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Risky Business: When Student Loans Go to Collections

This is a guest post from Kat Fae, an American twentysomething living in London. Check out her blog Savings Not Shoes where she writes about trying to “…avoid the Carrie Bradshaw effect of being cash poor, shoe rich.”

Deciding to expand my life after college in another country was a big decision and one that has challenged me financially and intellectually. As I packed up and left the good old U.S. of A. for law school on the other side of the pond (where lawyers sometimes wear wigs), I attempted to put my plethora of federal student loans into in-school deference or forbearance. Five separate enterprises own a piece of my undergraduate education totaling $50,000 at the time. Four of the companies put my loans into various types of in-school and hardship forbearance. The one that wouldn’t budge, however, was my Alma matter holding tight to my $3,000 Perkins loan and those $43.23 per month payments.

When a Student Loan Goes to Collections

Not only did I not have an extra $43.23 per month at that time but I didn’t even know how to transfer money from London to Boston in any way that didn’t attract at least $50 in fees. My deferments kept getting denied until the loan ended up in collections. If you’re familiar with a certain type of person from South Boston (think of the movie The Departed) and combine that with the evils of a third-party collections company, you can imagine those phone calls. They told me that they didn’t care where I was in law school; I needed to pay. And by the way, the loan had doubled in size, and I now needed to pay $6,000. Yesterday.

I used every skill they’d taught me in law school to refuse to speak to “Mark Wallburg Collections Co.” and instead spent Christmas break 2007 on the phone in a screaming match with the head of loan collections at my former college. According to him (but not the other four student loan companies), the fact that I went to a law school overseas prohibited me from getting an in-school deferment period. Furthermore, since I wasn’t paying U.S. taxes as an overseas student, I couldn’t prove that I was economically unable to pay. So, tough luck. Pay $6,000. Now.

How I Fought Back

I then used the public relations skills that I had learned at an internship (set up through that very university) to draft a press release outlining the way I had been treated and the various federal loan reporting laws they had broken. I went through old contacts and planned to send copies to everyone and anyone I could think of in Boston. I figured if it was a slow news day, the Boston Globe might pick it up as an interest piece. They love stories of how the Colleges in Boston screw over students.

But first, I showed my masterpiece to Head of Collections at my college and magically, my loan was put into in-school deferment—retroactively—and all charges and interest over the past year were removed. Sadly, it remains the most profitable piece of writing I’ve done yet (approximate value: $3,000)!

Repaying the Loan

When I finally started working as a lawyer and trying to change the path of my financial life through my blog Savings Not Shoes, I added the loan to the list of debts and it’s currently top of my list getting payments of between $500 and $1,000 per month. “Knee-Breaking Collections” is still on my credit report, which is annoying, but doesn’t really affect me as I am totally anti-debt these days.

You’ll imagine my surprise my college’s alumni association approached me and asked me to lead a new U.K. Alumni Club. It was finally time to try and make up for Christmas ’07. I told the association that I would have been privileged to lead their overseas chapter in the U.K., if only I’d been treated with decency by the college’s student loans office when setting up my life over here, so I’d have to decline.

Now the alumni association has brought new life into my old tale of collections and woe. My goal is that it doesn’t happen to other students who perhaps didn’t learn as much in college—like writing press releases and having contacts on the Boston City Council.

Their veracity has impressed me enough to stop by when I’m in Boston at the end of the month and to go out to lunch with the alumni association. More importantly, I’m swinging by the loan office and giving them the remainder of the payoff amount for my loan…in person, and with a smile.

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Comments

  1. An easier solution would have been to just consolidate that loan out of existence. Assuming you take the time to find a good company, you’ll have a better loan rep to deal with. You’ll still owe the money of course, but at least you won’t have to deal with THAT anymore.

  2. I didn’t know it had gone to collections yet and once it has you usually can’t consolidate. Plus, often the advice is not to consolidate a Perkins loan because the Government will pay the interest if you are in school (which I was) but not if you consolidate it.

  3. The idea of an educational loan – or really any loan for that matter- nearly doubling is absurd and who knew schools send stuff to collections.

  4. You’re a law student who couldn’t figure out how to send $43 overseas???

    • Will, fair point. I couldn’t get a British bank account at the time and just used cash – however, I was also pretty bad with money. These days even if I lived in the middle of Lapland I’d figure out a way to pay my bills.