I thought that I had read somewhere (FSA website maybe?) that after rehab is completed, late fees and collection costs would be removed; however, I can't seem to find where I saw that. Does anyone know where it states such? Does this apply to all federal loans being rehabbed? Also, is there any limit to late fees and collection costs (I saw something about 25% for collection costs but what about late fees), because my collection costs and late fees are almost 100% of the original loan principal and accrued interest. Thanks very much for any help.

Collection costs are up to 25%....late fees and interest/capitalized interest are not considered part of collection fees. Lates fees are only charged by the original lender/servicer and there is no limit.

I believe DOE loans drop collection fees for rehab...FFELP loans don't.

Thanks for the help, Lynn. So after rehab, the loan goes back to the original lender, right? So late fees stay on no matter what or can they be removed after rehab? I'm just confused because my principal and all accrued interest is barely half of what I owe and according to the CA the rest is collection fees and late fees (thousands of dollars), does this sound right?

Also, this is for a Perkins loan.

Your original lender for a Perkins loan would be your school. However, if you have been in default for many years the loan could have been taken over or subrogated by the USDOE.

I feel your pain, for two years of default, they had added $15,000 in collection costs to my loan! yes, you read that right.

FFELP: Collection costs that remain unpaid at the time the loan is sold (usually after 9-12 payments) are included in the balance, up to 18.5% of the principle and interest outstanding.

Perkins: Loan isn't sold, just taken out of default status and returned to normal servicing. This happens after the 12th rehab payment. Unpaid collection costs up to 24% of the principle and interest outstanding, after the 12th payment, can be added to the balance.

Direct: Like with Perkins, the loan is not "sold", just transferred back to normal servicing after 9-12 payments. A portion of each of the initial 9 payments goes to contingency fees (commissions paid to collection contractor). No unpaid collection costs are added to the balance.

Late fees can be charged before default on all 3 programs. FFEL and Direct can charge 6% of the late payment amount after a 15-day grace period, for each late payment. Perkins loans can charge up to 20% of the payment amount, as early as the day after the payment was due (for each late). Once in default, late fees are no longer charged.

Thanks for all the info, Lynn and Cynic. Cynic, you said that unpaid collection costs can be added so not automatically added, is there a way to get it not added after rehab? Also, I think the late fees that they've charged me are wrong, is it possible to get a breakdown from them of when and how much all the misc. fees were from before default? Can late fees ever be removed? Does it sound right that the collection costs and late fees are almost 100% of the principal and accrued interest? Thanks again.

Anyone have more information about my questions? Thanks.

Hi, Lynn, thanks for your help. The problem is my original amount of default is $3000, the total accrued interest is $900, and somehow I was told that I owe $9600 with $5700 in collection costs and late fees. Now, this can't be right. I told them that this is wrong, and magically in minutes they said that I'm right and that I owe $3000 in principal, $900 in total accrued interest, and only $3100 in collection costs and late fees and somehow there was a mistake in late fees (sure). This still can't be right. I think something "funny" is being done by my CA in terms of the collection costs or late fees because they make up amounts as if out of thin air. How can I go about making sure everything is correct? Should I contact the original lender?

The average collector cannot give you an accurate balance from what is on the CA screen. The information transmitted to the CA is often confusing and inaccurate. The only true and accuate breakdown will come from a client payment history.

How do you suggest I could get an accurate breakdown? This CA has actually given this to me in writing that my original principal is $3000, my total current accrued interest is approximately $900, and then approximately $3100 for collection costs and late fees for a total of approximately $7000 due now. I just don't understand how they can justify this. I was hoping once my rehab was done all these gigantic late fees/collection costs would come off but apparently they might not so now I'm thinking that perhaps I should finish rehab, pay the total they're claiming when rehab is done, and then sue them (probably sue my school which is the original lender?) in small claims court for the difference of what is extravagant and unjustifiable. Anybody have any experience suing like this? Thanks.

As far as collection costs on Perkins loans, the legal amount that can be added to the balance after the 12th payment is made is 24% of the outstanding interest and principle. The only way to have less added is to pay the collection costs before your rehab is complete.

Since it generally just costs schools more to collect then it costs Sallie Mae, it's normal for the costs to be higher.

The figures:

original principal: $3000
total current accrued interest: $900,
collection costs and late fees: $3100

Would tell me it's been about 6 years since your 1st payment was due? Is that correct?
If so, the collection costs are "reasonable", and your estimated balance after rehab (including interest and collection costs) should be about $5000.

Yes, it's been around 6 years, the paperwork wasn't done correctly (school couldn't produce my paperwork since the school didn't have the proper forms from me from way back when), I didn't know about this particular loan after the years that went by after getting it, I was never contacted until about 6 years after it was "due", it actually became due while I was still attending school, etc. etc. There's all sorts of things that weren't right here. All of it aside, I did borrow the money, I want to pay it back; however, I'm not going to let them take advantage and get 300% of the amount I borrowed by puffing it up with collection costs that went to supposedly trying to collect although I was never even contacted until 6 years out (what were these costs for if they never even contacted me?). I understand where you're getting the $5000 due after rehab, so does the over $1000 I paid during rehab not go towards this amount or is $5000 after those payments are taken into account? Thanks.

I'm assuming you'll pay 12 payment of $70 each during the rehab, total $840.

That woul basically reduce the collection costs owed from $3100 to $2260.

The interest and principle owed after those 12 payment would be ~$4150

x 24% = $996 in unpaid collection costs added, the rest of the $2260 written off,

making the new balance ~ $5146.

I actually paid $100/month already and am almost done with rehab, so basically all of that is now gone and I will owe another $5000. Awesome.....I guess I'll have to write some letters to my former school. This is ridiculous that after the many mistakes on both sides, they get to rob me for basically 100% of the original loan amount. At least with any other type of debt, no matter what ridiculous fees and things they put on, they're more than willing to remove them for any repayment let alone a full repayment of principal and accrued interest. Do they even have to justify their collection costs in any way other than a % prescribed by some idiot politicians?

Hate to tell you but not being contacted doesnt hold water as a dispute or a defense. It was your responsiblity to notify your lender of your current mailing address at all times. Postal forwarding is not considered notification.

From the DOE site. http://www.ed.gov/offices/OSFAP/DCS/faqs.html

Never Contacted


You must make payments on your loan even if you do not receive a bill or repayment notice. Billing statements are sent to you as a convenience, and you are obligated to make payments even if you do not receive any notice from the holder of the loan. If you have not received any billing statements from us, you may not have properly notified the servicing agency of your current address.

Actually, I stated some of the many mistakes and I never was stating that I now don't owe the principal nor accrued interest. These mistakes included the paperwork being incomplete for this loan, in fact if I really wanted to be a jerk, I could probably invalidate their claim since their paperwork is lacking. They also made the loan due while I was still attending their school (I was in school full time years after they claimed I should have started paying). Also, another of their mistakes is that they never performed the required exit interview in any form for this loan even though I graduated and they were aware of my graduation date (this is required according to the Perkins handbook for schools that I found online). Plus my whole point is I was never contacted for 6 years although I got my diploma and plenty of correspondence from the same school in the mean time so they knew of my whereabouts so what did they use all those collection costs for? It obviously wasn't in any effort to collect, they're just trying to rob me as I see it and I don't take kindly to that so I'm going to fight it.

You agreed to pay principle, interest, late fees, collection costs, and attorney fees, whether you got a statement or not.

They are required to offer exit counseling, and although you are obligated to take it, they can't make you. Either sending the exit information to you by first-class mail at the most recent address you provided to their loan servicer, or providing the exit counseling on their servicer website, would satisfy their due diligence requirement. Participating in exit counseling is your responsibility, and you can't use your failure to do it against them unless they didn't offer it.

If you were eligible for an in-school deferment at the time the loan defaulted, they could grant it retroactively, at their discretion.

Question: Did they certify any other federal student aid (including Stafford loans) for you, or accept any Title IV disbursements, after the time this loan defaulted?

If you had that much trouble with the loan while in school, obviously you knew about it and didnt contact them. Fighting it at this point will get you nowhere. This is a federally backed debt and if you have been in default for 6 years now, you could shortly end up in deeper do do. Perkins loans get subrogated by the DOE around the 7 year mark....that will end up costing you more financially not to mention the additional negative tradeline they will slap on your credit report for another 7 years.