Federal education loan programs define a default as occurring after 270 days of non-payment. To stop garnishment of wages and seizure of income tax refunds, contact the U.S. Dept. of Education, work out a payment plan, and then stick to it.
Student Loans & Default
Under Stafford or Perkins loans, the Dept. of Education guarantees that if the student defaults on the loan, the federal government will reimburse the school or bank that loaned you the money, to cover the schools or banks losses. In turn, the federal government will take steps to collect the money from you that it was forced to pay to the 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 to participate in federal student loan programs. If too many alumni of a certain school default on their loans, the school can lose the eligibility to accept students with federal student loans.
Student Loans & Garnishment
Private student loans must follow the 25% rule that limits the amount that judgment-creditors may garnish. Garnishments for federal student loans, however, follow different rules. Congress granted the Dept. of Education the ability to garnish 15% of the wages of a federal student loan debtor administratively. What does administratively mean? The Dept. of Education may garnish the wages of delinquent debtor without holding a hearing and does not need to follow local state or federal exemption limits. See the Dept. of Education document Administrative Wage Garnishment to learn more.
If the garnishment causes a hardship for you and your family, you can request a hearing to change or remove the garnishment. See the Dept. of Education document Request for Hearing (PDF) to learn more.
For federally insured loans, the Dept. 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. As long as you are on default on your federal student loan, you are not going to receive your tax refund. It will be diverted to pay your student loan debt. You can try adjusting the amount you have withheld on your paycheck, so you dont end up with a large refund that you wont get. You might be curious to know how long this can go on. There is no statute of limitations on federal student loan debt that stops the Dept. of Education from collecting a delinquent student loan.
Where to Learn More
See the following to learn more about the rules surrounding collections on federal student loans and wage garnishment. (Editors Note: Since this article was written, big changes have taken place regarding federal student loans. Since 2010, private lenders no longer issue federal student loans, which are now issued by the Dept. of Education through the Direct Loan Program.)
- Dept. of Education Administrative Wage Garnishment page
- Bills.com Wage Garnishment page
- Repaying Student Loans Held by the U.S. Department of Education
- Common Disputes Involving Defaulted Student Loans
- Loan Rehabilitation
- Collections Guide to Defaulted Student Loans: FAQ
See the Bills.com resource Advice on How to Stop Garnishment on Student Loans to learn more. See the Bills.com resource Student Loan Payment for a more detailed discussion of these issues. If you are disabled and are paying a federal student loan, see the Bills.com resources Student Loan Disability and Federal Student Loan Tuition Waiver. If you work in public service and have federal student loans, read Public Service Loan Forgiveness to learn how to have your student loans waived.
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