FAMS, or Financial Asset Management Systems, is a debt collection agency hired by companies like Navient to recover defaulted student loan debt.
These loans are often past the statute of limitations, which means you may get a settlement offer for pennies on the dollar, which may sound too good to be true. But make no mistake, these offers are legitimate.
Ahead, learn more about settling student loan debt with FAMS.
There’s no evidence to suggest that FAMS is a scam. It’s a legitimate, Better Business Bureau-rated company that offers collection and financial services to companies in the government, healthcare, and student loan market.
Until recently, FAMS also worked with the U.S. Department of Education to collect defaulted federal student loans. It sent wage garnishment orders to employers and income tax return offset notices to the IRS and Social Security Administration. It also helped borrowers set up payment plans to get out of default using loan rehabilitation or consolidation to regain eligibility for student loan forgiveness programs and repayment options like income-driven repayment plans, deferment, and forbearance.
The contract with the department ended last year when the head of Federal Student Aid, Richard Cordray, announced that they were moving all federal student loan collections to a new company, Default Resolution Group.
So if FAMS is contacting you about student debt, it’s likely an old loan owned by Navient, many of which started with Sallie Mae.
If FAMS had your defaulted federal student loans, visit StudentAid.gov to check your balance, see what type of loans you have, and check your eligibility for debt cancellation programs like Public Service Loan Forgiveness and the IDR Waiver.
Should you accept the settlement offer?
As I shared above, FAMS often sends settlement offers that seem too good to be true. For example, last year, they sent my client an offer to settle a $40 thousand private student loan for $1,500 — just 4% of the loan balance.
FAMS student loan settlement offer for 4% of the loan balance.
She emailed me frantically, eager to accept this fantastic offer and finally, put the debt behind her.
Email from client asking is the FAMS settlement offer legit.
But here’s where things get tricky.
FAMS included this disclaimer at the bottom of the letter:
“The law limits how long you can be sued on a debt. Due to the age of your debt, Navient cannot sue you for it, and Navient will not sue you for it even if you make a payment.”
Notice that the time to sue has passed.
This means that the company acknowledges that the time to take her to court has come and gone. And that means she’s no longer at risk of having her paycheck garnished, money taken out of her bank account, or a lien put on her home. But that doesn’t stop FAMS, or any other debt collector, from demanding payment.
FAMS may collect the debt — even though the statute of limitations has ended — as long as it doesn’t violate the law in its attempts to do so.
The only thing the expired statute of limitations does is prevent FAMS from winning a lawsuit against you. If it takes you to court, you can tell the judge that the debt is stale and the time to sue has passed.
So, should you accept a settlement offer from FAMS on a debt it acknowledges is past the statute of limitations? That may be a moral question rather than a legal question.
What happens after you pay the settlement?
FAMS will give you a debt clearance letter a few weeks after you’ve paid the settlement in full. This letter shows you are no longer financially liable for the settled loans.
The IRS will also send you a Cancellation of Debt notification (a 1099-C) at the end of the year. The outstanding part of your student loan is reported as taxable income on a 1099-C. You must include this in your tax return and may need to pay income tax on the amount unless you can get it excused for insolvency.
FAMS reports some defaulted debts to the three major credit bureaus, which can raise the interest rates lenders off you for home loans, auto loans, and credit cards.
FAMS typically won’t agree to remove the late payments from your credit report as part of a student debt settlement — nor can they if your loan servicer or lender added the payments.
The delinquent loan payments will remain a part of your credit history until the credit bureaus remove them automatically or you remove them because the information is inaccurate. Consider working with a credit repair professional to raise your score faster.
If you receive a letter or phone call from FAMS offering a settlement amount that seems ridiculously compared to the balance, the statute of limitations has likely run-out. If that’s the case, you may be able to disregard their collection attempts or counter their settlement offer with an even lower amount or a promise to pay the settlement amount in monthly payments instead of a lump sum.
The right choice for you depends on your financial situation and goals. Book a call if you want help figuring out the best strategy to tackle your student loan debt.