If you haven’t made payments on your student loan(s) for a long duration of time, this will send your loan payments from delinquency into default. Now, this doesn’t necessarily mean your payments are sent right away to a collection agency. When your loan goes into default, the balance of your loan is due immediately. Your loan holder may then decide to place your loans with a collection agency. Let’s get into how you can handle this situation.

Once Your Loans Are Placed with A Collection Agency, What Happens?

If your loans go into default, and then they are placed with a collection agency, there are a lot of financial consequences that go along with this turn of events. Not only will you be responsible for the debt you owe, but you will also incur collection fees that can range from 18% to 40% of your outstanding balance according to Student Loan Hero.

If you have a federal loan, then the collection agency is working on behalf of the Department of Education. The federal government has options that private loan debt collectors do not have. For instance, they can garnish your wages, intercept your federal or state tax refund, garnish your social security or disability benefits, and prevent you from receiving federal financial aid in the future if you intend to go back to school.

What Options Are Available to You To Handle This Debt

According to the Consumer Financial Protection Bureau, there are no standard options available to a borrower who is having a collection agency come after them on behalf of the private loan provider. You may be able to set up a payment plan. If you find that the collection agency is acting malicious or aggressively towards you, make sure you know your rights under the Fair Debt Collection Practices Act.

If you have a federal student loan, then you have some options. You can look at getting your loan into a rehabilitation program. This program will allow you to get your loan out of default after you have made a series of consecutive, on-time, reasonable, and affordable payments. This will remove the default indication from your credit score, but it cannot repair any negative details regarding missed payments prior to your loans going into default.

If you have the money to do it, then you can just repay your loan in full. This can end up being the least expensive solution for in certain situations the debt collector may be allowed to dispense with fees and collections costs. However, the defaulted loan will still appear on your credit report, but you will at least be eligible to receive federal financial aid in the future if you decide to go back to school.

The other option is to consolidate your loans. By consolidating your loan, your debt is paid off with a new loan with new terms for repayment. If the above option of paying off the whole balance in one go is not an option, then this will be the fastest way to get your loan out of default. Whatever option you decide to go with, make sure you get everything in writing and that you have clear documentation detailing the exact amount of debt you owe.