Can a debt collector take money out of your pocket?

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A reader wants to know if a daughter's diploma can be held hostage.

Dear Steve,

My husband and I just met his adult daughter two years ago. He had signed away his parental rights when she was an infant 30 years ago.

We have learned that she has student debt and want to pay it. The first debt is with the college she attended in Birmingham and is the one we’re focused on right now.

I paid them nearly $1000 in February because that was what I was told the balance was. Since then we’ve learned that a debt collector has had the loan for 4 years (the college wrote it off as not collectable).

She won’t get her diploma until the collector tells the college that the loan is paid in full. They have removed the late fees and deducted the payment I made; we are told we now owe about $4600 which was about right for the original amount she owed.

What will a debt collector agree to take to put this behind them (and us). They’ve told me they’ve removed some of their late fees, but I don’t have specific amounts.

We can afford to pay the whole thing, but they don’t know that and of course we’d like to pay the least amount possible (we just found out about this mess!). The next thing we’ll need to tackle is her federal loans…those will be a lot higher.



Dear Jena,

Since you’ve already tipped your hand and paid, it might be tough to get a great settlement. However, you might want to start negotiating at 50 percent of the balance due. but keep in mind the school has something you want and is holding the transcript hostage. They may not budge much at all.

This is one of those situations where hiring someone to deal with this situation may be more advantageous than guessing how to get a good deal as a debt settlement virgin.

If you do decide to settle the debt you need to be aware if the adult daughter is not insolvent then it can result in a big tax bill due to the IRS for the forgiven debt. Additionally, be sure to get any settlement offer in writing before sending the money over. Collectors have often been known to have no recollection of the offer when the money arrives.

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Finally, be sure to never lose the settlement letter. That will be the only proof you ever had a deal with the collector and the balance of the debt was forgiven.

On the federal loans, there is no need for you to shell out any money. There are good government programs that she can qualify for on her own and that will not involve any cost to get in to. See this for more information.

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Meet the Author

Steve Rhode

Steve Rhode

Expert contributor

Rhode has been writing since founding a nonprofit in 1994 to help people get out of debt.

debt settlement, student loans

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