The Breakdown of the Student Loan Lifecycle

Once the funds are dispersed to a student, no payment is due while they’re enrolled in school. This is for governmental loans. There’s a six-month grace period after they graduate or separate from school. If they miss payments, day 1 to day 270 they are delinquent, but after 270 days there in default.

The Perkins Student Loan Considers Borrowers Defaulting on Their Loans One Day after a Payment Due Date

The only distinction is with Perkins loans, you’re in default from day 1, the day you miss your first payment you’re in default.

Perkins loans are smaller loans. Perkins loans from my understanding go to the people with the lowest incomes, the people who really need it the most and they’re much smaller loans. I think they’re capped at $1600 a year. So they tend to be smaller amounts. With some of the loans, the cap is not 25%, it’s 18.5%. Those are for direct loans. For direct loans it’s 18.5% collection fee.

Interviewer: That’s a huge amount.

To Avoid the Expensive Additional Fees, Attorney Campbell Advises Seeking Help before Your Student Is in Default

A. Campbell: That amount is added on, but you can get out of that amount if you get out of default. That’s why you never want to get into default. That hits your credit rating. It hits your credit report. You have all these fees added on, but you can get out of default.

All Debt Collection Activity, Including Student Loans Is Governed by the Fair Debt Collections Practices Act

You can get out of default if you make nine payments in a ten month period and the payments are reasonable and affordable. I know that sounds vague and it is vague. What is reasonable and affordable to the debtor may not be reasonable and affordable to the collector and that’s where I come in with potential lawsuits because a debt collector is governed by the Fair Debt Collections Practices Act.

It Is Important to Note That Some Debt Collection Activity Is Deceptive

You see you can’t sue the government, for the most part, that the government is immune from being sued. You can’t sue the Department of Education, but if a private student loan debt collector is collecting on a governmental debt they do have to comply with the Fair Debt Collection Practices Act and this is an area where I would say quite often the collectors can’t help themselves but be greedy.

These debt collectors are making $25,000, maybe $40,000 a year. The bulk of that money earned by a debt collector who’s making the calls to you, quite a lot of that money comes from performance bonuses. They’re driven by the quotas and the performance goals that’s assigned to them and if they don’t meet those goals, their pay is not going to be quite as high, which means they’re going to have trouble paying their own bills.

This all builds up to pressure that collector when they call you. I think that pressure can create an incentive for the collector to be deceptive.

To Get out of Default, the Law Only Requires You to Make a Reasonable and Affordable Payment

What I hear many people say, “I was in default and I tried to get out of it, but the collector wanted $3000 up front and then $200 a month payments and I don’t have $3000.” The law does not say that you have to make an upfront payment like that. The law says reasonable and affordable.

Work Out a Budget before Contacting the Collection Agent for Loan Lender to Determine What You Can Reasonably Afford

What I tell people to do if you’re in default, get out of default. To get out of default, contact your student loan collection agent, talk to them, and have in your possession when you’re talking to them a list of your income and your expenses. Have a budget worked out and include everything in that budget. The money left over at the end of the month is the reasonable and affordable amount. That could be $20.

The student loan collector is still governed by federal law. It’s still governed by the Fair Debt Collections Practices Act and governed by the Higher Education Act which talks about this term “reasonable and affordable.”

Interviewer: The collection agencies are under a lot of pressure to get money and so they use deceptive practices. So if you go to them, wouldn’t they just lie to you and try to make you think that you owe all this money and you have to pay it?

Keep a Record of Your Communication with the Collection Agent

A. Campbell: They will lie to you, not necessarily about the amount you owe, but they will represent that there’s only one way out of getting out of default and it’s their way or the highway. You have to make a record of your attempt to explain to them what’s reasonable and affordable.

Interviewer: That’s this process you’re talking about. Even though they’ll try to dupe you, you still have to go through this process of calling up with your budget and attempting to work out a reasonable payment?

A. Campbell: That’s part of the record. You want to call them up. You want to have this budget in front of you. You want to have the budget carefully calculated. You want to have it reasonable. You can’t claim economic hardship and be paying $600 a month to DirecTV with NFL Channel.

There’s got to be some reasonableness on your part as well. That doesn’t mean you can’t have some sort of some basic luxuries. You’ve got to be reasonable. You make a record of it. You call them up. You send them letters, return receipt, certified mail. That’s how you make a record. You write down the dates and times people call. What they say, when they say it and you make a record.

The Purpose of Compiling Records Is for Protection in the Event You Have to Proceed with a Lawsuit against the Collection Agent

When you do can you help yourself out later on because by doing that, you’re gathering evidence you need later on if you need to file a lawsuit if they don’t honor it. You only get one a chance to rehabilitate the loan. That’s what this is called. You’re trying to rehabilitate the loan.

You’re getting out of default and you have one chance and one chance only. If you do not honor your payments it doesn’t mean that they won’t let you get out of default later on, but your legal remedies will be limited as far as your ability to sue them.

Interviewer: What happens normally? You call up. You document this. You tell them you’re budget. You tell them your payment. They’re probably going to tell you,

“No way. You can’t do that. We want $3000 or $10, 000,” then what?

It Is Advisable to Submit Your Budget Paperwork to the Collection Agent for Review

A. Campbell: It is best to say, “I’m going to fax you in or I’m going to mail you in some paperwork to show you what’s reasonable and affordable so you can see it. Then I’d like you to review it with your supervisor.”

Interviewer: 99% of people never do that. They probably come to you after the collector has tortured them to death about having to pay them, just not knowing what to do.

Retain Any Communications You Receive from the Collection Agent, It May Be Proof That the Collection Activity Is Deceptive

A. Campbell: That doesn’t mean they can’t sue under the Debt Collection Practices Act. This is because what I see happen is the letters that the debt collectors send about rehabilitation might violate the law. There’s one particular lender who was sued in a class action in a state on the East Coast because their letter violated the law.

To Rehabilitate Your Defaulted Student Loan, You Must Make Nine Out of 10 Monthly Payments

It said, “You had to make nine consecutive payments,” when frankly, the law says you have to make nine consecutive payments over ten months. In other words, the law says we know you’re in financial trouble and we know that out of the nine payments, you’re going to more than likely have trouble with one and that’s why we’re giving you an extra month.

You make nine payments over ten month period you get out of default. Their letter said nine consecutive payments. It basically misrepresented things. It sounds minor, but it’s a very important detail because people who are struggling are naturally going to probably struggle a little bit even paying reasonable and affordable payments because something inevitably happens. Their car breaks down. They get a ticket or have a large dental bill.

Attorney Campbell Never Advocates Using the Law to Avoid Paying a Debt but Is an Advocate for People Experiencing Financial Difficulties

The people I try to help are the people who actually have financial problems. They’re not trying to scam the system. If you have money to pay a debt, pay it. I’m not one to advocate using the law simply to get out of your debts. If you’re having a hardship, then I’m on your side.

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