With student loan debt rising to $1.44 trillion the first quarter of this year, it is important for borrowers to know what their options are to start paying down their debt. Many defer it or hope to get a forbearance, but this can lead to a greater loan balance. With 11% of cumulative student loan debt in default or 90 days delinquent, and a below average sign-up rate for affordable repayment plans, here are some options available to borrowers and a detail list of what the federal government can do if you fail to repay.
Current Federal Repayment Plans
Although the new Trump budget is calling for the removal of the Public Service Loan Forgiveness program, if you do meet the qualifications, now is the time to get in. If the new budget gets approved, anyone after July 1, 2018 who takes out a loan will not be eligible to use this option since it will have been dissolved.
If this option is not available to you, then you will probably be eligible for the default federal repayment plan. With this plan, you will make equal monthly payments for 10 years. The benefit of this plan is that you will pay less in interest and pay of your loan faster than other federal repayment plans.
If all else fails, the federal government has six other options available for borrowers. Of the six, four are income driven plans. The other two are the graduated and extended repayment plans. To get a better idea of what you will be paying from plan to plan, you can plug your information into the government’s repayment calculator.
What the Government Can Do If You Don’t Pay
The government is different from private institutions in that they have more options available to them to get an outstanding debt back from a borrower. The first option they have is a W-2 garnishment. If you are a W-2 wage earner, the government can garnish your wages with a 30-day notice without a lawsuit. In this situation, it is crucial to move quickly on this and ask for a hearing that way you can reach an agreement on an alternative repayment plan.
However, if the borrower doesn’t work, and collects social security, then the government can garnish from that. This situation is the most difficult because usually individuals who are not working and only making money from social security don’t have enough left after they pay their necessary bills to make loan payments. The best thing you can do is see if you are eligible for income repayment plans. If you don’t make above a specified level, your payment will be $0 until you start making more money.
Another option is to garnish from your federal-tax refund. If you paid a fair amount in taxes, and expect a refund, the government will take money from your refund to pay down the principal and interest on student loans in default. If you are due a refund, you have 3 years to file, so your best option is to get out of default first before you try to get your refund.
The last and messiest of these options is a lawsuit. This tends to happen with those that are self-employed since they aren’t W-2 wage earners. If you receive a court order, you need to appear or else you will have federal law enforcement looking for you if the judge issues a warrant. This happened to Paul Aker, who had borrowed $1,500 student loan from the government in 1987. When he failed to show up in court, he was then later arrested.
Don’t wait to address your loans. Find a plan that works for your budget so that you can begin paying down your debt before it grows. And if you do find yourself in default, and end up in one of these situations, move fast and address it before it escalates.
