College graduation means facing mountainous debt for many students in Ohio and around the country. The federal government backs loans for college students, enabling them to afford to go to college. Students do not have to make payments on loans until after graduation, but if a student does not make paying educational loans a priority, he risks going into default. Bankruptcy typically does not discharge student loans, so the consequences of default can be severe.
Default
As soon as a student loan is late, lenders consider it delinquent. The government declares a student loan default when the loan is more than 270 days delinquent if it is a loan with a monthly payment. If the debtor pays less frequently, the government assesses default status after 330 days. Statute of limitations typically do not apply to student loans, according to Section 484A(a) of the Higher Education Act. The lender must make an effort to locate the borrower before turning the loan over to the Great Lakes Higher Education Corporation, which is the guaranty agency for Ohio.
Tax Refund
If a federal student loan is in default, the borrower can lose her federal tax refund. If the loan is a private loan backed by the government, the United States Department of Education (DOE) can attach both your federal and Ohio refund. If offset occurs, the borrower can challenge the offset with the DOE. Some of the defenses for a challenge include an open bankruptcy case, a current repayment agreement with the lender or permanent disability of the borrower.
Collection Agencies
The lender can turn a borrower's account over to a collection agency. Ohio relies on the federal laws found in the Fair Debt Collection Practices Act (FDCPA) that govern the activities of collection agencies instead of having its own state law. The FDCPA allows communication from agencies with borrowers, but it prevents communication with third parties such as a borrower's parents or boss. Agencies cannot threaten borrowers or lie when attempting to collect a debt. The DOE has a special unit to assist student loan debtors if a collection agency is breaking the law. Harassed debtors should contact the Default Resolution Group at the DOE at 800-621-3115 and ask to speak with the Special Assistance Unit to file a complaint.
Other Actions
The DOE or lender can sue the debtor for the defaulted loan. If a judge enters a judgment against a debtor, the plaintiff in the case can ask for a garnishment of the borrower's wages. Borrowers in default cannot receive additional student aid until the loan is out of default status and at least six months current. The borrower's credit report will show any defaults or judgments, and the negative items will lower his credit score. This may make it difficult to obtain credit at favorable interest rates in Ohio.
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