November 30, 2020
The JUSTLAW Team

In Default on your Student Loan Payments?

Do you have student loans? Are you up to date on your payments pertaining to the loan? Are you behind on them? If so, there are a few different designations that the government will label your account as, whether it is delinquent or in default, that could mean you could face legal consequences.

Most students take out student loans. In fact, it is estimated that ​70%​ of students have taken out student loans in order to pay for their education. While they make sense in order to get an education, they can cause you loads of trouble later on in life.

The Stages to Default:

Before you are considered in default on your payments, you must meet a few standards.

    1. Delinquent: If you miss a payment, you are considered delinquent. If this was just an outlier and you thereafter continue to make your payments on time, your account will not be deemed as delinquent.
      • Falling into delinquency, while not considered as serious as default, should still be taken seriously. If your account is considered delinquent, you may have trouble receiving additional credit, renting an apartment, etc. Therefore, make your payments swiftly in order to avoid any potential of falling behind on any of your payments.
    1. Report to Credit Reporting Bureaus: Student loans services will report your account to such bureaus if you are 90 days behind on your payments.
    2. Default: If you are 270 days behind on your student loan payments, your account enters into a default stage.

What are the legal Consequences of Default on your Student Loan Payments?

  1. Loss of Eligibility
    • If you are in default on your loans, you will be ineligible for future student
      loans.
  2. A potential lawsuit
    • If you fall into default on your student loans, the lenders can come suing. Unfortunately, for these types of lawsuits, the statute of limitations is irrelevant. In other words, they can sue you regardless of how long ago you went into default on your loans.
  3.  Damaged credit
    • Arguably one of the worst aspects of defaulting on your student loans is receiving damaged credit as a result. There is nothing worse than a low credit score. You simply will have a tough opportunity to borrow any money for any loans. Thus, you will find it hard to take out a car loan, mortgage, or a new credit card account.
  4. Tax refund offset
    • If you default on your student loan, the IRS has the ability to withhold refunds on your income tax. They can legally do this until you meet your payments on your loan.
  5. Garnishment of your wages
    • Garnishment is a fancy word for saying that the government can legally take your income and use it to pay off your loans. While they cannot take the whole paycheck, they can take a small portion of it. There are options to object to garnishment of your wages, however it is very difficult to obtain and should only be done at the direction of an attorney.

If you are in default on student loan payments, here are some solutions:

  1. The Public Service Loan Forgiveness Program, otherwise known as “PSLF”, can forgive your loan if you have been employed in the public sector or for a Not-for-Proft organization for 10 years.
  2. While it is very difficult, it is not impossible to have your student loans discharged in a bankruptcy petition. The standard that a plaintiff must meet in order to have their loans discharged is that payment of the debt will cause an “undue hardship” on you and your family/dependents.
  3. There are also a variety of plans available that would pay off your loans over time. These plans work similarly to how a garnishment of your wages would work and generally would collect 10% of your income to pay off the loan over time.

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JUSTLAW hopes that this article has helped you determine what steps you need to take in order to effectively help your situation. Contact us for a ​consultation​ where we can direct you on the best steps to take to wipe away your student loans.