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I am unemployed and my student loans are now in collection. What is the best thing to do if I cannot pay anything right now? I was surprised that they went into collection because they are government loans. I thought that the government would take your tax return in payment for student loans and take money out of your paycheck, I didn't realize they would use a collection agency?
If you are unable to pay, advise the collection agency of the fact that you are looking for employment and will begin paying as soon as you can, but do not ignore them. You must give them updates on your financial status. If these are FFEL Loans or Direct Loans, then yes, these loans would be contracted out to collection agencies to perform the collection of the unpaid debt. With defaulted federal loans, you can expects state and federal tax offset, judgement, administrative wage garnishment (without requiring a court order) and social security and disability offset payments. Yes, they can garnish your social security and disability as this is a federal debt - The U.S. Supreme Court has upheld a ruling on this action.
Good Luck to you.