When you borrow money to pay for a college education, you are responsible for repaying your student loans, even if you didn't graduate or have trouble finding a job after graduation. If you stop paying, the loan goes in default and can have serious consequences.
Court Hearing
A lender can file a lawsuit if he cannot collect student loan debt through other collection attempts. When a creditor receives a judgment against you, he can use many tools to collect debt, including wage and bank account garnishment and placing a lien against your property. When you get a notification of a court hearing, you should not ignore it. You can attend the hearing and present your defense as to why you are unable to repay the debt.
Wage Garnishment
If the court awards the judgment to your creditor, he may choose to garnishee your wages by obtaining a writ of garnishment from the court. The garnishment order goes to your employer, who is then obligated to withhold the payment amount from your wages. The federal garnishment law limits the amount to 15 percent of your disposable wages. The creditor must also leave you at least 30 times the federal minimum wage for your needs weekly. Garnishment will continue until all debt has been repaid. The amount may include legal and court fees and accrued interest charges.
Loan Rehabilitation
If your lender is suing you, you must act quickly. By then, the lender has already referred your loan to a collection or a guarantee agency. You must contact the agency and negotiate a repayment plan. If the lender is already garnisheeing your wages, garnishment withholding does not count as voluntary payments. You must also make payments within 20 days of their due date. After making nine consecutive voluntary on-time payments, the agency considers your loan "rehabilitated," returns it back to the lender and removes the default notice from your credit report.
Offsets of Income Tax Refunds
If you default on federal student loans, the federal government can intercept your federal and state tax refunds and other payments from the federal government to repay your loan debt. You will receive a notice within 45 days if the servicing agency intercepts your refund to offset your student loan. If file your income taxes jointly with your spouse, you have a right to request a hearing and claim the innocent spouse defense, as long as your spouse has not defaulted on his student loans.
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