If you got behind on making your student loan payments, your wages, benefits, and tax refund can be garnished. This is called “involuntary collection”
The federal government has very powerful collection tools and it can use them without a court order and with no time limits!
Different kinds of collections, and what you can do about them
Tax Offsets
What are they?
The tax offset program allows the government to take your tax refund if you are in default on federal student loans. They can even take tax refunds from programs like the Earned Income Tax Credit.
What can I do?
If you get a notice of an offset:
- You can request a hearing once you receive notice of a tax offset.
- You must file a request for a review at the address written in the offset notice 65 days after the date of the notice or 15 days after a request to see the loan file, whichever is later.
- You must make a request to see the loan file within 20 days of getting the offset notice.
If you get a warning notice:
- Several months before the tax offset, you will get a written notice to warn you about the tax refund offset and other collection methods. You will probably only get one written notice. A tax offset can happen any time after you get that notice – even years later, as long as you are in default on a federal student loan.
- To find out whether your account has been flagged for a tax offset, you can call 1-800-304-3107
To avoid a tax offset:
- Establish a repayment plan
- Try to get out of default
- Request a hearing and raise defenses
You can challenge a tax offset if:
- You have entered into a repayment agreement and have started making payments
- The school failed to make a refund that was owed
- The borrower is deceased or totally and permanently disabled
- Extreme financial hardship exists
- The loan is not enforceable (e.g., forgery)
- Borrower defense to repayment (e.g., school misconduct)
- Borrower is eligible for a discharge (closed school or false certification discharge)
Wage Garnishment
What is it?
- 270 days after missing a payment, your loan goes into default.
- Once this happens, the government can take a certain percentage of your wages to pay off the loan.
- 15% of your "disposable pay" can be garnished. But 30 times the federal minimum wage, or $217.59 per week, is protected.
What can I do?
- You can request a hearing once you get a notice of wage garnishment.
-
For FFEL loans, garnishment won't start if you request a hearing within 15 days of the notice.
-
For Direct loans, garnishment won't start if you request a hearing within 30 days of the notice.
-
-
You may be able to challenge the garnishment if:
-
You are within the first 12 months of having a job again after you lost your last job.
-
You are making payments toward a repayment agreement.
-
The school didn't pay a refund.
-
You shouldn't have to pay because of death or total and permanent disability.
-
You have a borrower defense to repayment (like school misconduct)
-
The loan isn't enforceable (forgery, etc.) or is dischargeable (closed school or false certification)
-
You have a financial hardship
-
-
More about Financial Hardship
-
If a garnishment order is issued, the Department of Education won't consider your request for financial hardship for six months.
-
A hardship should be granted if your income is less than or equal to your expenses. You will need to give the Department a Financial Disclosure. Make sure to back up any expenses you claim (like rent, utility bills, etc.) with as much proof as possible.
-
To make a decision about whether or not to grant your hardship claim, the Department will compare your expenses to national averages. If your expenses are different than national averages, you should be ready to explain why.
-
The Department uses averages that are determined by the Internal Revenue Service. You can learn more about these average expenses on the IRS website.
-
Federal Benefit Offset
What is it?
- "Offset" means the government will withhold a part of your benefits to go toward your loans.
- Federal benefit offsets include withholdings from Social Security benefits, benefits under Part B of the Black Lung Act, and some Railroad Retirement.
- No amount below $9,000 a year or $750 a month can be taken.
- Supplemental Security can't be taken.
- Some other benefits can't be taken, like low-income housing assistance payments. Read the complete list of protected benefits here.
What can I do?
-
When you get a notice of offset:
-
You must request a review within 20 days of getting the notice.
-
You have the right to set up a repayment plan with the loan holder before the offset takes effect.
-
Request a hardship
-
The type of form you'll need to do this depends on the type of loan.
-
For FFELs you can use the Financial Disclosure Statement.
-
For Direct loans held by the Department you will need to use the Statement of Financial Status.
-
-
-
You may be able to have the offset suspended
-
You must send the following:
-
Notification letter showing the amount of the federal benefit
-
Proof of yearly income
-
Financial statement (within 10 days) – if the situation is an emergency, may submit equivalent information such as an eviction notice or a court order of foreclosure in writing with the completed financial statement
-
A letter explaining any exceptional circumstances with supporting documentation
-
-