Many student loan borrowers are wondering what happens when their loan goes into default? The answer depends upon the type of loan you have. If you have a private loan, default and collection matters are typically governed by the contract you signed. This blog provides general guidance regarding federal student loans.
When a federal student loan goes into default, the government has the authority to take collection action against the borrower. The two primary methods used by the government to collect the amounts due include withholding money from your income tax refunds and/or your wages.
The Department of Education will notify the U.S. Department of the Treasury of your default and instruct money to be withheld from any federal payments being made to you, including your income tax refund and Social Security payments. This process is commonly referred to as “Treasury offset.”
The government can also order your employer to withhold money from your paycheck. The maximum that can be withheld to pay your student loan default is 15% of your “disposable pay.” Unlike a private lender, the government is not required to obtain a court judgment to take this action. However, you will be given written notice of the proposed withholding at your last known address and you have 30 days to object to the garnishment. The garnishment of your wages can continue until your loan is no longer in default status or it has been paid in full.
If your student loan is in default status, let us help. We can assist with filing an objection to the garnishment of your wages, including arguing your case at a hearing. We can also help you take action to get your student loan out of default status.
If you are considering filing for bankruptcy protection or you need assistance with your student loans, call DeLadurantey Law Office, LLC, at (414) 377-0518. We believe that each client should receive the individual attention necessary to reach their financial goals. Recognizing the needs of working clients, we maintain a flexible schedule and offer evening appointments. Initial consultations are always free, and phone inquiries are always welcomed. Find us on the Internet and on Facebook.