Advice on Problem with Student Loans in Alaska

BILL'S ANSWER

The most important thing that you and your husband need to do is communicate with the lender to discuss the options available to bring the loan out of default and establish a repayment plan. In my past experience, most lenders are amenable to working with consumers to assist them in resolving defaulted student loans. The options available to you to help stop the enforcement action you are currently experiencing will depend on whether your husband’s delinquent student loans are federally insured loans, such as Perkins, Stafford, or PLUS loans, or private student loans. While both federally insured and private student loans are issued by banks, the key difference between the two is that with federally insured loans, the U.S. Department of Education guarantees that if the student defaults on the loan, the federal government will reimburse the bank 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 must abide by a long list of federal regulations in order to participate in the federal student loan programs. Private student loans, on the other hand, are basically the same as any other unsecured personal loan; the only major difference between private student loans and regular personal loans is that the former are generally non-dischargeable in bankruptcy.

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 right 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 garnishment of your husband’s Permanent Fund dividend payments and remove the lien on your property, 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 at www.ed.gov. 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 your family an undue financial hardship, it may be willing to release the lien and work with you in establishing alternate repayment terms.

Unlike Department of Education, private lenders must file a lawsuit against you and obtain a judgment before they can garnish your income or place a lien on your property, so it takes private lenders longer to enforce their debts. If the loans on which your husband has defaulted were private loans, the lender has almost certainly obtained a judgment against him. In Alaska, private lenders with a judgment against can garnish as much as 25% of your after-tax wages; they can also seize other income (such as Permanent Fund dividend payments), levy bank accounts, and place liens on property. In order to try to stop enforcement action resulting from a private loan, you should contact the creditor to discuss your financial situation and try to negotiate an alternate payment plan. Unfortunately, the creditor may not be willing to stop its enforcement voluntarily, forcing you to explore alternative options.

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, your husband 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 these loans, 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 are 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. To learn more about bankruptcy, I encourage you to visit the Bills.com Bankruptcy Information & Resources page.

I wish you the best of luck in resolving your student loan debt. 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 your husband should be able to resolve his student loan troubles by working with his lenders, 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 hope that the information I have provided helps you Find. Learn. Save.

Best,

Bill

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