Defaulting on federal government student loans can cost a fortune for not being responsible. Collection fees will be charged to you; collection agencies charge the Department of Education a commission, which in turn is passed on to you. Your tax refund will be intercepted, in other words the IRS can intercept any income tax refund you may be entitled to until your student loans are paid in full.
The Department of Education collects hundreds of millions of dollars this way from defaulted government student loans; this is one of the most popular methods of collecting on defaulted loans. The guaranty agency holding your loans assess your account each year to verify that you have not made any payments within the previous 90 days. If no payments have been made, the guaranty agency informs the IRS that your loans are in default.
If you are entitled to a tax refund, the agency will let you know that the IRS proposes to keep all or some of your tax refund. If you have an objection to this practice you will need to give written evidence to the guaranty agency, this you will need to do within 65 days of the date on the notice.
If you have repaid the loan, you have made arrangements to make payments under a negotiated repayment agreement or you have been granted a deferment, forbearance or your loan has been cancelled. You will need to show evidence for your arguments.
The Department of Education and student loan guaranty agencies are permitted to garnish, a portion of the wages of a borrower who is in default. They may garnish up to 15% of your disposable income. Because the minimum federal wage the agencies cannot take the full 15% of it. This would mean that your weekly income would be less than 30 times the minimum wage.
You can object to garnishment if you have returned to work within the past 12 months after being laid off or any other circumstance beyond your control and if you have been constantly employed for the last year.
You can also object if the consequences of garnishment are a tremendous financial hardship for you. Contact the lender of your student loan and negotiates an extension or remodeling of your repayment schedule.
