If you're a recent college graduate, you just may feel ripped off. You studied hard, you received your diploma, and now you're faced with an untenable job market. While getting your education, you likely racked up considerable debt in the form of student loans. Chances are, if your loans came from the U.S. Department of Education, it's time to start making payments.
But what happens when you simply don't have the money and can't make student loan payments? If you don't make other arrangements, your loan will eventually go into default. When that happens, a debt collector may come calling. That's because the Department of Education contracts out debt collection activities to about 18 debt collection agencies. Unfortunately, the consequences of not paying a student loan and the consequences of not paying another kind of consumer debt - like a credit card bill or a medical bill - are quite different. Here are five examples:
Bankruptcy - Most consumer debt is discharged in a Chapter 7 bankruptcy proceeding. Essentially, bankruptcy wipes the slate clean - with a few exceptions. Student loans are one such exception. In other words, even if you declare bankruptcy, you will still owe your student loan debt.
Seizing Government Money - With regular consumer debt, a debt collector can't go after things like your Social Security income or your tax refunds. With defaulted student loans, however, your tax refunds and other government benefits are fair game. If you're in default, you can bet that you'll never receive your refund check.
Wage Garnishment - For run-of-the-mill debt, it's difficult for a debt collector to garnish your wages. In order to do so, a debt collection agency must take you to court and get a judgment against you. They then have to enforce the judgment. With defaulted student loans, though, the Department of Education can force your employer to withhold up to 15 percent of what are determined to be "disposable" wages.
Collection Costs - For consumer debt, you aren't responsible for paying collection costs. With defaulted student loans, however, the cost of collection (around 25%) is tacked on to your outstanding balance, interest, and fees. To add insult to injury, any payment you make first goes to paying the debt collector's fee.
Statute of Limitations - Each state has a law defining the statute of limitations, after which time a debt can no longer be enforced. In other words, once the statute of limitations is up, a debt collector can't take you to court and get a judgment against you. The same isn't true for defaulted student loans. According to federal law, there is no statute of limitations for student loans - and federal law takes precedent over state law.
Although there are several significant differences between student loans and regular consumer debt, one thing remains the same. Debt collectors must comply with the federal Fair Debt Collection Practices Act. If they violate the FDCPA (through harassing you, intimidating you, or threatening you, for example), you can take them to court. If the court finds that they've violated the law, you could get up to $1,000 in damages, plus attorney fees and court costs.
While defaulted student loans can be daunting, you do have rights under the law. It's crucial to understand and exercise those rights, and to consult with a fair debt attorney if a debt collector violates the FDCPA.
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But what happens when you simply don't have the money and can't make student loan payments? If you don't make other arrangements, your loan will eventually go into default. When that happens, a debt collector may come calling. That's because the Department of Education contracts out debt collection activities to about 18 debt collection agencies. Unfortunately, the consequences of not paying a student loan and the consequences of not paying another kind of consumer debt - like a credit card bill or a medical bill - are quite different. Here are five examples:
Bankruptcy - Most consumer debt is discharged in a Chapter 7 bankruptcy proceeding. Essentially, bankruptcy wipes the slate clean - with a few exceptions. Student loans are one such exception. In other words, even if you declare bankruptcy, you will still owe your student loan debt.
Seizing Government Money - With regular consumer debt, a debt collector can't go after things like your Social Security income or your tax refunds. With defaulted student loans, however, your tax refunds and other government benefits are fair game. If you're in default, you can bet that you'll never receive your refund check.
Wage Garnishment - For run-of-the-mill debt, it's difficult for a debt collector to garnish your wages. In order to do so, a debt collection agency must take you to court and get a judgment against you. They then have to enforce the judgment. With defaulted student loans, though, the Department of Education can force your employer to withhold up to 15 percent of what are determined to be "disposable" wages.
Collection Costs - For consumer debt, you aren't responsible for paying collection costs. With defaulted student loans, however, the cost of collection (around 25%) is tacked on to your outstanding balance, interest, and fees. To add insult to injury, any payment you make first goes to paying the debt collector's fee.
Statute of Limitations - Each state has a law defining the statute of limitations, after which time a debt can no longer be enforced. In other words, once the statute of limitations is up, a debt collector can't take you to court and get a judgment against you. The same isn't true for defaulted student loans. According to federal law, there is no statute of limitations for student loans - and federal law takes precedent over state law.
Although there are several significant differences between student loans and regular consumer debt, one thing remains the same. Debt collectors must comply with the federal Fair Debt Collection Practices Act. If they violate the FDCPA (through harassing you, intimidating you, or threatening you, for example), you can take them to court. If the court finds that they've violated the law, you could get up to $1,000 in damages, plus attorney fees and court costs.
While defaulted student loans can be daunting, you do have rights under the law. It's crucial to understand and exercise those rights, and to consult with a fair debt attorney if a debt collector violates the FDCPA.
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