Student loans sent to collections after no contact?
October 15, 2013 9:53 AM   Subscribe

My friend thought the money she owed a university was being taken care of by her current payments. This weekend someone in her family gets a call from debt collectors. Apparently the financial aid office has been sitting on a lump of debt for a full year, but has only attempted to contact her during that time at a single email address, her old school one. They never sent any letters to her home address, nor called her at the number she's had for years. Now instead of setting up a payment plan she'll have to negotiate with a predatory collections agency. Is there any way out of this mess?

I ask because it seems like they failed in their basic responsibility as a creditor to contact the debtor by any means at hand, like a home address or phone number. It's not possible they don't have these things, since a loan couldn't be issued without such critical information. They seem at fault, but are they only at fault ethically here, or does my friend have some ground to stand on if she tells them to call off the collectors and work with her directly?
posted by BlackLeotardFront to Work & Money (16 answers total) 1 user marked this as a favorite
 
Ethics aside, the school might be willing to negotiate with her directly so they don't have to give the debt collectors a cut. She should definitely call them and ask.
posted by ThePinkSuperhero at 9:56 AM on October 15, 2013 [1 favorite]


Response by poster: I should have mentioned, she spoke with one person at the office briefly who said that they had already sold the debt to the collectors so there was nothing they can do. I'm pretty sure that's not the case since I myself have had a bogus debt collection deal reversed by the people who had called it in.
posted by BlackLeotardFront at 9:59 AM on October 15, 2013


It was her responsibility to keep on top of her loans and send them her new address, or put in a forwarding address with USPS or have her old email address forward to her new email.
posted by discopolo at 10:10 AM on October 15, 2013 [5 favorites]


A creditor doesn't have to contact you at all before sending your debt to collections, much less try you at every possible address. So from a legal standpoint, no, I don't think she has leverage there; her best bet is probably just to be receptive to working with them and ask in good faith that they not take any adverse action on her credit.

Ethically - I will just say that when I was in school they impressed upon me that the most important thing to do is to keep in contact with your student loan provider, mainly by updating your contact information whenever it changes. I don't know if they drilled this message home at your friend's school, but frankly, it's kind of common sense to update your address with your financial institutions when you move, so I doubt they will be very sympathetic to that argument either.
posted by payoto at 10:11 AM on October 15, 2013 [7 favorites]


do NOT negotiate with the predatory collection agency. she should tell it not to contact her again.

let me get this straight. your friend was making regular payments in good faith, and her alma mater sold her to a vulture? your friend has the upper hand here. she can articulate her substantial equities in this situation onto social media, thereby causing an embarrassing shitstorm for the university which might threaten future applications/enrollment. she also knows that her account was sold to a stranger, for doubtless pennies on the dollar, and this is the new metric by which the value of the account should be measured. your friend should take advantage of her uni's unwise action and lean in for a major (on the order of 95%) debt forgiveness. the only downside is that forgiven debt is frequently taxable as ordinary income and comes with a form 1099, buuuuh.
posted by bruce at 10:18 AM on October 15, 2013 [1 favorite]


Where exactly were her "current payments" going?
posted by Madamina at 10:21 AM on October 15, 2013 [3 favorites]


I suggest that you have your friend lawyer up. She was making payments regularly, on time, and in good faith. Therefore there should be no collections agency involved here. Somebody screwed up and it's not her.

From what I've heard about creditors, they will call and harass debtors at any phone number, physical address, or e-mail address they have, and they will do their best to get any updates on this information so they can further harass the debtor. Something smells very fishy here.

I am not a lawyer, and I've never had any debt sent to a collections agency.
posted by tckma at 10:29 AM on October 15, 2013 [1 favorite]


How do you know it's a predatory collections agency vs just a collections agency?
posted by discopolo at 10:30 AM on October 15, 2013 [1 favorite]


Also, am I correct in thinking she was paying for 1 loan through a loan servicer but she forgot that she owed the university a separate loan that was serviced directly by the university?
posted by discopolo at 10:33 AM on October 15, 2013


If the college's official policy is to use the student's email address as the official means of communication, it was your friend's responsibility to either continue to monitor that address or have email forwarded to an address she does use.

And if the debt's already been sold, the college is officially out of the loop. Have your friend look into a non-profit consumer credit counseling service.
posted by trunk muffins at 10:35 AM on October 15, 2013


Response by poster: Ugh, turns out it was a separate thing, and they had been sending paper notices, to an old address she hadn't updated. This loan was separate from the others and isn't part of what she was making payments for. It looks like this really is on her, though why they wouldn't want to retrive the loan from collectors if the payer is in contact and in good faith... but that's their prerogative, I guess. I'll tell her to deal with the collector and talk with a counseling service. Thanks for your advice, guys.
posted by BlackLeotardFront at 10:37 AM on October 15, 2013


your friend has the upper hand here. she can articulate her substantial equities in this situation onto social media, thereby causing an embarrassing shitstorm for the university which might threaten future applications/enrollment. she also knows that her account was sold to a stranger, for doubtless pennies on the dollar, and this is the new metric by which the value of the account should be measured. your friend should take advantage of her uni's unwise action and lean in for a major (on the order of 95%) debt forgiveness

As a creditor's right lawyer, I really disagree with this advice. Posting on Twitter and Facebook does not litigation or make debts go away, and the university was perfectly within its rights to assign the debt.

The collection agency now owns the debt. They are usually willing to set up payment plans, in my experience.

Not your lawyer or your friend's lawyer. This is information, not advice.
posted by Tanizaki at 10:43 AM on October 15, 2013 [3 favorites]


Not only are collection agencies usually willing to set up payment plans, they will also often settle for a significant percentage off the original debt. If this is the only thing that she owes, it is unlikely that the consumer counseling service will be able to help unless they already have a relationship with that collection agency.

I am not a lawyer, but I have been through collections.
posted by sm1tten at 11:04 AM on October 15, 2013


tanizaki, i am not allowed to argue with you on askme, so i will confirm your true statements and provide new input on your other statements.

"the university was perfectly within its rights to assign the debt...the collection agency now owns the debt." i agree.

typically, original creditor x will have a bulk, volume arrangement with collection agency y, covering all delinquent accounts within the term of the master contract, particularly if it's a big creditor prone to delinquent accounts, like a university, and typically, the master contract will have a provision enabling x to repurchase the account from y for reasons peculiar to x, including potential splatter.

bird in the hand, bird in the bush. higher education is full of bubblemoney, and you know that some institutions (not the ones you and i attended, for sure) are rackets, and the OP has graciously and mercifully failed to identify the institution so far, and yes, tanizaki, perceptions created in social media can absolutely impact birds in the bush.

discopolo, they don't want me to reflect on collection agencies/predatory collection agencies here, but make your own askme and i will reflect in detail. in 1981, i was general counsel of a collection agency/auto repo firm, one of my first gigs out of law school, i lasted for about six months and baby, it was predatory.
posted by bruce at 11:12 AM on October 15, 2013 [1 favorite]


First things first, have her send a debt validation letter (there are plenty of templates online) -- she has to make sure that this collections agency actually owns this debt and can prove than they own the debt.

No payments to this third party until she receives something in writing stipulating the validity of the debt as well as the terms of the repayment to them.

From your post, it appears she does in fact owe money (originally) to the school. She needs to make sure that any money that she pays actually goes to satisfy that debt, rather than off into the ether never to be seen again (or she makes a big lump sum payment to settle the debt and the agency doesn't actually settle it).
posted by melissasaurus at 11:28 AM on October 15, 2013


Something similar happened to me once. I wrote a check to the school, to the usual address for loan payments, but directed to a specific contact person that handled my loan. They credited it to my account, fixed my address and sent me a statement. The predatory collection agency never called me again.

Your friend's millage may vary, but for me, blundering ahead and pretending like I didn't even know about the collection agency worked out great.
posted by OrangeDisk at 12:40 PM on October 15, 2013 [1 favorite]


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