The Collection Procedures with Defaulted Student Loans

Most of the guaranty agencies’ stringent collection procedures have successfully deterred student loan neglect. One of the supports for this claim is the steady decrease and current all-time low of student loan default rates. However, although the collections department is highly committed to assisting those who are in default and making repayment as simple as possible, the non-response in the borrowers’ side still opens up to one or more of the following collection approaches:
• Garnishment of Administrative Wage: Under the Higher Education Act of 1965, the Department of Education as well as the state guaranty agencies may require employers who employ individuals with defaulted student loans to take away 10 to 15 percent of the debtor’s disposable income per pay period. The garnishment of the administrative wage is actually a resort taken only when the debtor refuses to voluntarily repay his or her defaulted debts and may persist until the total balance of the outstanding debt is paid back.
• Treasury Offset Payments: Aside from administrative wage garnishment, the Department of Education has the right to request the Treasury Department to perform a federal offset against the federal income tax refunds as a way of collecting defaulted student loan debt. To simply put, the borrowers with loans in default status may forgo any federal tax refunds until he or she has repaid the defaulted loan.
• Legal Action: Litigation can be pursued by the Department of Education as well as state guaranty agencies as a means for collecting the defaulted loans. It means that if the debtor refuses to repay the debt voluntarily, he or she is subject to prosecution in a state or federal district court. The borrower is therefore sued for the outstanding debt as well as for the attorney and court fees. But, these methods are usually considered as last resorts, thus need prior notice of the proposed offset.
Preventing Default
There are several ways that you can make to prevent the onset of student loan default. It is just somehow necessary for you to place your interest and efforts on preventing it. Here are the possible ways that you can consider:
1. Make sure that you understand your loan options as well as the related responsibilities prior to taking out a student loan.
2. Simply make your payments on time.
3. If possible, inform your lender or service provider promptly about any of the possible adjustments that may affect the repayment of your student loan. In case you move or change your address, let them know. Also, make sure that they know about the name changes, which are very possible because of marriage; graduation or termination of studies; leaves of absence as well as transfers to another institution.
4. If certain financial difficulties are encountered, try to consider applying for a deferment or forbearance on your loans. Many experts often suggest that it is much better to defer your payments than to go in to default status. Along with this, ask your lender or service provider about the available options while you are still making payments, before you enter the default status of your loan. Always note that after you default, you won’t be able to get a deferment or forbearance anymore.
5. If for instance you are having trouble making your payments, try to contact your lender as they may be able to suggest an alternate repayment options for you. Some of the possible options include graduated repayment, income sensitive repayment, as well as income contingent repayment. Also note that the types of available repayment options currently depend on whether the student loan was issued under the FFELP or FDSLP or Direct student loan programs.
6. A student loan consolidation can be considered as another way for preventing student loan default. Combine all of your educational loans into one big loan as this gives you the chance to send your payments to just one lender. What’s more, you may be able to extend the term of the loan in order to lessen the size of your monthly payments.
7. Simply keep records regarding your student loans. If possible, try to back up copies of all your letters, canceled checks, promissory notes, disbursement notices, and some other necessary forms in a file folder. Just be organized.