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Hello, and thank you so much for your time.

For seven years I've been paying a collection agency 300.00+ a month on a "purchased" combined student loan that I had previously defaulted on. When I started paying on this the principle was $24,000.00. Now, after paying them $19,000.00 over the course of 7 years, the principle is $29,000.00!!!.

The interest is 8% plus they take 18% collection costs out of every payment. They assured me several years ago that there would be no collection costs and I foolishly took them at their word... The thing is, this is nowhere to be found on my credit reports!?!?

My parents have offered to loan me the money at 6% to pay this off, so that I can avoid paying further collection costs, and I'd much rather pay them back than pay this collection agency.

My questions are:
1)Why is this not on my credit reports?

I'm worried that creditwise doing ANYTHING might be worse than doing nothing, but I can't just keep paying into this hole forever. My wife and I both teach in the South, so there is not much extra money.

Also, I recently requested and received a statement from the collection agency showing that the payoff amount is about $30,000.00 including collection costs and interest, but with a footnote that says there might be further collection fees and to check with them before paying it all off. I'm scared they're going to try to add 18% to the principal if I give them a lump sum, so...

2) Should I make an offer to pay, say 60% of the total before I let them know I'm interested in paying this off? Is this feasable as it is a purchased loan?

Thanks again.
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mlgoode -

First - welcome. You've come to a great place for some sound advice. Just remember the final decision has to be yours.

I'm scared they're going to try to add 18% to the principal if I give them a lump sum, so...

It sounds like you need something in writing. Does the company have a website? Perhaps they have some legal stuff on there.

Another option could be to call them up and without telling them who you are, ask for their policies on lump sum payments.

jak
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It sounds like you need something in writing.

I hate to recommend this to someone who's already in enough debt, but might this be a point to get a lawyer involved? Also, as this is a student loan, maybe the department of education can help you understand what the rules really should be.

http://credit.about.com/cs/loansstudent/a/071603.htm has a lot of resources that may help.

Was this a private loan to begin with?

-A
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My wife and I both teach in the South

If you're in collection this may not apply, but aren't there loan forgiveness programs for teachers?
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It SOUNDS like you are dealing with Federal student loans (based on the 18% threat), but it is unclear from your post. If you defaulted on Federal loans, you should have had an opportunity to rehabilitate them and bring them back to good standing after only one year instead of paying year after year to the collection agency. If that is the case, is sounds like this is just a tactic the collector is using to keep their collection account open so they can collect money on the account. You may wish to make a written demand indicating you want to rehabilitate the loan(s).

I defaulted on my law school loans a few years ago and, after dealing with the collection agency (NCO Financial), worked out a rehabilitation plan. The rehabilitation plan required that I make 12 monthly on-time payments (started in Jan., 2001). After that, the balance was recalculated, the loans re-written, and I was able to resume payment directly to the lender (not to the collection agency) and the loans were in good standing... meaning I could consolidate them (which I did a couple of years later). Unfortunately, they DID add the 18% maximum-allowable collection cost to the prinipal of the loans when they were re-written (meaning the principal balance soared to almost $90K!). But you are allowed - and the lender is required to offer - a rehabilitation plan on Federal student loans as long as you agree to make 12 months of on-time payments.

As a side issue, does anyone know how the added collection costs are supposed to be calculated? I know there's an 18% cap on them, but most lenders seem to automatically add the full 18% regardless of whether is corresponds to their actual costs of collection. Since I was pretty desperate to get these loans taken care of at the time (the re-hab started about 4 mos. before I got married and there was a threat to garnish my wages at the time) I really didn't press the issue as much as I probably should have, but I really thought it was a dastardly practice.
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NCO Financial

I had to deal with them once on a medical bill (that I didn't actually owe, as it turned out-- I'd already paid the provider, but their billing office screwed up and forwarded to NCO anyway). They're scum.

Sorry-- hit a nerve.
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I'm not sure who was worse - NCO or TERI (The Education Resources Institute - a FINE name for a collection agency) who was pursuing my private lender loans. They were both scum IMHO.
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Thanks Folks, for the responses so far. To answer a couple of questions...Yes, these were consolidated Federal loans that I defaulted on. And no,the forgiveness for teachers program won't apply to me. It looks like I may need to get a lawyer, and great idea to anonymously inquire about payoff policies. I'm planning to act on both of those suggestions.

The Collection Agency is "General Revenue Corporation". I never rehabilitated the loan because the agency assured me that unless I did there would be no collection costs, and so I thought I could not have to pay the 18% collection costs. I was very poor at the time and was just "putting it off" with the monthly payment. Somewhere along the line they started adding 18% to each payment... I realize now how stupid I was to not keep up with all this. They sent me no statements of any kind for those years.

Although the responses have been helpful, I still would like anyone's opinion on my original two questions:
1) Why all of this does not appear on my credit reports? (I'm scared it might suddenly appear if I pay it off) and
2) Does anyone ever offer a lump sum payment less than 100% to these agencies even though it's a student loan, as it is as it says on my statement, a "purchased" loan?
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Did you check all 3 credit bureaus? The loans may be lurking on one that you haven't checked yet.
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