Pursuant to the Higher Education Act and the terms of most borrowers' promissory notes, you are liable for the costs of collecting your defaulted Federally-financed student loans. The largest of these costs is usually the cost of contingent fees that may be incurred to collect the loan. The Department gives you repeated warnings before it refers a debt to a collection contractor. If those warnings do not persuade you to reach repayment terms on defaulted loans, the Department refers those loans to collection contractors. The contractors earn a commission, or contingent fee, for any payments then made on those loans. The Department charges each borrower the cost of the commission earned by the contractor, and applies payments from that borrower first to defray the contingent fee earned for that payment, and then to interest and principal owed on the debt. As a result, the amount needed to satisfy a student loan debt collected by the Department's contractors will be up to 25 percent more than the principal and interest repaid by the borrower. On each billing statement, the Department projects an estimate of the total amount needed to satisfy the debt on the date of the statement, including collection costs that would be incurred by payment in full of that amount.
You should contact us for questions regarding collection costs.