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  1. #1
    Join Date
    Feb 2008
    Posts
    3

    Default Collection Agency Fees

    In 1982 my wife took out a Stafford Subsidized. In 1989 she took out a National Direct Student Loan. Some attempts to collect were made in the 80s and 90s, when she was not in a position to pay them back. In the late nineties, an attorney who was a friend of the family told her that the loans were more than seven years old and could not be collected. He advised her to disregard any mailings that had to do with these loans. Attempts to collect on these loans stopped shortly after that, leading her to believe that the attorney had been correct.

    Yesterday we received a notice from a debt collector stating that she owes almost ten thousand dollars. This was a surprise, since she had heard nothing about these loans for many years. I did some checking and came to the conclusion that the attorney was wrong, and that because these were federal loans there is no statute of limitations.

    Here’s the situation today. Though my wife is a student and I am not working, we have savings from which we can pay off these loans, and we are eager to do so and put this behind us. HOWEVER, I called the Debt Collection Service of the Department of Education to check on the total amount owed. They informed me that the principal and interest amount to about $8000, and that the rest of the money on the bill (almost $2000) was the fee for the collection agency.

    We owe money to the Department of Education, and we want to pay that money back. But I’m not thrilled about paying some collection agency an almost $2000 fee simply for sending us a reminder.

    It seemed to me from another post on this forum that the owner of the debt could, at their discretion, accept payment directly from the debtor instead of going through the collection agency. This seemed like a good solution – it saves us $2000, the government gets the full amount of the debt, and the collection agency doesn’t reap a ridiculously large reward for looking up our address and sending us a bill. So I gave this a shot: assuming that the Deptartment of Education still owned the debt, I asked someone there whether sending them a check for the $8000 (i.e., all principal plus interest) would cancel this debt, and they said that no, until we paid whatever fees the collection agency was asking for, the debt would remain. They said that we could try to negotiate with the collection agency, but I have a feeling that the agency won’t be amenable to giving up their fee.

    I understand paying back the interest and principal, because my wife must have signed an agreement promising to do this. But it seems strange that a collection agency should be able to tack on a $2000 fee. Where did that number come from? What if they had wanted to add a $5000 dollar fee, or a $10,000 fee? How is it that this fee can simply be added to the debt?

    In any case, my main question is twofold:

    1. Is there anything we can do that would result in us paying only the $8000 principal and interest, and not the $2000 fee to the collection agency?

    2. What concrete steps do you advise taking in this situation? The debt collector’s letter stated that we had thirty days to dispute the validity, in which case they would mail us “verification of the debt.” I think it makes sense to ask them to send verification, as well as a breakdown of the $10,000 figure they cited. What do you think – good move? Bad move? Irrelevant move?

    Many thanks in advance for any information that will take us closer to (1) paying what we owe, and (2) minimizing what seem to me to be excessive fees.

    -Fjfjdv in New Hampshire

  2. #2
    Join Date
    Feb 2008
    Posts
    3

    Default Re: Collection Agency Fee?

    OK, me again. I did some more searching and learned that the debtor is liable for collection costs, and that these costs may be up to 25% of the total debt. The math works out perfectly -- they are demanding the full 25%.

    I also learned that due to "Defense of Laches" (whatever those are), even though nobody contacted my wife for many years about this debt, nothing changes and the collection agency can still ask for the maximum collection fee.

    It sounds like we're probably stuck paying not only the principal and interest, but also the $2000 collection fee, which rankles a bit since it doesn't seem like the collection agency did much to earn it.

    Still, if I've misunderstood something or if anyone here has any insight into this issue, please do leave a response.

    Once again, many thanks.

    -Fjfjdv

  3. #3
    Join Date
    Nov 2007
    Posts
    811

    Default Re: Collection Agency Fee?

    It is very common for fees to be tacked on and for interest to continue to accumulate. Generally these fees should be only 25% of the debt, but some abusive collectors charge (and get) 30-40% of the debt and go unchecked for a long time (Padilla vs. Payco). In the past a lot of the "uncollectable" collections went straight to the large collection agencies after the default period. The government has since changed that and tries various tactics in order to collect.

    You can complain to the Department of Education regarding the lack of contact. That will not (unfortunately) change a thing.

    The fun thing about the government is that it follows the golden rule; the one with the gold makes the rules. That having been said, they will get your money one way or another.

    You are going to have to pay the bill which means that the collection agency gets paid for what they did; track you down and contact you. You *may* be able to negotiate the fees with the agency, but the money due to the government has to be a "PIF", or paid/payment in full.

    Good luck,

    UBF

  4. #4
    Join Date
    Feb 2008
    Posts
    3

    Default Re: Collection Agency Fee?

    UsedBranFlakes:

    Thanks for your reply. Got no issues with paying the principal and interest, but hoped I might find some way to decrease the collection fee. I will do some reading and see if I can develop some negotiation skills in order to talk them down on the collection fee, but I fear I'll be negotiating from a position of weakness, since as you mentioned the law allows them to charge the full 25% even if they just had to mail a single reminder.

    Again, thanks for your response -- I was starting to come to the conclusion that we'll be stuck paying the 25%, but I don't know much about debt and worried I might be missing some angle. Reading your message helps me come to terms with it.

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