Student Loan Default in The United States - Garnishment of Wages and Tax Refund

Garnishment of Wages and Tax Refund

In addition, the IRS can take the borrower’s income tax refund until the defaulted loan is paid in full. This is a popular way of collecting on loan debt, and the Department of Education collects hundreds of millions of dollars this way.

To object, a written statement must be presented within 65 days of the IRS’ notice, and must give evidence of any of the following:

  • The loan has been repaid.
  • Payments have been made under a negotiated repayment agreement, or a cancellation, deferment or forbearance has been granted.
  • The borrower has filed for bankruptcy.
  • The borrower is totally and permanently disabled.
  • The loan in question is not the borrower’s loan.
  • The borrower dropped out of school and the school owes a refund.
  • The borrower attended a trade school and the school closed.
  • The school falsely certified the borrower as being eligible for a loan.

The government can also garnish wages as a way to recover money owed on a defaulted student loan. The United States Department of Education or a Student Loan Guarantor can garnish 15% of a defaulted borrower’s wages. The loan holder does not have to sue the borrower first. The borrower can object to the garnishment, but only under very specific circumstances, such as if his weekly gross income is less than equivalent to 30 hours at the federal minimum wage (currently $7.25/hr x 30 hrs = $217.50).

Defaulting on student loans can also end in a lawsuit. The government and private lenders can sue in order to collect on loans. There is no time limit on suing to collect on federal student loans, and the borrower can be sued indefinitely. Private student loans, in most cases, are subject to statute of limitations laws depending on the state.

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