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Student Loan Collection

Authored By: Legal Assistance of Western New York, Inc.- LawNY® - Geneva Office LSC Funded

Your options if you cannot pay your student loan

The information in this article applies generally to student loans issued or guaranteed by the federal government. Different rules may apply to other student loans, including private student loans.

What happens if you miss your student loan payments? Can you be sued? Will your wages be garnished?

Generally, if you miss one student loan payment, you may have some options before the loans are in default and go into collection. In most cases, your student loans are not considered to be in default until 270 days (around 9 months) go by without a payment.

If you have not made a payment on your student loans in 9 months, the government may take broad steps to collect on the loans.

Defaulting on your loans is a serious matter that can affect your credit and your ability to qualify for repayment programs. If you are behind on your loans or think you will have trouble making payments, contact your loan servicer right away to discuss your options.

It may be easier to deal with missed payments before your loans go into default. If you have already defaulted on your student loans, read on to learn what the government can do to collect.

If you are unsure about the status of your loans, you can visit this webpage to learn if your loans are in default.

What can the federal government do if I default? 

The federal government has broad powers to collect on defaulted student loans. Unlike private creditors, the federal government does not have to sue you to collect on student loans.

If you are sued for a student loan, you should contact a lawyer right away.

When a student loan is owned by the federal government there is no statute of limitations. This means that even if you took out the loan in the 1970s or 1980s the federal government can still take action to collect on the loans.

If you default on your student loans, the federal government can take your tax refund, garnish your wages, or deduct money from your government benefits (such as Social Security benefits). The federal government can take up to 15% of your weekly income for any debt you owe. If you owe more than one debt, the government may be able to take up to 25% of your weekly income. So you know, SSI and VA benefits are usually exempt from student loan collection and cannot be taken to pay back your student loans.

Notice requirements

Before the government can garnish your wages, take your benefits, or seize your tax refund, the government must notify you in writing that your income will be taken. The notice will usually come on letterhead from the Department of Treasury, however, you should not contact the Department of Treasury about the debt.

The notice will tell you what agency has asked the Department of Treasury to collect your income. For student loans, this agency is the Department of Education. Please note that the government is only required to send the notice to your last known address, so if you move, you should notify the Department of Education of your new address.

How to stop collection

When you receive notice that your income is going to be taken, you will generally have 30 days to respond to the notice and request a hearing to stop the collection. You can dispute the collection if you do not believe you owe the debt, or if you feel the collection would pose a financial hardship.

Do not ignore these notices. If you do not respond to the notice, the government will continue to take steps to garnish your wages, seize your tax refund, or take your government benefits.

Contact a lawyer right away if you need help responding to the notice.

Getting your loans out of default and into an affordable repayment plan

Even if you are not able to stop the collection, you may still be eligible for programs to get your loans out of default and into an affordable repayment plan, such as loan consolidation or loan rehabilitation. Depending on your income, in some cases, if you are able to get your loans back into repayment, your payment could be as low as $0.

If you are interested in programs to get your loans out of default and into an income-based repayment plan, you should contact your student loan servicer or the agency collecting on your student loans to discuss your options.

Discharging student loans

In rarer cases, you may be eligible for a total discharge of your student loans. You generally cannot discharge your student loans just because you cannot afford to pay them back. You typically must have some other qualifying reason to discharge your loans, such as a permanent disability that prevents you from working.

For more information on student loan discharges visit this page. You can contact the Department of Education, your loan servicer, or the collection agency to discuss your discharge options.

Issues with loan servicers or collection agencies

If you have issues with your loan servicer or the collection agency working on your loans, you can file a complaint with the Department of Education or the Consumer Financial Protection Bureau. By filing complaints with these two agencies, you may be able to get a resolution of your problem within 60 days.

You can file a complaint with the Department of Education by visiting this website.

You can file a complaint with the Consumer Financial Protection Bureau here.

If you are not able to resolve your problem after filing a complaint, you may want to contact the student loan ombudsman. To reach the student loan ombudsman, call 1-877-557-2575. The ombudsman is a neutral, informal, and confidential resource to help resolve disputes about your federal student loans.

Need more help?

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Go back to the Western New York Consumer Help portal. 

Last Review and Update: Oct 01, 2017