Consult with a bankruptcy attorney and discuss your options to resolve or discharge your debts.
Madhu Kalra Kalra Law Firm 23720 Arlington Avenue, Ste 5 Torrance, Ca 90501 (310) 325-9012 http://www.thekalrafirm.com
This sounds like a private student loan (vs. Sallie Mae, etc) . Yes, they can pull it out of collection. No doubt the entire amount is due now (and earlier). They do not have to accept payments that are not acceptable to them. You might consider Chapter 13 because you can then force them to accept smaller payments. Talk to a bankruptcy attorney.
My response is general information not intended as legal advice or to create an attorney-client relationship. Seek advice from a qualified attorney to see how the law fits your specific facts. I am licensed to practice law in Washington and Oregon.