Student loan collection fee elimination?

July 2, 2005 12:05 AM

So this idiot "friend" of mine defaulted on his student loans, and the collection agency in charge of, well, collecting them has tacked on about $5000 worth of fees. Now that he's paying them back and rehabilitating his loan, is there any way he can get those fees eliminated? The collections agency says the best they'll do is deduct about $1000 after rehabilitation, but I'm convinced there must be something more he can do. Thanks, as always!
posted by anonymous to work & money (7 comments total)

First, talk to a lawyer (you had to know that was coming). If the lawyer charges your "friend" $2000 to forgive the $5000, your "friend" comes out ahead. There may be some sort of legal recourse if the fees violate fair debt collection statutes, but I have no idea if those apply to collection of student loans.

Second (in addition to, not instead of), talk to a debtor's advocacy group. There are nonprofits out there that will work with debtors and creditors to get these sorts of things sorted out. Make sure to find out if the intervention of such a group would have an adverse effect on credit ratings and such (though a student loan default will probably have done a lot of damage there too).

IANAL, and your friend should talk to one.
posted by socratic at 12:23 AM on July 2, 2005

I could be wrong, but your friend may have agreed to those fees when he signed his promissory note(s). Can anyone else confirm or deny that?
posted by alas at 1:03 AM on July 2, 2005

Almost certainly, they aren't fees, per se, they're costs of collection. EVERY consumer promissory note, including those made for school loans, obliges the maker (borrower) to pay the costs of collection in the event of default, in addition to principal and interest.

However, because they're costs, they must actually have been incurred and they must have been reasonable. Your friend is certainly entitled to get a DETAILED statement of the costs and to challenge them if they're unreasonable or if he doubts they were actually incurred.

A good first stop for him might be the loan office of the school whose tuition he paid. College financial aid officers have a strong interest in making sure that borrowers who are doing the right thing (paying back the principal and interest they agreed to pay) aren't abused by being subjected to excessive collection costs or unconscionable collection methods.
posted by MattD at 7:21 AM on July 2, 2005

You also need to check and see if all this is actually fees or if it is accrued interest. It takes years for a student loan to default to the point of collections, and the agencies have the right, evil as it may be, to charge that interest. Like MattD said, get the detailed list and have your pal negotiate with them to set up a realistic note that will work for you.

Interest is very negotiable if you can convince someone you are serious about working things out; however, most of the time when dealing with a collection agency, it's like talking to the proverbial brick wall.

Usually after 12 payments, the agency kicks the note back to Sallie Mae and they take over from there. See if this is possible too.
posted by DeepFriedTwinkies at 11:49 AM on July 2, 2005

My girlfriend was in a similar position with her student loans. If you are financially able to make a lump sum payment, ask the agency how much money they would accept to make this all go away today. Negotiate down from there. We basically got away with only paying the principle on the loan. The loan was very old at the time, so that was probably factored in.
posted by kamikazegopher at 1:13 PM on July 2, 2005

as DeepFriedTwinkies says "Usually after 12 payments, the agency kicks the note back to Sallie Mae and they take over from there. See if this is possible too."

This is exactly what one of our offspring did ... after twelve payments, the loan went back to whomever and the excess charges were dropped. Try and get to talk to the original lender & check if this is possible for your friend -- the collection agnecy will possibly be reluctant to divulge the info.
posted by anadem at 1:19 PM on July 2, 2005

I know of two folks who were offered rehabilitation programs by the collection agency which *completely* waived all interest and collection fees if the defaulter went 14 months without missing a monthly payment. In one case, this involved waiving around $8,000 dollars. I'd definitely talk to someone not affiliated with this particular agency, which seems overly rigid. Maybe a free first consult with a credit counselor can help.
posted by mediareport at 8:01 AM on July 3, 2005