Interviewer: Can you get that 25% interest penalty reduced or taken away? Can you get them into a program?
A. Campbell: The 25% is just a fee that basically if you never ever get out of default, you’re going to have to pay it. If you can get out of default that fee will go away. Then you can get back out of that, but that fee only applies if you stay in default the rest of your life and never pay back the loan.
If You Are Unable to Rehabilitate Your Student Loan, the Government Has Several Garnishment Options Available to Recoup the Money
Eventually, they’re going to come garnish you. By the way, the government doesn’t need to sue you to do that. They can garnish you. There’s all sorts of administrative procedures they have to go through. There’s all sorts of due process and notice provided to you, but they can eventually come and garnish your wages. They can take your tax refund. They can do Social Security Offset.
Interviewer: You mean they take your Social Security?
To Recoup the Money, the Government Can Claim 15% of Your Social Security and Offset Federal and Military Employees Earnings
A. Campbell: That’s capped at 15%. They won’t take the whole thing. An SSI the disability part is exempt. It’s not going to be taken necessarily. They can offset the federal workers wages, and military, too. The difference is the government doesn’t want to have to do that and they will be very generous in trying to help you get out and avoid that.
Initially, a Defaulted Government Student Loan Is Sent to a Private Debt Collector but Is Transferred Back to the Government for Non-Payment
Interviewer: When you say the government, you mentioned they send the debt to a private collector. So does it get passed back to the government? How does the government end up suing you in this scenario?
A. Campbell: The government could eventually actually sue you, yes. It basically goes back and forth. Once the loan is in default it goes to a private student loan debt collector. They handle the account typically, I think for six months.
Then it might get passed back to the guarantee agency or the Department of Education. Then they may handle it or they may send it to another private student loan debt collector. Eventually, they will start some kind of tax refund, wage garnishment, offset and eventually, if you owe more than $10,000 the Department of Justice will sue you.
If Your Student Loan Debt Exceeds $10,000, the Department of Justice Will File a Lawsuit against You for Non-Payment
In that scenario, it is the United States versus you in a federal lawsuit.
Interviewer: That sounds frightening.
If You Make Regular Payment Following a Judgment against You, the Government Will Vacate the Judgment
A. Campbell: It is pretty scary. You know what? Even when you get a judgment against you if you pay, if you make payments on a judgment, after a certain period of time, in my experience for two years, they will vacate the judgment as long as you enter into a payment plan.
Government Student Loans are Publically Funded for the benefit of Future Generations; The Money You Pay in Repayment Is Used by Future Students to Attend a College or University
They will wipe that judgment out if you keep on paying them because they don’t want to hurt your credit. They don’t want to have to do any of these actions but they have an obligation to the tax payers, right? This is because the taxpayers are the ones who took the risk and are the ones who fund the program.
You get the benefit of the student loan and you have to eventually pay for that benefit. It’s just like paying it forward. If you pay your student loans, other people can still take them out and take advantage of it. The more people who don’t, the more pressure the government’s under to lessen the student loan benefits and that hurts everybody.
You Cannot Discharge Student Loan Debt in a Chapter 7 Bankruptcy
Interviewer: I’ve heard in a Chapter 7 bankruptcy as well you can’t discharge certain student loans?
A. Campbell: That’s right. In any bankruptcy, it doesn’t matter if it’s Chapter 7 or Chapter 13; student loans are not dischargeable, unfortunately. Private student loans are not dischargeable. Governmental student loans are not dischargeable.