Avoid Paying Bad Debt and Borrow Smart

Many students take out tens of thousands of dollars worth of student loans to pay for undergraduate college expenses. According to studentloanhero.com, the average graduate in 2016 has $37,172 in student loan debt. How many of these students understand how student loans work or what methods of collection are legal?

The National Collegiate Student Loan Trust and its debt collector, Transworld Systems, Inc., will have to pay at least $21.6 Million because of illegal debt collection practices against private student loan consumers. In addition to the monetary penalty, over 800,000 student loan cases will have to be independently audited, and the companies are prohibited from attempting to collect on any loan, which either is too old to sue over or cannot be proven is owed according to the audit. Illegal activities include: violating consumer protection laws, filing false or misleading documents, and pursuing debts that they are not legally entitled to.

What is illegal debt collection?

“Zombie Debt” is the term used for debt when it is cut off, or “killed,” by a statute of limitations. In other words, the debt is too old for enforcement.  Thus, the debt is no longer owed to the lender or collectors.

Debt collection companies can purchase bundles of debt from lenders for pennies on the dollar. Then, these companies attempt to collect on as much of the debt as possible, because they are able to keep everything they collect. Further, they have not checked to determine if the debt is good or bad before they attempt collection. There are a number of reasons why, but, the point is, that they do not check to make sure.

How do I know if my debt is “Zombie Debt”?

Check the terms and conditions of your debt. The state laws applicable to your debt should be named in the terms and conditions of your loan documents. Once you determine which state, a quick google search should reveal the restrictions on collections companies.

For example, Delaware has a statute of limitations of 3 years, while South Dakota has a statute of limitations of 6 years. The statute of limitation sometimes begins when you last made a payment; other jurisdictions begin the statute of limitations several months after your last payment.

What Other Steps Can I Take to Protect Myself?

You can protect yourself from illegal debt collection practices by staying informed on how long companies can try to collect a debt; knowing what obligations you owe, and questioning notices received.

There are steps to take when choosing and paying student loans that can help protect yourself from fraudulent collectors and understand how much debt to expect.

First, use student loan calculators to understand the amount of debt and estimate how long it will take you to pay off your debt. If you are familiar with Microsoft Excel, you may download a calculator template, which will allow you to make changes and add extra payments. Thus, you can know exactly how much money you will owe at any given time and be prepared to identify any mistakes or bad collection practices.

Second, when applying for loans, check the reviews of the company making the loan or the ranking of the lender, to make sure the lender is reputable or has services and support available for borrowers. Also, feedback from customer’s interactions with a company can show how they treat their borrowers. Using a calculator, as mentioned above, helps you to know about how much money is remaining on your loan. These support features can help you figure out what discrepancies exist and why.

Third, check for news on student loan companies being accused of illegal practices and what those practices are. For example, if companies are claiming borrowers owe money they do not, and the companies are facing a lawsuit, it may be a good time to check your loan status and how much the company is claiming you owe. This can just be a simple google search for loan companies in trouble.


The biggest step anyone can take is to stay informed. When borrowing money, track your money independently. This is the same process as balancing a checkbook. Track how much you pay and include simple interest calculations, or more complex interest calculations if they are needed and you know how. Every three to six months compare your numbers with the numbers the lender is claiming and make minor adjustments (mostly to account for complex interest). This will enable you to know what questions to ask the lender to ensure no shenanigans, such as questionable fees, rate changes, or false debt claims, are occurring with respect to your loan.

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