Expert: Ray A Miller - 9/14/2010

Question
QUESTION: Dear Mr. Miller,

I have an outstanding balance with a university and I have been making $25-$30
payments each month as that is what I can currently afford. I have been under the
impression that as long as I do not ignore the collection effort and keep making
payments in good faith, the university has to accept payments and cant impose any
kind of further action.

Today I got a letter in the mail informing me that if I do not pay the rest of the balance
($899) by the end of September, they'll forward the account to a collections agency. I
am concerned of things like harassment by them, possible damage to my credit, a hold
on bank funds, etc. I'm a little naive with collections regulations and my rights to pay
what I can afford and when.

Can you please let me know if it is legal for the U to forward my account to an agency
when I am in monthly contact with them and make payments every month? Also, what
should I be aware of with regard to collection agencies? Your help is very much
appreciated!

Matt

ANSWER: Please send a follow up telling me if this is a university debt or a federal student loan.  Also, did you sign a contract with the university agreeing to these small payments?  If you did not sign an agreement they can turn the debt to a collection agency.  They will then proceed to call you to attempt to collect the debt in full.  If it is not paid, they will more than likely place negative information on your credit history.  The best thing to do is to call the university and set up satisfactory payment arrangements or offer to settle the account for an amount less than the balance in full.  I hope you have found this information helpful.

---------- FOLLOW-UP ----------

QUESTION: Thanks for the prompt response! Yes, this is a university debt and not a student
loan. I do not have a contract in writing agreeing to these small payments but
nobody has ever said anything to me that would lead me to believe that this
hasn't been satisfactory to them.

It is startling, too, because when they forward my account to a collections
agency, they will add on a $300 "collections fee" - so all of what I have been
paying since about March, plus some, will be essentially wiped out. I don't quite
understand why I have been making payments if they will just add it on to my
balance again in the form of a differently labeled fee.

I plan on calling to see if this can get straightened out but I wanted to get any
general advice or pointers from you to help me move forward. So far your
information has been very helpful!

ANSWER: In order to add a collection fee, it must be stated in the original contract.  Most states forbid adding these fees. Good luck with this.  Like every business, the university needs it's cash flow.

Let me know what state the university is in and which state the contract was signed in and I will research the collection fee for you.

---------- FOLLOW-UP ----------

QUESTION: The university is in Mass. When I signed up for the classes I agreed to their
terms and policies; do you think this was the "contract" that I entered into or
would they need to present me with another agreement for the purposes of
collecting owed tuition?

If it turns out that they are not able to add a collections fee then that would
be very huge and extremely helpful!

Answer
I would ask for a copy of the agreement you signed to see if you agreed to a collection fee. Mass has a lot of collection laws so you may need the advice of an attorney.

Please remember to leave follow up for each question. I hope you found some of the information helpful.