Ahhh..poo on them! They aren't licensed ANYWHERE to do this type of business.
Send them "the letter" and tell them you will report them to your AG's office if they don't mark your loan paid in full. (that is, of course, if you don't owe any money on the principle balance plus appropriate interest allowed for your state)
These guys are sharks, and tell them that those type of threats are illegal and you are reporting it to the proper authorities.
Don't be intimidated by them, they have absolutely NO legal recourse here.