Student Loan Collection — Differences in Private and Federal Student Loans

Student Loan Collection — Differences in Private and Federal Student Loans

Student loans now exceed 1 trillion dollars.

To put this incomprehensible number in perspective — that is more debt than all of the nation’s credit card debt.

When there is a default on student loans, collection activities begin.

Do student loan collectors have unlimited powers?

Can they really take your tax refunds?

Garnish your wages whenever they want?

Is there really no statute of limitations on any type of student loan debt?

To get a handle on this situation, let’s look first at the similarities in collection powers and then the differences between private and federal student loans.

Similarities In Collection Of Federal And Private Student Loans

Under both types of loans, you can be sued by the proper party if you default on the loan.  This makes sense as being sued is normally always an option if we default on loans.

You can face collection activities including:

  • Negative credit reporting.
  • Collection calls.
  • Collection letters.
  • You may also face abusive, illegal collection activities.

Under both types of loans, it is very difficult (but not impossible as collectors will often lie and say) to file for and receive a bankruptcy discharge.  You have to show “undue hardship” which basically means you can not work anymore and have no hope to paying off the loan.

Another similarity is both federal and private student loan collectors must follow the Fair Debt Collection Practices Act (FDCPA).

They also must both follow the Telephone Consumer Protection Act (TCPA) which restricts certain types of auto dialed calls to your cell phone.

Differences In Federal And Private Student Loan Collection

Statute of limitation

None for federal loans. Private loans will be based upon the applicable state law and what the contract says.  This can be for a short period of time or it may be a long period of time but at least it is not unlimited like the federal student loans.

Options to rehabilitate or consolidate to bring out of default 

On a federal loan you can rehabilitate or consolidate (i.e. refinance) one time each if you meet the requirements. A private student loan collector does not have to allow you to do either unless the contract requires it (I’ve never seen that).

The definition of default

A federal loan is in default if you go 270 days without making a payment. A private loan is in default whenever the contract says it is. This usually is one missed payment. Or moving without providing a new address. Or filing for bankruptcy.  Sometimes it can be when you default on another debt.  You really have to read the contract closely to find out.  Given that there is a statute of limitations, you might find the default happened long enough ago that no suit can be filed against you, no threats of a suit, ect.

Ability to wage garnish

Under a federal loan, you do not have to be sued in order for your wages to be garnished. But you do have to receive a notice letter and have an opportunity to request an administrative hearing. (Note many collectors will lie about this — they say they can garnish you whenever they want). A private student loan collector cannot do this — instead you must be sued, lose the suit, and then you can be garnished if allowed under state law. This is the same as a credit card debt, mortgage loan, etc.

Ability to intercept government benefits or tax refunds

A federal student loan default can result in your government benefits being intercepted. There are some exceptions but this is a very powerful tool. A collection agency for a private student loan company cannot do this. Instead it is simply the same as a credit card debt, car loan, etc.

Powerful Collection Powers But Still Governed By The FDCPA

For any collector, whether collecting federal or private student loans, must abide by the FDCPA and cannot violate that law.

Well, they can violate the law. But if they do you can sue them.

In fact, if you don’t sue them, this will encourage them to continue violating the law against you and other consumers.

So appreciate the powers they have — especially if collecting a federal student loan — but understand these collectors are not all powerful and can be brought down when they violate the law.

They are so used to being arrogant, being heavy handed, and breaking the law in such an outrageous manner that they believe they are untouchable.

Suing them, as is your right under the law if they have violated the law, is a way to remind them that while they may be arrogant, they are just like you when they are in a courtroom in front of a jury — someone who is subject to the laws and they will have to accept whatever the judge and jury decide.

Contact Us.

If you have been abused by student loan collectors or have any questions, get with a consumer lawyer in your state. If you live in Alabama, feel free to call us at 205-879-2447 or you can fill out a contact form.

Have a great day!

-John G. Watts


  1. […] have previously discussed the great powers, but also the limits, of federal student loan collectors and how the federal student loan collectors will often violate the Fair Debt Collection Practices […]

  2. […] Click here to read (or watch a video) on the differences in collection powers between federal studen… […]

  3. […] wrong with the quality of the ED’s management of the overall process. Couple that with the extraordinarily broad latitude that loan servicers and private collection agencies enjoy — thanks to lawmakers — and the […]

  4. Barton Arnold says:

    in the 70’s I borrowed $2,700.00 student loan. This was some years discharged due to my becoming disabled.
    Some years later this was reactivated and the proceeded to take over $12,000.00 in garanshements, and claimed I still owed over $5,600.00. The discharge status has been corrected, but can I recover the over collections, and if so how?

    • John Watts says:


      I’m not sure — I’ve not had anyone who got a disability discharge and then had that discharge removed. Was it an error to remove the discharge?

      When was this corrected?

      When was the $12,000 taken out?

      Are you still getting any collection activity (calls, letters, credit reporting) on the $5,600?


      John Watts

Leave a Comment