How to Handle a Student Loan in Collection

While student loans can mean the difference between a dead-end job and a college education, new graduates sometimes struggle with high loan payments. If you stop making payments altogether, your loan servicer will forward your delinquent account to a collection agency. Unlike other types of unsecured debt, there is no statute of limitations on defaulted student loans. Thus, unless you work out a payment plan with your lender, the unpaid debt can haunt you indefinitely -- leaving you subject to garnishment, liens and -- in the case of defaulted federal loans -- seizure of future tax refunds.

Instructions

1

Gather financial records that illustrate your current income and expenses, such as pay stubs, the previous year's tax return and copies of your monthly bills. Determine how much you can reasonably afford to pay each month toward your total student loan debt.

2

Contact your loan servicer -- not the collection agency handling your account -- and explain that you want to make arrangements to bring your loan current. Answer any questions the loan servicer has about your finances and negotiate a monthly payment amount that fits your budget.

3

Ask that your loan servicer pull your account out of collections while you make your payments. If your loan servicer is not willing to do so, the Fair Debt Collection Practices Act gives you the right to send the collection agency a cease and desist letter preventing it from contacting you.

4

Send in the payment amount you agreed to on time each month. The U.S. Department of Education considers defaulted student loans rehabilitated after nine on-time payments, but the number of timely payments you must make to have your account removed from collections may vary if you owe private student loans.

5

Ask your loan servicer about your eligibility for such options as forbearance and deferment after you bring your loan current. Forbearance and deferment typically aren't available for student loans in collection, but once your loan is current you may be able to reduce your payment amount or defer your loan payments temporarily -- easing your financial burden while you build your new career.