What Happens if My Student Loan Is Referred to a Collection Agency?

A student loan enables you to borrow money for a college education. Student loans usually have lower interest rates as well as easy grace periods to defer your payments while you’re still in school. If your student loan is referred to a collection agency, be proactive to avoid bigger problems.

Initial Contact

If you miss even one payment, you will probably get a call from the student loan service center to find out what’s going on. Ignoring this call would be a big mistake because your lack of communication will escalate the response of the student loan office. If you respond to the loan department’s contact, you can probably work out a reduced payment plan for a specific period or you might even be able to defer payments completely for a while. The loan service center probably makes monthly updates to the major credit bureaus about your payment activity, according to the Georgia College website. A late payment or nonpayment could end up on your credit reports almost immediately after it occurs, hurting your credit score and possibly your ability to get credit.

Collection Agency Referral

Once you ignore internal collection attempts from the student loan service center, the company is free to call in assistance from a collection agency. A collection agency will pursue you much more aggressively than the student loan office did. You will get telephone calls, and representatives will leave messages asking you to call back. Again, the situation will only escalate if you ignore these telephone calls – it's best to pick up the phone and work out a payment arrangement before the water gets even hotter.

Payment Plan

Arrange a payment plan with the collection agency representative to begin payments again. Negotiate to get a payment schedule that you can afford, then ask for the agreement in writing to document everything. Once you make the payment plan agreement, stick to it. You’re out of chances so you need to stay committed to paying off your loan.


If you ignore collection attempts or you don’t follow through on the payment agreement you made, you can expect the collection agency to instigate litigation against you for default. Not only will you still have the original loan to pay, but you will also have to pay court costs, collection agency fees and possibly attorney fees, too.

Legal Judgment

The legal judgment will go onto your credit report as a significant black mark against you both personally and professionally. Your student transcripts might be blocked and registration could be blocked so that you can’t attend schools and universities. Your wages might be garnished, with your employer ordered to take money out of your paycheck to pay off your debt, and your state or federal income tax refunds could be garnished to pay back your student loan.

the nest