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Closed School Student Loan

My school closed two months before classes began. Am I responsible for repaying my student loan?

The school I was attending at the time closed about two months from starting. It is posted that we were not responsible to repay but they are still garnishing my wages. What can I do?

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Highlights

  • You can't discharge a student loan through bankruptcy, unless you can show extreme hardship.
  • A federal student loan in default can lead to an administrative garnishment.
  • Contact your loan servicer, if you can't make your payments.

To clarify your situation: You attained a student loan for an undisclosed amount and the school you were going to attend closed two months prior to classes starting. You do not indicate the type of student loan you received (federal or private) and whether you have a co-signer to the loan. You also do not indicate whether you used the full amount as payment for your tuition and have any residual funds that could go to repaying the loan.

You indicate “it is posted that we were not responsible to repay” but you do not indicate the specifics of who stated this. Was this statement posted by the school or a conversation from a representative from the lending institution? This is important in formulating your defense for not making payments that eventually resulted in the garnishment.

Student Loans & Federal Student Aid

Student loans are not discharged in bankruptcy unless the debtor can prove a hardship.

The total outstanding balance of student loans was $1.03 trillion as of September 2013. The 90-day or more delinquency rate at that date was 12%. By comparison, the delinquency rate was 6% in 2003. (Source: Federal Reserve Bank of New York)

There is a provision for discharge of federal student loans if the school closes. The Dept. of Education Federal Student Aid Closed School Information Web page indicates how you can discover if your school qualifies for this provision.

Background on Student Loans and Garnishment

A student loan is in default if the student has not made payments for 270 days. One primary consequence of a defaulted student loan is loss of eligibility for future student loans or any type of state or federal student aid. The default is reported to all national credit bureaus, which generally eliminates the option of credit-based alternative loans. Another possible consequence of a default would be wage garnishment.

If you are having trouble meeting your student loan payments, contact your loan servicer. You may qualify for a deferment, forbearance, or repayment alternative that is more affordable. Consolidation can help by extending your loan’s repayment term beyond the standard ten years. While this will increase the total interest charges, the monthly payments will become more manageable.

Visit the Bills.com student loan savings center to find a new student loan or refinance an existing student loan.

In 2012, the average debt load for college graduates was $29,400 per student. About 7 out of 10 seniors carry student loan debt. (Source: College Access & Success Project on Student Debt)

Previously, Bills.com has addressed student loans and garnishments (see Advice on How to Stop Garnishment on Student Loans). The recourse for ceasing or limiting the garnishment will be based on the type of student loan you have (see Everything You Need to Know About Student Loans). Both these resources indicate the differences between federal and private student loans and contain information that will help you understand and resolve your student loans.

Recommendation

First, check the Dept. of Education Federal Student Aid Web site and verify that your school qualifies for non-repayment. Second, you need to contact the representative who said you did not have to repay the loan. If it was the school, you may have legal recourse with the school. However, the school is no longer in business and probably filed bankruptcy. If the school accepted your funds, then you may qualify as a creditor in its bankruptcy. You may recover some of your funds, which you could use in repaying the loan.

Since your wages are being garnished, the lending agency must know that you are not in school, thus, the repayment of the loan. If the lending agency stated you did not need to repay the loan, then you need to get that in writing and determine the legal reason for the garnishment.

It is always advisable to have all correspondence in writing to provide a paper trail that could be used in a court. You may want to contact an attorney in your state that handles debt and bankruptcy to file a claim against the school.

I hope this information helps you Find. Learn & Save.

Best,

Bill

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1 Comments

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  • BC
    Dec, 2010
    Bryan
    Salt Lake City, UT
    There is no option of forbearance or deferment when dealing with private student lenders...or at least with most loans... in my own personal experiences not being able to make my payments due to unemployment they virtually offered nothing. The fee and interest will accumulate and eventually you'll go into default where there without even having to be served or having a judgment you'll be garnished. Sorry to stay the flexible payment plans and deferments and forebearances are all just a gimmick to make you feel comfortable about taking on debt for education. Its a joke! I cannot afford to make my payments and after pleading to them for any type of repayment plan deferment or forebearance of any kind they won't budge and I've payed on time for over two years now!
    1 Votes

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