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Elizabeth Prentice
Elizabeth Prentice, Attorney
Category: Bankruptcy Law
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Experience:  Managing Attorney for one of the largest consumer bankruptcy firms in America.
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Hello, Question Re: Defaulted student loans. I thought debt

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Question Re: Defaulted student loans. I thought debt law would be best section.

My mother, 66, has appx $16K in defaulted student loans. In 2007 she received a letter saying she owed like $19K and they took appx $8,000 in tax refunds over several years. I sent a cease and desist letter and all collection activity, including offsets seemed to stop. She didn't hear anything of this debt for 4 or 5 yrs and then last week she got letter Dept Education saying she owes $16K and offsets will start.

I'm a little confused. Why did offsets ever stop? Does a cease and desist letter actually have some power? I called the collection company handling the debt and they said, "we are transferring it back to the Dept of Education. I said, why and they said because there's a cease and desist on file so we can't do anything.

My goal was to maybe rehabilitate the loan, seems like best choice for defaulted loan but they won't even talk to debtor without signed letter lifting cease and desist letter.

If the cease and desist isn't lifted can they offset? I would assume so otherwise people could just send in a letter. Just seems odd offsets stopped for 5 years.

1. Can they collect (off set) from her TINY social security check of $930 a month?
2. Can they off set any funds with cease and desist on file?
3. Can you explain briefly in legal terms why cease/desist prevents them from talking to my mother?

Thank you.

I am a bankruptcy attorney and I would be happy to assist you. Pursuant to 15 U.S.C. 1692c(c), if a consumer advises a debt collector in writing to cease and desist all communications, or that the consumer refuses to pay the debt, then the collector must cease all communications with the consumer except for a few limited purposes - to advise that the creditor intends to invoke a specific remedy or to advise the consumer that the collector has closed the account. This is why she did not receive any communications from the collection agency. The letter did not actually stop the ability to collect the debt. The offsets may have stopped for a multitude of reasons, such as the amount that was taken from her refund satisfied the department of education minimum payments. For example) if a minimum payment is $120 a month, then they would have spread the $8,000 out over about 66 months. Thus, there were no more offsets until the 66 months passed. The whole time the Department of Education was still accruing interest. The $8,000 could not be applied as a single payment unless you had requested at the time it was taken that it count as 1 payment.


They are now transferring the collection back to the Department of Education (DoE), since the DoE has powers normally collection agencies do not. The DoE can take a person's entire social security disability check to pay back defaulted student loans, until it the debt is paid off. They can take 15% of social security retirement checks. Most people are shocked to find that out! I have personally seen it happen to some clients. The government has the right to take money they would pay you, since you owe that money back to them. They can 'off set' as you call it her payments, even with a cease and desist on file. The cease and desist only prevents you from receiving a normal statement regarding how much is owed, how any money the take is applied, the balances and interest, as well as prevents communications between the DoE and the debtor. I recommend writing a letter withdrawing the cease and desist. There are 2 reasons for this. The first is so you/your mother can actually chat with the DoE and begin communications again. The second is so she can negotiate a repayment plan, instead of the alternative; them merely taking her entire social security check. Most persons don't realize that if you call the DoE, they have MANY options available for repayment. Some plans for repayment are income based, others are deferment for hardship. These options require the debtor to talk directly to the DoE or the lender (ex-sallie mae) and ask for options and you must indicate a willingness to pay back the money. They will not initiate conversations about repayment plans; you must do this. In conclusion, I would recommend you immediately contact the DoE directly and ask what repayment options she has and if there are any forms available to do an income based or hardship repayment plan. If the DoE says you need to withdraw your cease and desist letter so they can talk to you, then go ahead and do that. An income based repayment of perhaps $50 per month is a much better result than losing a large portion of her social security check.


I hope my answer has assisted you and that you will leave me a positive rating! Please feel free to ask for me by name if you have questions in the future.

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