Defaulted student loans are not something anyone wants to spend a great deal of time thinking about, however sometimes finances has a way of spiraling out of control when illness or tragedy strikes. Defaulted student loans occur on a loan after it has gone unpaid for two hundred and seventy days in the case of a loan repayable in monthly payments or three hundred and thirty days in the happenstance of a loan repayable in less recurrent payments. Throughout the loan’s delinquency, the lending agency must implement “due diligence” meaning that they must make an all out effort to find you and discuss repaying the debt. If those efforts are unsuccessful the next likely step for the lending institution is to take the steps necessary to place your student loan in default with your state’s guaranty agency.
Defaulted student loans then may possibly be accelerated. This means that the entire balance becomes due and payable, with principal and interest, in a single payment. After such time as your defaulted student loan is sent to your state’s guaranty agency or The Dept of Education to be collected one of several things could happen. Defaulted student loans carry the possibility of being withheld from your Federal Income Tax. You will be allowed to contest this judgment however it will not delay the resulting withholding of funds while you seek resolution. Refunds that are due to jointly filing couples are subject to withholding for repayment of your defaulted loan but the share of the refund owed to the non-owing spouse can be recovered by the non-owing half of the couple by filing an “injured spouse” claim with the Internal Revenue Service. Social Security benefits are also liable to being withheld for up to fifteen percent of the payment amount under this agenda.
Defaulted student loans quite possibly will cost you more in the form of collection fees if your defaulted loan is placed with an independent collection agency. Administrative garnishment of your wages is also a chance you take with a defaulted student loan risking ten to fifteen percent of your wages being automatically removed from your paycheck before your employer even issues it to you and sent for repayment of your loan. Defaulted student loans can be avoided with careful planning and looking into a Federal Loan Consolidation thereby reducing your payments and spreading them over as many as thirty years before you would reach such a financial crisis.