This can be particularly destructive to lower-income borrowers who may need their tax refund to pay for routine living expenses. This is accomplished through a program called the Treasury Offset Program, and it allows the IRS to seize your federal tax refund and apply it to your federal student loan debt. One of the most powerful tools that the federal government has to pursue federal student loan borrowers is the ability to intercept your federal tax refunds. Only then can they potentially go after a borrower's wages – and their powers (or lack thereof) is determined by state law. They have to first go through the court system – they must sue the borrower and secure a judgment. Private student lenders generally don’t have quite the same powers. All they have to do is find your place of employment and give you notice that they are going to garnish, along with the opportunity to contest that proposed garnishment. Federal lenders and the government can garnish wages “administratively.” This means that they don’t need to go through the court system or secure a judgment in order to take a portion of a borrower's wages. If the student loan default isn’t ultimately resolved, the borrower may eventually be subject to wage garnishment for federal student loans. ![]() What a student loan lender can do depends largely on state law. However, it’s quite common for private student loan lenders to sue borrowers in state court because obtaining a judgment is often the only way they can go after a borrower's property or income. ![]() Department of Education, rarely sue defaulted student loan borrowers because the government has so many powerful collection tools at their disposal that don’t require a court appearance. One of the most severe consequences of student loan default is the possibility of a lawsuit.įederal student loan lenders, including the U.S. Debt collectors are prohibited from engaging in practices that are unfair, deceptive, or abusive. ![]() Under federal law (and under state law in many cases, as well), some of these practices are illegal. In addition to the standard threatening letters, debt collectors sometimes call people excessively, misrepresent the nature of the debt or the borrower's rights, and they may contact people who have nothing to do with the underlying student loans. These debt collection agencies can be quite aggressive in pursuing borrowers in default, and sometimes they run afoul of the law. The account may then be placed with a third-party debt collector. Once a student loan goes into default, it's usually removed from the loan servicer that was handling the account while it was in good standing. If the private student loan contract allows for penalties and collection charges, and those charges are reasonable as defined by state law, then you might see collections charges assessed on private loans as well. Federal courts have upheld penalties and collections charges of up to 25% of the combined principal and interest balance for defaulted federal student loans.įor private student loans, it's a little more variable. For federal student loans in particular, federal law allows for massive collections charges and penalties to be assessed on defaulted loan balances. Financial PenaltiesĪnother major consequence of student loan default is a financial penalty – called “collections charges” – that can assessed on the underlying loan balance as a result of default. Some employers, especially in the financial sector, conduct background checks, and they might request a copy of your credit report which could jeopardize your prospects. Obtaining a car loan or any sort of line of credit could also be problematic. The negative credit reporting might make it difficult to rent an apartment or get approved for a mortgage. And the negative reporting continues while the student loan remains in default, leaving a long trail of destruction in your credit history. This can tank your credit score overnight. The late payments leading up to default will be reported to the major credit bureaus as well the default itself, along with a notation that the loan may be in collections or transferred to a different entity. A negative mark on your credit report is one of the major, immediate consequences of student loan default.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |