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Advice About Student Loan in Default - The Bills.com Blog
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Advice About Student Loan in Default
Thursday, Nov 6, 2008
Question: Started truck driving school in Texas. Was unable to finish do to illness in family. Took only correspondence course. Stayed in Idaho to take care of my Mother. Never got back to Texas. Now I'm being charged almost 12000.00 for only the correspondence course. I do not get my income tax & the Gov. is also taking 109/mo out of my bank acc. is there anything I can do?
Answer: Normally, any course of instruction that you contract to take with a sponsoring agency, for example, a college, is a matter of contract between you and the agency. However, the federal government can become involved in the enforcement of education debts if you applied for federally insured student loans, such as Stafford or Perkins loans, to finance your education. Under these programs, the U.S. Department of Education guarantees that if the student defaults on the loan, the federal government will reimburse the school or bank which loaned you the money for its losses. In turn, the federal government will come after you to collect the money which it was forced to pay to your lender. The federal guarantee of these loans allows lenders to provide loans without rigorous credit checks and to offer much lower interest rates than would be offered on many conventional loans. However, banks and schools must abide by a long list of federal regulations in order to participate in federal student loan programs. Given the list of enforcement action which you describe in your question, including seizure of your tax refund and a levy being placed on your bank account, it sounds as though the truck driving school which you were planning to attend loaned you the money to pay your tuition under a federally insured student loan program. Since you have defaulted on the loan, the Department of Education is working to collect this obligation.For federally insured loans, the Department of Education can take various actions against debtors to enforce defaulted obligations. Unlike other creditors, the federal government has the ability to garnish wages, levy bank accounts, and seize property without first obtaining a court judgment against the debtor. In order to try to stop the seizure of your
tax refunds and the levy of your bank account, you should contact the Department of Education; the DoE provides a list of resources available for consumers who have defaulted on their loans, available online . Another good resource to explore is www.studentloanborrowerassistance.org . If you can prove to the Department of Education that its actions to enforce the debt are causing you and your family an undue financial hardship, it may be willing to stop its collection efforts and work with you in establishing alternate repayment terms.
I certainly understand that it is frustrating to find yourself owing $12,000 for schooling which you were unable to attend. However, you likely signed a contract with the school and applied for financial aid, so the school, and in turn the federal government, is probably entitled to collect this debt. Depending on the school’s policies, tuition payments, or at least a portion of the amount paid, may be refundable to students who do not complete their course work; however, such a refund generally requires that the student take proactive steps to formally withdraw from the school. Simply not showing up is not adequate notice for the school to withdraw you from the program; because you did not formally withdraw, you are likely responsible for the full amount of the tuition for the program, regardless of the fact that you did not actually attend. That said, the Department of Education may be sympathetic to your position given the fact that you did not finish you schooling in order to care for your ill mother. I strongly encourage you to contact the DoE or the company servicing the loan to discuss the situation and to inquire about any assistance the DoE can offer you to help resolve this debt.
The last option most people consider to prevent liens and garnishment for student loans is filing for bankruptcy
I certainly understand that it is frustrating to find yourself owing $12,000 for schooling which you were unable to attend. However, you likely signed a contract with the school and applied for financial aid, so the school, and in turn the federal government, is probably entitled to collect this debt. Depending on the school’s policies, tuition payments, or at least a portion of the amount paid, may be refundable to students who do not complete their course work; however, such a refund generally requires that the student take proactive steps to formally withdraw from the school. Simply not showing up is not adequate notice for the school to withdraw you from the program; because you did not formally withdraw, you are likely responsible for the full amount of the tuition for the program, regardless of the fact that you did not actually attend. That said, the Department of Education may be sympathetic to your position given the fact that you did not finish you schooling in order to care for your ill mother. I strongly encourage you to contact the DoE or the company servicing the loan to discuss the situation and to inquire about any assistance the DoE can offer you to help resolve this debt.
The last option most people consider to prevent liens and garnishment for student loans is filing for bankruptcy
protection. Since student loans generally cannot be discharged in a Chapter 7 filing, you would probably need to file a Chapter 13 bankruptcy, which is a court supervised repayment plan in which student loans, as well as other debts, would be repaid through monthly payments made to the court. Chapter 13 can be an expensive and long-term commitment (5 years, typically), but if you feel that it may be an option to stop further enforcement action on your defaulted loan, you should contact a bankruptcy attorney in your area to find out if bankruptcy will help improve your financial outlook. Surprisingly, many people find that their monthly payments under a Chapter 13 would be more than the amount they would have been garnished had they done nothing, so if you are considering bankruptcy, please make sure to discuss it in detail with an attorney to determine if it is the right choice for you. I do not generally recommend bankruptcy to consumers with only $12,000 in debt, but you should know that it is an option if you can find no other alternatives to resolving this loan. To learn more about bankruptcy, I encourage you to visit the Bills.com bankruptcy information & Resources page.
To read more about student loans, and the options available to consumers struggling to repay them, I invite you to visit the Bills.com student loan Information page. While I believe that you should be able to resolve your student loan troubles by working with the Department of Education or the loan servicer, keep in mind that other options are available if needed. You should explore all of your options to determine which solution works best for you and your family.
I wish you the best of luck in resolving your student loan debt, and I hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com/blog/
To read more about student loans, and the options available to consumers struggling to repay them, I invite you to visit the Bills.com student loan Information page. While I believe that you should be able to resolve your student loan troubles by working with the Department of Education or the loan servicer, keep in mind that other options are available if needed. You should explore all of your options to determine which solution works best for you and your family.
I wish you the best of luck in resolving your student loan debt, and I hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com/blog/
Also, make sure to get a free financial health check-up with Bills IQ!
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1. Posted by satria on Friday 7th November 2008 11:41
Hi... I read your information from begining to the end and I think that is interesting information.. I think i will tell this information again to my friend and I hope this information will be usefull for them... oh yes I suggest you to check my blog on studentloans.blogspot , I hope the article on my blog will be usefull for you... and we can share each other. thank you... ;-)
2. Posted by Mary P on Wednesday 7th January 2009 16:55
What if you co-signed a private school loan for someone and they defaulted on the loan. The co-signer was working at the time they co-signed but is now disabled receiving social security disability. Can the social security disability money be garnished by the creditor?
3. Posted by Bill on Wednesday 7th January 2009 17:03
No, Social Security and disability income is protected against creditor action.
4. Posted by Che Santos on Monday 2nd March 2009 16:13
Hi! I took out student loans, but got disabled 6 months after I started working. I worked on and off, but ended up getting sick and on disability each time. The last job I held, I received a notice of garnishment, right when I was going on disability again. I'm not sure what happened after that, because I had to leave the US because I was too sick and had no insurance. I am now receiving Social Security disability benefits. Once I go back to the US, I intend to try to discharge my student loans if possible, because my only sources of income are SS disability benefits and child support for my 15-year old son. My question is this: how can I find out if my future tax refunds will be garnished to pay my student loans? I haven't collected my 2004 refunds, in fear that it might be seized for my outstanding student loans. Is there a website I can go to to find out? I really need my tax refund to buy tickets to relocate back to the US so my son can go to college. Please help us. Thanks & God bless!
5. Posted by Sam on Wednesday 4th March 2009 00:31
The only way I know to find out if the Department of Education, which guarantees many student loans, is going to try to seize your tax refund is to contact the loan servicing company that is handling your student loans. In most cases involving defaulted student loans, the DOE would seize any tax refund due to you. If you really need the money, you may want to contact the loan servicer before your file your returns to try to work out a payment plan or deferment with the lender. You may also want to ask about the possibility of discharge due to your disability. The bottom line is that you need to contact the loan servicer to find out the status and see what you can do to resolve these loans. I wish you the best of luck!