Debt Management and Collections System

Lenders of loans including the government, pass on the responsibility of collecting back the loan amount to collection agencies. This article throws light on how to deal with student debt collection agencies.

Updated by Jason Joy Manoj on 17th August 2019

Are you facing difficulties in making exact payments on your student loans? If yes, then this is where a debt management plan will be helpful for you as it makes it possible for you to make a single payment to a credit counseling agency where the payments are done on your behalf. 

A debt management plan doesn’t reduce the amount that you are supposed to return. It works with the credit counselors and helps in lowering the interest rate and cutting down on some of the fees associated with your loans.

Stretching the repayment time period for your loan is another possible option. The average duration of a debt plan is 3-5 years. Your financial situation will be thoroughly examined by your credit counselor before any further course of action is taken.

Here, all of the available options will be discussed.

It is not mandatory to sign the first program that the credit agency offers you. Enrollment and payment will be made for each credit account. On average, it costs around $24 per account. Secured debts are not covered.

However, the unsecured ones are covered such as student loans. Your counseling agency will receive an electronic payment each month. Moreover, a progress report will also be sent to you each month. You cannot use your credit cards so long as you are there in the program. Make timely payments and always try to meet the terms of the creditor.

Most debt collection agencies specialize in a specific type of debt. An example is that of an agency that collects debts more than $200 but not that is more than 2 years old. If the original creditor finds it hard to collect a debt, he/she is free to sell it to a debt buyer. 


Contents


Understanding Debt Collection

Most debt collection agencies specialize in a specific type of debt. An example is that of an agency that collects debts more than $200 but not that is more than 2 years old. If the original creditor finds it hard to collect a debt, he/she is free to sell it to a debt buyer. 

If such a situation does occur the accounts are usually sold in a group.

If the payment potential of the debt is very low, then the debt is sold cheap. Banks sell their debts for some percentage of their face value. Then the debt buyers make a decision on which the can sue you.

Later on, some debts are sold to other debt buyers. Thus, the credit of the buyers suffers 2,3 or 4 times.

What happens in debt collection is that debt collectors are assigned by debt collection agencies, who would eventually pay off 25% to 45% of the collected money from the borrower to these debt collectors. The collected debts are at least 60 days past due.

Most debt collectors engage in collecting debts including credit card debts, medical debt, automobile loan debt, personal loan debt, business debt, student loan debt, even unpaid utility, and cell-phone bills. 

There are also agencies that specialize in the type of debt that they receive. Delinquent debts of at least $200 that are less than  2 years old are collected. Different states have different statutes of limitations.

Few agencies work based on these limitations. At times if the debt is too difficult to collect, then the collectors come to some negotiation with the customer. Sometimes these negotiations can even cause in the reduction of repayment amount by the borrower. To the 


Understand the working of the debt collection system

 The working of the debt collection system can be best understood by taking an example, a bank that has a number of attorneys all over the country and also a number of defaulted credit cards that have defaulted. These defaulted cards go directly to the attorneys.

The creditors are informed by the credit bureau about the capability of the borrower to repay in case of a default.

Debt is sold based on its payment potential, ie debt with a lower payment potential is sold cheaper.

They are bought by junk debt buyers and they will decide who they will sue or sell.

Wait, sue?

Yes, it should be noted that the fact that you are getting sued doesn’t mean that you are getting sued by your debt collector, you are getting sued by the debt junk buyer. And the case will not proceed unless you have a lawyer and you are contesting this.

No reputable collectors would harass their borrowers. No discrimination is made against them against race, sex, gender or origin. They practice fair means and abide by the law. If in case it is learned that the debt is an impact of identity theft, they will verify it. A debt that is older than 7 years is not reported and people who lack money for repayment aren’t persuaded.


How to skip falling into debt collection?

If payments on student loans aren’t made for 270 to 360 for days, then the loans fall into default. If this happens the balance of your loan will be due automatically. This is referred to as acceleration.

For falling into the collection status, collection fees will be assessed based on the student loans you owe. Collection fees depend on who is the loan holder and can range between 18% to 40% of your balance. This would create a serious impact on the loan balance that you’ll have to pay.

Till your loans are in default, the following can also happen.

  • Wage garnishment and taking up of income tax refunds in order to repay the debt.

  • Ineligibility to apply for federal financial aid. This continues until you have made 6 on-time monthly payments.

  • You also become ineligible for a loan deferment.

  • You can even lose subsidized interest benefits.

  • Up to 7 years, defaulted loans will appear on your credit. This creates a negative impact on your credit score and your ability to get other types of loans.

  • An attempt is made from the student loan agencies to collect the debt from you. Aggressive measures are usually followed by these collection agencies to make you repay the loan.

  • If you are contacted regularly, you should be aware of the legal rights under the Fair Debt Collection Practices Act.

  • The Debt Collection Practices Act contains regulations on not just the amount that you owe, but ways and times for the collectors to contact you in order to recover what you owe.

  • The Act also contains details on what the agencies cannot do in order to get your debt repaid.

  • The Act clearly says that the collection agency cannot threaten, harass or use obscene language. They can neither lie nor threaten you of an arrest if you don’t pay.

if payments on student loans aren’t made for 270 to 360 for days, then the loans fall into default. If this happens the balance of your loan will be due automatically. This is referred to as acceleration


How to move out of debt collection?

You can get caught up on payments quickly. If you make a qualifying payment, this results in removing default and collection status immediately. Otherwise, you still have other options. In rehabilitation, you agree to a repayment plan with the Department of Education.

Upon making the required number of payments on time, your loan will be rehabilitated. Student loan consolidation combines the balances of several loans into one. The loans in default are included in this. Moreover, you’ll have to make at least 3 on-time, consecutive, and voluntary payments prior to the consolidation.

Student loan discharge with bankruptcy is an option. Though it will be difficult to discharge your loans in bankruptcy, it is not impossible to meet the right conditions. You can also repay the entire amount of your loan. This is probably not a good option considering the size of the loans.


How to avoid falling back to debt collection?

Got out of the debt collection trap and have no plans on falling back in? here’s how you can avoid falling back in again

A manageable payment plan helps you to repay without missing any payments. Thus it is necessary to be proactive. It is necessary to make sure that the payment plan is right for you.

The monthly payment amount can be brought down based on a variety of factors using the most favorable student loan repayment plan. Many of these payment plans will be increased by the total amount that you’ll have to repay.

If in case you can’t repay, find out if student loan deferment or forbearance is the option that suits you the best. Deferment allows you to temporarily stop making payments on your loans. Moreover, during that period interest doesn’t accrue on subsidized loans.

You’ll still be eligible if you are enrolled in college at least half a time, or in cases like unemployment or military service. Though forbearance isn’t that advantageous as deferment, you’ll still remain responsible to pay the interest on your loans.

Forbearance helps you to stop making monthly payments up to 12 months. This non-payment can be caused due to financial hardship, illness, or other reasons.


Debt Collection Laws that protect you

The debt collection laws that can protect you are given below.

Fair Debt Collection Practices Law, grants limitations on what debt collection groups can do when they collect certain types of debt.

Federal Fair Credit Reporting Act covers how debt collection is reported in credit reports. There are also state laws that provide protection.

  • These agencies do not contact you before 8:00 am and after 9:00 pm.

  • If you aren’t allowed to communicate with the debt collector at work, then he is not supposed to do so.

  • If you do not grant the debt collector, the permission to contact you in writing, then they cannot contact you except to take legal action against you.

  • If a debt collector contacts you for the student loan debt, then the debt information as follows should be mentioned. The name of the creditor, the amount that is owed, debt dispute, name of the original creditor, different than the current one and more has to be included.


Now you have an idea of how the debt collection system works and how you can skip and avoid falling into debt collection, here is a list of the various debt collection agencies.

1 - Account Control Technology, Inc - The agency was founded in 1990 in Woodland Hills, California. The mission of the agency is to improve the long-term financial well-being of clients, customers as well as those who work in the firm.

The agency is licensed in 50 states and complies with the principles and regulations. As a part of maintaining standards, the certifications that the agency has earned include FISMA, SSAE 16 Type 2, and PCI DSS Certifications. The agency adheres to FDCPA, TCPA, UDAAP along with other regulations and standards.

2 - Action Financial Services LLC – The agency is headquartered at Central Point, Oregon and has several employees who work towards the service of the communities.

3 - Coast Professional Inc. - Coast Professional Educational Service offers educational receivable collection services. Loan consolidation, default account rehabilitation, contingency collection, borrower tracing, password assistance, and online account management services are offered by Coast Professional Services. The organization was founded in 1976 and is currently based in West Monroe, Louisiana.

4 - Collection Technology Inc. - Collection Technology is based in Rancho, Cucamonga. CA.

5 - Credit Adjustments – Credit Adjustments was opened in 1977 with just six employees. The company has since evolved into a 300+ employee receivable management company. The company remains to be the leader in health-care and student loan collections.

By making use of human talent and automated solutions, the company aims to offer a package of contact management solutions. It was in 2008 that CAI became the contract holder of General Services Administration. Within a short span of time, CAI became one of the leading agencies with its praise-worthy performance.

6 - Delta Management Associates - Delta Management Associates was established in 1986 in the Commonwealth of Massachusetts. Delta has for more than 31 years, offered superior recovery and default management solutions in the higher education, government and financial services industries.

This agency has the power to work in all the 50 states. Regulatory, financial, privacy and security requirements of the popular institutions in the nation are met by Delta. With the use of advanced technology, data analysis tools, empowered business practices, and by following the dynamic regulatory environment Delta enhances its performance in all its dynamic financial services.

7 - ECSI Federal Perkins Server – Though ECSI does not offer student loans, it manages the collections of loans and processes the monthly payments. Private lenders and the Department of Education passes them to the ECSI in order to manage the borrowers.

8 - FMS Investment Corp – FMS grants revenue enhancement service to government and private sector clients. Various accounts receivable management solutions are granted by the developed and executed by the FMS. The company was founded in 1992 and has its headquarters in Rolling Meadows in Illinois. This investment corporation acts as a subsidiary of the Ceannate Corporation.

9 - GC Services – This firm offers a plethora of accounts receivables solutions, along with customer care solutions in the public and private sector organizations. Being one of the industry’s leading business process outsourcing providers, a wide variety of account receivable solutions are offered in both the public and private sector organizations.

High-class solutions are hence offered with highly skilled management and staff. The financial strength, industry involvement, and executive leadership are a few of the featured services offered by the GC Services.

10 - General Revenue Services – General Revenue corporation aims at generating a thorough evaluation of agency capabilities, services, and costs. The mission lies in line with client expectations.

A compliance conscious client service is made possible at a fee that enables dedicated, personnel, technological and analytical courses. The customization of processes helps in delivering a higher quality of service and praise-worthy innovations.

11 - Pioneer Credit Recovery Inc. – Pioneer Credit Service grants employment to more than 1000 employees and is headquartered in Wyoming County, New York. The firm also has offices in New Jersey. The firm also has established connections with federal, state clients and guarantee agencies. Quality results, experience, technology, infrastructure, telecommunications, and collections systems are offered at by the Pioneer.

12 - Central Research Inc. – Central Research Inc was founded by Johny Dillard, who is a retired marine corps officer. The firm provides management and financial services to federal, state and commercial sectors. Customized Business Solutions are rendered across quality and client-focused environment.

13- American Student Assistance Corp - They are an authorized agent to help you manage your ASA guaranteed federal student loans. They are known to have pioneered a complete student access program and are proud to have partnerships with over 100 colleges and universities to help students manage their financial wellbeing.

You can contact them at 800-999-9080 or email them at options@ecmc.org.

14-Florida Department of Education OSFA - They have a mission to facilitate higher education access and service by providing excellent customer attention and convenient products to help the students. 

You can contact them at 888-827-2004.

15- Michigan Guaranty Agency -  they are a non-profit guarantor for FFELP.  ECMC is providing services for MGA to support borrowers with their federal student loans. For assistance managing your MGA-guaranteed federal student loan(s), contact ECMC, an authorized agent for MGA.


FAQ's

  What happens if your student loans go to collections?


Once your loans go into collectins you will be assessed with a collections fee and as long as the loans remain in default. Your wages can also be garnished and your income tax refunds will be used to repay the loans.

  Can the US Department of Education take my tax refund?


If your loans are in default then the department of education can refer your account to the Department of Treasury for collection by an offset of your federal tax returns. If required the Department of Treasury can withhold the entire amount of your refund to satisfy the debt.

  How can I get money back from tax offset?


To get the money back from tax offset first find out who offset your refund. Check the NSLDS or the Treasury Offset program to find out who offset your refund.

  Can the IRS take your tax refund?


They can take your tax refund but they will send you a notice in advance and provide you with an opportunity to challenge the claim or pay it off before your refund is held.

  How do I get a hardship tax offset?


If you fit the bill, you\'ll need to complete a student loan tax offset hardship refund form and provide proof of your hardship. You also can contact the Treasury OffsetProgram at 800-304-3107 for more information