Collections • Ross Martin Manager MartinR1@michigan.gov Ext. 60636 • 800-642-5626 • Fax: 517-636-0655 5/2007 Claims • Kris Goodman Manager GoodmanK1@michigan.gov Ext. 60660 • 800-642-5626 • Fax: 517-636-0655 Notice of Default • Notice of Default is filed with the Michigan Guaranty Agency (MGA) when an account is 300 days delinquent, but no later than 360 days delinquent. • Student Assistance Corporation (SAC), as well as the lender, will continue to call the borrower until the account is brought current or defaulted and purchased by MGA. Notice of Default (continued) • If the account is not brought under 210 days delinquent, MGA will purchase the account from the lender, and it is placed in default. Default Amount • The default amount is the principal and interest from the delinquent date to the default date. Default Amount (continued) • Example: $5,000.00 loan at 8% interest Interest paid through 3/1/03 Due Date 4/1/03 Purchased 2/1/04 • Interest paid through date + 1 day (3/2/03) to purchase date (2/1/04) = 335 days • $5,000 x 8% = $400.00 • $400 divided by 365 = $1.09589 • $1.09589 x 335 days = $367.12 • Default amount purchased = $5,000.00 + $367.12 = $5,367.12 Collection Costs • Collection costs are added to the account if the account is not paid in full within the first 60 days of default. Based on current federal regulations, collection costs are 25 percent of the purchased default amount. (This amount is subject to change.) Addition of Collection Costs • Default amount was $5,367.12 • Did not pay in full within 60 days $1.09589 x 60 days = $65.75 • $5,367.12 + $65.75 = $5,432.87 • $5,432.87 x 25% = $1,358.22 • New balance owed to MGA is: $5,432.87 + $1,358.22 = $6,791.09 Collection Activities • Accounts are collected by MGA for the first 120 days after default. • If there is no resolution in that 120-day period, the account may be referred to the Michigan Department of Treasury’s Collection Division or an Outside Collection Agency (OCA). • MGA may initiate Administrative Wage Garnishment (AWG) on an account if there have been no payments for 60 days. Outside Collection Agencies • Superior Credit Services 800-828-9286 • Van Ru Credit Corporation 800-477-0777 • Enterprise Recovery 800-377-1904 • Allied Interstate Inc. 888-316-9530 • General Revenue Corp 800-347-8209 (Education Debt Services) • Treasury/MARCS 800-950-6227 • GC Services 800-753-8354 Credit Bureau Reporting • Reported to the four national credit bureaus if the account is not paid in full within 60 days after default. • Remains on credit report for seven years. • Reported as I-9 rating. Worse than bankruptcy. Income Tax Offsets • MGA can intercept both the State and Federal Income Tax refunds. • The State Income Tax refund is taken if/when the account is assigned to the Michigan Department of Treasury’s Collections Division. Income Tax Offsets (continued) • The certification process of requesting the Federal Income Tax refund begins in July of each year. A letter is sent to borrowers that are not making payments and notifies them to contact our office if they wish to avoid offset. Income Tax Offsets (continued) • This gives the borrower the chance to: Make payments on the account. • To avoid offset, a voluntary payment must be received within 65 days of the date of the IRS notification letter. Set up a review of the account/hearing. Pay the loan in full. Income Tax Offsets (continued) • Once the account is certified to the IRS, any U.S. Department of Treasury checks (tax refunds, federal employee retirement checks, Social Security checks, etc.) will be intercepted until the account is paid in full. The Answer is: “YES!” • The question is: “Is there anything a borrower can do to improve their situation once they have gone into a default status?” Rehabilitation Consolidation Good Standing Letter - two types Rehabilitation • An account can be rehabilitated if the borrower complies with the following: Nine on-time monthly payments of an approved payment amount within a ten month time frame. • On-time is defined as within 20 days of due date. • One monthly payment can be missed and will still be on the program. Completion of the Rehabilitation Disclosure Form with MGA or by signing the Capitalization letter if with an outside collection agency (OCA). Balance at the end of nine payments must be greater than $200. Benefits of Rehabilitation • Reporting removed from the credit bureau. • Reduces collection costs to 18.5 percent. • Stops possible offset of taxes. • Stops action associated with administrative wage garnishment. Consolidation • Payment must be made that at least covers interest and collection costs. • There is no dollar limit for consolidation. Benefits of Consolidation • Reporting as paid in full with the credit bureau. Changes the rating from I-9 to I-5. • Reduces collection costs to 18.5 percent. • Stops possible offset of taxes. • Stops action associated with administrative wage garnishment. Benefits of Consolidation (continued) • A borrower may be eligible not to make any payments (to the consolidator) if they are requesting an: Income-sensitive repayment plan for FFELP loans, or Income-contingent repayment plan for direct loans. Subrogation • A borrower’s account is forwarded to the U.S. Department of Education (ED) when they have made no voluntary payments on the account within one year and meet the selection criteria provided by ED. • ED’s toll-free number is 800-621-3115. Good Standing Letter for Financial Aid • If a borrower makes six consecutive monthly on-time payments, they are eligible for a good standing letter that will allow for additional financial aid. • The payments must be an amount approved by MGA. • States on the letter, “Our agency does not object to the approval of additional Title IV financial aid at this time.” Good Standing Letter for Financial Aid (continued) • If, after a borrower receives this letter, they miss one payment or are beyond the grace period (15 days), they are no longer eligible for further financial aid for the life of the defaulted loan. Good Standing Letter • If a borrower makes six consecutive monthly on-time payments, they are eligible for a good standing letter. • The payments must be an amount approved by MGA. • Does not qualify them for further Title IV assistance. The letter states, “This letter is not to be used for reinstatement of eligibility for Title IV financial aid.” So what’s the difference???? • If a borrower has been reinstated for further aid in the past and later miss a payment, they can still obtain a good standing letter for their mortgage company or other creditor. • Make sure the letter you receive states they may receive further financial aid and is a current letter. Questions?