Student Loans Debt Collection

What is a default?

You are in default on most federal student loans if you miss payment for nine months. If you start to fall behind on student loan payment, don’t wait to fall into default. Act now to avoid defaulting. Contact your loan service to see if you are eligible for a more affordable payment plan, a deferment or forbearance, or another way to get temporary relief.

What are the consequences of defaulting on federal student loans?

Defaulting on federal student loans has serious consequences, including wage garnishment, tax refund offsets, damage to your credit score, and limitation on future borrowing or financial aid. Your loan holder can also pursue legal action to collect on debt, potentially leading to court costs  and collection fees.

Acceleration and immediate Debt:

The entire outstanding balance of your loan becomes due immediately, including any accrued interest

Loss of Benefits:

You become ineligible for deferment, forbearances and other repayment plan option

Impact on Credit Score:

Default is reported to credit agencies, negatively impacting your credit score for up to seven years.

Collection Actions:

The loan holder can take your tax refunds, garnish your wages, and potentially even go to court to collect.

Limitations on future Aid:

You may become ineligible for further federal student aid or financial assistance.

Potential for Professional License Suspension:

State laws vary, but a default may impact your ability to renew certain professional licenses.

Increased Debt:

Late fees and interest continue to accumulate, increasing the total amount you owe.

How does the government collect defaulted student loan debt?

The three most common ways the government collects student loan debt are:

 

• Federal Tax refund offsets,

• Administrative wage garnishments, and

• Social Security offsets.

In more limited cases, the government will also file lawsuits against borrowers with defaulted student loan debt to try to get a court order to collect on the debt. The government does not file these cases as often because it can easily collect on the debt without a court order. If you have been sued recently for a student loan debt, it is likely that you were sued for a private student loan debt, but you should talk to an attorney to confirm this.

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