Should I pay the collections fees on my student loan or try to get them to sue me for it?

July 7, 2006 3:17 PM

Student Loan question: I've started paying off my delinquent perkins loans to a collection agency and discovered they're adding a 40% collection fee to my total. If I stop paying them, my school will seek a judgement, but will it be sans the outrageous 40% fee?

Basically, I got out of school with hopes for a career in Hollywood. As such, I ate ramen and was forced to let my payments lapse as I lived in my car and hoped for a break.

Well I got one. And now I'm doing okay, on the road to not too shabby. So now I'm paying off the student loans at 50 bucks a month, largely to show that I'm making an effort for my credit report.

But this month I took a look at the math:

My initial 1800 has ballooned to 6400 since 1995. Again, nothing tragic. But there's a 40% fee added by the collection agency included in that number. Meaning I really only owe about 3840.

If I stop paying, my school will take me to court to get a judgement right? If so, won't I just owe them the 3840? Because, if it came down to it, I think I could actually pay that off.

What's the right course of action here?

posted by rileyray3000 to law & government (9 comments total)

If you're paying the collection agency, your school probably sold your loan to them. So, they'd take you to court for a judgment if you don't pay.

That fee sounds like bullshit and you might get advice here to negotiate that away. The collection agency bought your loan for pennies on the dollar and now they found you and you're paying them, they're tacking on fees. So when/if you pay them back, they'll have a nice profit.
posted by birdherder at 3:27 PM on July 7, 2006

A couple of things. You can always ask for a deferrment if you are unemployed, so in the future, you don't have to let the loan lapse and go into collection, you can call the school and arrange for the deferrment. Second, I would contact the school directly and offer to structure a payment plan with them. That way more of the $50 payment goes to the school (they will appreciate being paid off sooner rather than later). If you want to simply pay-off the loan, I would suggest you contact the school and make them an offer.
posted by zia at 3:28 PM on July 7, 2006

congratulations on being on the way to not too shabby!

It might be too late, but if you have multiple loans, you might be able to consolidate them. I did that through these guys with a couple Perkins and a Stafford loan. Once you're under that umbrella, you can get deferrments for financial hardship, etc.
posted by M.C. Lo-Carb! at 3:32 PM on July 7, 2006

You're in California right? This site might be helpful.

For other states, google the following: [state] attorney general collection agency.
posted by Xalf at 3:38 PM on July 7, 2006

Yeah I ran out of deferrments about two years into the loan. As well as forebearances. Again, my ambitious job choice was coupled with a complete lack of luck in it for quite some time.

A couple of quick facts:

1) My school is Indiana
2) I did contact my school a while back. They told me to work with the collections agency (which makes me think they sold my loan now)
3) I'm still going to try to write my college president and see if I get lucky there.

So what happens if the collection agency takes me to court? Do they get to sue for all their BS fees? Since I live in California can they reasonably collect?
posted by rileyray3000 at 3:54 PM on July 7, 2006

They can sue for the "costs" [which will include lots of bullshit costs] in addition to what you owe. They could totally collect as long as you are in the US. If they win a judgement against you, and you don't pay them, they can garnish your wages. It is pretty f'd up.

What does suck you're trying to make up for your past mistakes and the collection agency will go out of its way to screw you.

Check out the Student Loan section at Creditboards.com. There might be someone that had a similar situation or you can ask.
posted by birdherder at 4:12 PM on July 7, 2006

Creditors usually can take back the loan from collection, and are more likely to do so once a re-payment history has been established.

Call the college again. They should be more willing to work with you now. They collection agency is essentially paid to put the fear of god into you, and minimize the college's hassles in dealing with deadbeats. Now that you're paying, they'd rather see the maximum amount of money going toward debt payment.

Last I heard, it was possible to consolidate even a single loan (reason: lock in low interest rate), so check into that even if you don't have other loans.
posted by nakedcodemonkey at 4:13 PM on July 7, 2006

No one has yet mentioned the obvious: Look at the paperwork for the loan - the contract you signed when you took it out. (If you don't have it, tell the collection agency to give it to you, or ask your college or original lender.) If that contract includes language that allows for the extra fees, that is far different from one that does not.

Tacking on such a hefty surcharge may well violate your state's usury laws - although in these days of 28% APR on credit cards, what the hell does usury mean any more? You might get better terms from Moe the Shark.
posted by megatherium at 7:47 PM on July 7, 2006

Megatherium is right. Your loan is a contract and the papers you signed define each party's rights under that contract - read the contract. In addition there are state laws which limit the ways in which such contracts can be structured (such as the usury laws). I doubt the 40% fee comes from such state law and if it isn't in the contract you need to call BS on the collection agency. The standard deal with these guys is that the creditor pays that 40% to the collection agency. I suggest you contact your state Attorney General's office for more information and advice specific to your state. That might mean contacting the office in the state in which you took the loan if it is different than your current state.
posted by caddis at 8:13 PM on July 7, 2006