If you don’t make payments on your student loans, they’ll eventually end up in default — and from there, get sent to collections. This means that your loans have been sold to a debt collection agency, which will then attempt to collect the money you owe.
Having student loans in collections can have serious financial consequences, from damage to your credit to the seizure of wages and tax refunds to recoup your debt. If you're in this situation, it's critical to figure out how to pay student loans in collections.
How do student loans end up in collections?
Student loans enter collections after several months of nonpayment. Your loans can become delinquent (past due) the first day after you miss a student loan payment. If you continue to miss payments, you’ll end up in student loan default. At that point, your debt may get sent to collections.
Federal student loans enter default if you don't make payments for at least 270 days (about nine months). At this point, acceleration can occur, which is when the entire balance of the loan — both the principal and accrued interest — becomes due at once.
Private student loans typically enter default sooner, often after 90 days or three months of missed payments.
What happens once your student loans are in collections?
Once your student loans end up in collections, there are a number of serious consequences you can face.
Lose federal benefits and future aid opportunities
After your loans enter default, you will lose access to federal loan benefits, including deferment, forbearance, or the choice of a repayment plan. You'll also lose eligibility to receive further federal student aid, which is why it's often so hard to go back to school with defaulted loans.
Damage to credit
Your credit score will take a major hit. Default is reported to the credit agencies, and it’ll remain on your credit report for seven years. This can affect your ability to secure loans in the future, such as for a home or car.
Withheld earnings
There are also a number of ways that lenders or debt collectors can attempt to recoup the amount they're owed, including garnishing your wages. Your income tax refund, Social Security payments, or other federal payments can also be withheld.
Added fees
On top of everything else, you can also expect to get hit with collection fees. These charges are added on top of your defaulted student loans, increasing the loan's outstanding principal balance.
The amount of these fees can vary, but the Department of Education can charge as much as 25% of the principal and interest on the loan, according to data from The Pew Charitable Trusts. And of course, interest will continue to accrue on the loan.
Collection attempts
Though there are laws protecting consumers, debt collectors are notoriously aggressive and will try a variety of tactics to attempt to get you to pay up. You may even be sued in court, which could lead to additional fees.
How to get federal student loans out of collections
If you have federal student loans in collections, here are some options to recover from default:
- Fresh Start program: This is a temporary program to help borrowers get out of default quickly. After you contact your student loan servicer about Fresh Start, your debt will return to “in repayment” status and the loan default will be removed from your credit report. You can then enroll in an affordable repayment program and begin paying your loans again normally.
- Rehabilitate your loan: With loan rehabilitation, your loans can get taken out of default if you make a certain number of consecutive on-time payments (usually nine) as part of a loan rehabilitation agreement. You'll need to contact your loan holder to begin this process.
- Consolidate debts into a new loan: Consolidation can also help you get out of default. You'll combine your federal loans into one new Direct Consolidation Loan, which will have a fixed interest rate based on the average rates of the consolidated loans. You must agree to repay your new loan under an income-driven plan or make three payments on the defaulted loan before consolidating.
- Settle the debt with a lump sum: While few can afford to, you have the option to pay the full amount of your defaulted loan to get out of collections. You might also explore debt settlement, wherein you negotiate with the lender to cancel some of the amount you owe. You'll then need to pay the remaining sum, usually within 90 days of the settlement offer.
- Discharge your student loans in bankruptcy: Student loans are treated differently than other types of debt in bankruptcy, and it’s very difficult to discharge them. Because of this, bankruptcy should be used as a last resort. You'll have to file an adversary proceeding in order to prove that repayment would cause undue hardship. Your loan could get fully or partially discharged, or you may have to repay your loan under different terms. Note that the bankruptcy will appear on your credit report.
How to get private student loans out of collections
When it comes to getting private student loans out of collections, here are some potential solutions:
- Dispute the debt: If you think your loan incorrectly ended up in default or you don’t owe what they say you do, you can dispute it. Request verification of the debt as soon as possible, and make sure the debt collector can produce the correct paperwork. The Consumer Financial Protection Bureau offers sample letters to help you communicate with collectors.
- Settle your debt: Like with federal student loans, you also have the option of private student loan settlement. You can do this yourself or use a debt settlement provider to negotiate the amount you have to pay, which you'll usually have to deliver as a lump sum.
- Pay the amount owed: While it’s easier said than done, a surefire way to get your student debt out of collections is to pay off the amount you owe in full. You might sell existing assets, borrow from friends or family, or crowdfund the amount from your network to get extra cash.
- Consolidate your loans: You can effectively consolidate your private student debt by refinancing your defaulted loans, though you’ll likely need a cosigner to do so. This will allow you to combine some or all of your student loans into a new loan with updated terms. Note that if you refinance federal loans, you’ll lose access to federal protections and benefits.
- Declare bankruptcy: As a last resort, you could declare bankruptcy. It's an arduous and credit-damaging process, though, and similar to federal student loans, the odds of getting your debt discharged are slim.
Related: Statute of Limitations on Private Student Loans: State Guide
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How to find student loans in collections
If you’re not sure who owns your defaulted loans or where you can find more information about them, the process is usually fairly straightforward.
- For federal loans: Visit the Default Resolution Group at MyEdDebt.ed.gov for guidance. Or, you can call 1-800-621-3115.
- For private student loans: Contact your lender, which should assist you in determining which collection agency your loan was assigned to.
- If you're not sure what type of loan you have: Take a look at your loan documents to confirm. You can also review your credit report or use the Department of Education's National Student Loan Data System for more information.
COVID-era changes to federal student loan collections
Thanks to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, federal student loan payments and collection attempts have been paused. Additionally, the CARES Act reduced interest rates on federal student loans to 0%, which has prevented interest from accruing since March 2020.
While the government repeatedly extended this payment pause, it ended on September 1, 2023. Your first payment will be due starting in October 2023.
Important: Even after payments resume, you still have some leeway. The Department of Education is creating a one-year “on-ramp” period to help struggling borrowers. During this time, missed payments won’t be reported to credit bureaus, and federal loans won’t be considered in default or reported to collection agencies. However, interest will accrue during this time, so those who can afford to make payments should do so.
Note that the CARES Act provisions do not apply to private student loans, though some lenders provided relief options due to the pandemic, including lowering or suspending payments.
Department of Education collection agencies
The U.S. Department of Education no longer uses private collection agencies. As such, it directs borrowers looking for assistance on a defaulted loan to either call the Default Resolution Group at 1-800-621-3115 or visit the group online.
However, those with a defaulted FFEL loan held by a guaranty agency or a defaulted Perkins Loan held by a school could’ve had their loan sent to a private collection agency. In that instance, the borrower should contact the school or the guaranty agency to learn how to contact the collection agency.
For private student loans in default, contact the lender with which you have an account to determine which collection agency was assigned to your loan.
It's important to be proactive if you've defaulted on your student loans. Reach out to relevant parties in a timely manner to minimize the negative consequences.
