If you decide to go to college, you may have to take out student loans to complete your tuition payments. Although loans from the Department of Education typically do not have to be repaid until you graduate or stop attending, you can find yourself with a significant debt. If you have trouble repaying the loan, the Department of Education has various programs to help you, but will take collection action if you simply don't pay.
Default Defined
The Department of Education has many tools to collect your debt. The Treasury Department's Financial Management Services section directs the collection efforts and one of its methods is to garnish your federal tax refund. You are considered to be in default if your monthly installment loan has not been paid for 270 days. If your loan has less frequent installment payments it is considered in default after 330 days. Whoever holds your loan must make repeated efforts to collect the debt, but if those efforts are unsuccessful, your loan holder can turn the loan over to your state's guaranty agency -- a private non-profit corporation that has been designated to administer student loans -- to assist with collection. Your loan holder can also accelerate your loan, which would require that you pay the entire balance -- principal and interest -- in one lump sum payment.
TOP
The Treasury Department has a program called TOP -- the Treasury Offset Program. Under this program, a lending agency, such as the Department of Education, notifies the Treasury Department that you have defaulted on your student loan. Your information, such as name, address and Social Security number, are given to the department so it can initiate repayment efforts. It has several options including garnishing your federal income tax refund, administrative wage garnishment, turning your case over to a collection agency, notifying credit reporting bureaus and, if you work for the federal government, a federal salary offset. Certain other benefits received from the federal government can be garnished to pay your debt.
Offset Options
If TOP intends to initiate offset actions, it will give you prior notice and an opportunity to review their records for accuracy. At this time, you are also given the opportunity to work out a payment arrangement that is mutually satisfactory. If you ignore the notice, TOP can offset your tax refund, earned income credits, state income tax refunds and federal benefits such as Social Security. If you prove that you did not owe the amount recovered, you will receive a refund for that amount.
Other Collection Methods
If you are employed, the Department of Education can issue an administrative wage garnishment that requires your employer to withhold 15 percent of your disposable income to pay your debt, but not if you attempting to pay. If your debt is turned over to a collection agency, the agency is paid a 25 percent commission. Once collection begins, the commission is added to your debt and the balance of your debt does not get paid down until the collector's commission is paid. In the meantime, interest and penalties continue to accrue.
0 comments:
Post a Comment