within a couple of months) and resume regular payments.
You may need to make several on-time payments or agree to enter into an income-driven repayment (IDR) plan to be eligible for consolidation.

5. Negotiate a Settlement

If you have the funds, you may be able to settle your student loan debt for a lower amount. Collection agencies may be willing to accept a lump sum payment to close the account, especially with private loans. However, settlements can have tax implications and may not remove the collections record entirely.

6. Income-Driven Repayment Plans (Federal Loans)

If you rehabilitate or consolidate, you may qualify for an Income-Driven Repayment (IDR) plan, which bases your monthly payment on your income and family size. This can make the payments more affordable once you're out of collections.

7. Check for Loan Forgiveness Options

For federal loans, look into loan forgiveness programs that you might be eligible for, such as Public Service Loan Forgiveness (PSLF) or Teacher Loan Forgiveness.

8. Consult a Student Loan Counselor

A non-profit credit counselor who specializes in student loans can help you understand your options and develop a plan that suits your situation. Look for counselors associated with organizations like NFCC (National Foundation for Credit Counseling).

9. Private Loans in Collections

With private loans, you'll need to negotiate directly with the collection agency. You may be able to agree to a repayment plan or a settlement. Unlike federal loans, private loans do not have standardized rehabilitation or consolidation programs.

Important Tips:

Avoid Ignoring: Don’t ignore collection attempts, as unpaid student loans can lead to wage garnishments or tax refund offsets, particularly with federal loans.
Keep Everything in Writing: Document your communications and any agreements reached with collection agencies or loan servicers.
Be Aware of Statute of Limitations: Depending on your state and the type of loan, there may be a statute of limitations on collecting private student loans, though federal loans do not have a statute of limitations.

Choosing the right option for getting out of collections depends on your financial situation and loan type. Rehabilitating or consolidating is generally recommended for federal loans, while negotiating settlements may be an option for private loans.

Student Loan Debt is Dragging Me Down

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