Debt collector can't back out on deal, if it's in writing

Opening Credits columnist Eric Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for

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Question Dear Opening Credits,
I have a Parent PLUS student loan. I have three loans. I requested that the loans be paid as I took them out, one at a time. I can't pay $600 per month. I told them if I could make that kind of payment, I wouldn't have needed the loans to help my daughter.

I reached an agreement of the $200 per month with a representative for this. I started receiving letters and phone calls. I was told (very rude people) that I was in default of over $3,500. I have been paying the $200.00 per month as agreed. They refuse to work with me and will not acknowledge the original agreement.

They have consolidated the loans. They are now threatening me with ruining my credit, wage garnishment and taking any tax return money, adding 25 percent to pay off and the continued interest added to account. Half of the tax return belongs to my spouse. Can they do this to me even if I am paying monthly? This is making me physically ill and I can't sleep and cry all the time. -- Kevin

Answer Dear Kevin,
"Thoroughly read all your contracts. I really mean thoroughly." Plato? Churchill? Nope. The sage who uttered such wisdom this was none other than Bret Michaels, frontman to the '80s hair-band Poison. You see, when you sign a contract you must abide by it, whether you promise to play a certain number of concerts or begin making payments on a loan in the original agreed-upon amount. Renege and you can be in for major legal and financial trouble. Yes, that includes all the collection action you described.

So let's go back to the beginning. Some years ago, you applied for a Parent Loan for Undergraduate Students (PLUS loan) so you could cover your child's college expenses. The bank reviewed your credit and financial circumstances, then accepted your application. They provided you with the money, trusting that you would repay it as per the contract. Because you took out a few of these loans, you must have known what you were getting into.

I understand that when it came time hold up your end of the deal, you discovered that you couldn't afford to pay, so requested a loan modification. That was a smart move! It's always a good idea to try. You're certainly not the first borrower to struggle with payments.

It is essential, however, that you try to work out a new plan while the loans are in good standing. According to the Federal Student Aid website, they will work with you to change the terms, and possibly allow you to not pay for a fixed amount of time with deferments and forbearances. These options are not so readily available for loans in bad standing, though, so I suspect that you had the conversation after they went into default.

This means that unless you have evidence of that conversation and a newly formed contract, you're out of luck. Maybe the person you spoke with was giving you ideas that needed to be approved by someone else, which never ended up happening.

On the other hand, if you do possess proof that the collection agency agreed to accept lesser payments with no repercussions, present it back to the lender. They will honor it. But if you don't, your next move is to take action so you don't get hit with further punishments.

You need to get on the phone with whomever is collecting on the loans. The voice you'll be hearing might very well be gruff again, but ignore the tone. Remember, all they want is the money, so be prepared to offer a payment plan that you can adhere to. It doesn't not sound as if they were happy with the $200 you've been paying, so ask what they will accept. Negotiate. And get everything in writing.

According to the federal student aid website,, you can rehabilitate the loan by making at least nine payments of an agreed-upon amount. After that, the loans will be in good standing and you can apply for a payment plan that is based on your income and expenses.

Oh, and as far as your credit is concerned, the late payments have been recorded and will remain for seven years. Yet once the default notation is removed, you won't have that hanging over your head, which is great.

Finally, remember that PLUS loans can be fantastic, but like anything else, every rose has it's thorn. No more tears or sickness, OK? You can get get these loans back in good standing.

See related: How much more can debt collectors tack on to the original debt?, Know your rights under the Fair Debt Collection Practices Act

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Updated: 01-23-2018