What happens if you default on Federal Student Loans?

[frugalmama]

I know they can seize your paycheck, but what else?

I'm left with no other option - I can't get any more forebearances, am unemployed and not able to work. I have no income coming in. Am I correct in thinking there isn't much they can do except trash my credit? My credit is already bad thanks to medical debt, so doesn't make much difference to me.

[Denvergirlie]

They can and will take your tax return.

If you are married, you should file your taxes separtely, as they can't take your partners portion of the tax return, but they can take yours.

[frugalmama]

Originally Posted by Denvergirlie 

They can and will take your tax return.

If you are married, you should file your taxes separtely, as they can't take your partners portion of the tax return, but they can take yours.

Not married - don't even make enough to file taxes. In 2010 I made a grand total of $75. So they can have the $25 or so I'm due back in January - it's not a huge loss.

Is there anything else they can do? I'm most worried about my home - they can't take it right? I know TX has different laws on taking your home {I'm in TX} but not sure how it works with federal debt.

[la mamita]

Have you applied for the Income Based Repayment plan? That's what I'm on and I also have little to no income and my payments are zero...no forbearances needed, each month of zero counts as me "paying". It's pretty new as a repayment option so I want to make sure the word gets out. If you've already applied and been turned down, then ignore me

[frugalmama]

Originally Posted by la mamita 

Have you applied for the Income Based Repayment plan? That's what I'm on and I also have little to no income and my payments are zero...no forbearances needed, each month of zero counts as me "paying". It's pretty new as a repayment option so I want to make sure the word gets out. If you've already applied and been turned down, then ignore me

Yes I have - if you don't make enough income to file taxes you don't qualify. I was told that I'd have to make at least $600 a year to qualify.

There should be a provision for those in the same boat - I can't be the only one.

[la mamita]

because you don't have the tax records they need or there's an actual minimum income required? what is the reasoning for that? i wonder if they'll kick me off then because i don't think my earnings this year add up to 600...i do still plan to file taxes though, i have every year since becoming an adult.

eta: i just read that loans in default can't be placed on the IBR plan, so i hope you are able to contact them and work out something before they start seizing assets! it is very unfair that you don't qualify for IBR
Edited by la mamita - 12/16/10 at 12:27pm

[surrogate]

who is your lender?  My lender has something that is called "lender option forebearence/deferrment" and if you have used up all the unemployment ones you can apply for it.  I started college....10 years ago, and have made a total of 4 SL pmts.  I have used all my unemployment ones, and switch between lender option (6 mo) and low income when Ihave a "job"

GL

[Mulvah]

Originally Posted by frugalmama 

Originally Posted by la mamita 

Have you applied for the Income Based Repayment plan? That's what I'm on and I also have little to no income and my payments are zero...no forbearances needed, each month of zero counts as me "paying". It's pretty new as a repayment option so I want to make sure the word gets out. If you've already applied and been turned down, then ignore me

Yes I have - if you don't make enough income to file taxes you don't qualify. I was told that I'd have to make at least $600 a year to qualify.

There should be a provision for those in the same boat - I can't be the only one.

I can't help you out on the loan information, but have you looked at www.workplacelikehome.com?  You may be able to find something, even PT.

[Intoit]

Originally Posted by frugalmama 

I know they can seize your paycheck, but what else?

I'm left with no other option - I can't get any more forebearances, am unemployed and not able to work. I have no income coming in. Am I correct in thinking there isn't much they can do except trash my credit? My credit is already bad thanks to medical debt, so doesn't make much difference to me.

If you can't get any more forbearances and are not eligible for Income Based Repayment, you should inquire about an "Economic Hardship Deferrment." I know this is available with Federal student loans. OP is correct they can/will seize FIT returns. 

Even though you say your credit is "trashed" with unpaid medical bills, depending on how much you owe in student loans you may not want that to be negative on your credit report... Hospital bills can be caught up eventually if able, if you can keep your student loans in a deferred status it's much better for your credit report, even if and especially if you owe tens of thousands of dollars on your loans.

[cristeen]

They can garnish wages, seize tax returns/credits, ruin your credit. You cannot get another student loan until that one is paid in full, and chances of getting any loan, particularly in this climate, is slim to none.

But, all told, its not that big of a deal if you're neither concerned about your credit or planning on going back to school (and needing loans) anytime soon.

[GirlBoyGirl]

I asked this same question over on the forums at savingadvice.com and a financial "expert" told me that they can also take your social security when the time comes. Don't know if it is true or not but I thought I would pass the info on.

[K1329]

Originally Posted by cristeen 

They can garnish wages, seize tax returns/credits, ruin your credit. You cannot get another student loan until that one is paid in full, and chances of getting any loan, particularly in this climate, is slim to none.

But, all told, its not that big of a deal if you're neither concerned about your credit or planning on going back to school (and needing loans) anytime soon.

You can get another student loan, if you provide a letter from the holder of the defaulted loan stating that you have made satisfactory arrangements to repay - usually available after 6 months of payments. Are your loans with the federal direct loan program? If not, maybe you could consolidate them there and then see what options are available. I would definitely contact a government loan counselor, or two, or three and be certain that you have exhausted all options before defaulting. You might find more info on trouble making payments at: http://studentaid.ed.gov/PORTALSWebApp/students/english/difficulty.jsp?tab=repaying/   In   In   

Info on consolidation under the Direct loan program: http://www.loanconsolidation.ed.gov/ 

Info on Income based repayment:  http://studentaid.ed.gov/PORTALSWebApp/students/english/IBRPlan.jsp 

Good luck!

[GirlBoyGirl]

If you default on Federal Student Loans, will they eventually accept a lower amount? I don't know what they call that but like if you don't pay a credit card (or whatever) won't they eventually settle for less?

[Denvergirlie]

Originally Posted by GirlBoyGirl 

If you default on Federal Student Loans, will they eventually accept a lower amount? I don't know what they call that but like if you don't pay a credit card (or whatever) won't they eventually settle for less?

No, federal loans never go away, the remaining balance can and often does get taken out of a person's final estate. The government always gets paid.

[GirlBoyGirl]

Originally Posted by Denvergirlie 

Originally Posted by GirlBoyGirl 

If you default on Federal Student Loans, will they eventually accept a lower amount? I don't know what they call that but like if you don't pay a credit card (or whatever) won't they eventually settle for less?

No, federal loans never go away, the remaining balance can and often does get taken out of a person's final estate. The government always gets paid.

Ok, I'll have to remember to die penniless... oh wait, I probably will anyway! ;) Just kidding, I was just wondering what happens. I am repaying my loans but sooooooooooooo slowly and honestly, and I am embarrassed to admit this, but I have no idea how they got so high. I know I have a masters degree but when you look at the tuition, it wasn't that high! What happened? I wish I had been more involved in my loans when I was in college. I was smart not to get a CC but dumb not to be more educated on my tuition costs and loans!

[K1329]

Originally Posted by Denvergirlie 

Originally Posted by GirlBoyGirl 

If you default on Federal Student Loans, will they eventually accept a lower amount? I don't know what they call that but like if you don't pay a credit card (or whatever) won't they eventually settle for less?

No, federal loans never go away, the remaining balance can and often does get taken out of a person's final estate. The government always gets paid.

Federal Stafford loans are forgiven upon the loan holders death - they are not settled as part of the estate. You can also have them forgiven if you go on permanent disability - although in some situations they can then be reaffirmed. But, I think that's about it. No bankruptcy options, that I"m aware of, anyway.

[Marsupialmom]

Is there a medical reason you can't work and repay loans? Disability can get the loans "forgiven".  Is there a state job you can do?  Can you become a teacher with little effort (schooling) then work in a high needs school?  There other government jobs that can get them forgiven. 

[frugalmama]

Originally Posted by Marsupialmom 

Is there a medical reason you can't work and repay loans? Disability can get the loans "forgiven".  Is there a state job you can do?  Can you become a teacher with little effort (schooling) then work in a high needs school?  There other government jobs that can get them forgiven. 

I have an autoimmune disease, and stress & fatigue make it worse. I might could get SSI, but I haven't tried yet as my doc says it's not very likely. I've tried three times in the last 4 years to work, and each time within 2-3 months I end up very very sick.

[Marsupialmom]

Get a lawyer about the SSI, your doctor might not be the best person to give you advice about SSI. I have a friend with MS and at the time she could work, but that didn't means should could always work. Her lawyer gave her the advice that got her SSI....in her situation she volunteers the months she is feeling well enough to work. With some disorders you have to manipulate the system,  Manipulating the system is different than scamming.  

Originally Posted by frugalmama

I have an autoimmune disease, and stress & fatigue make it worse. I might could get SSI, but I haven't tried yet as my doc says it's not very likely. I've tried three times in the last 4 years to work, and each time within 2-3 months I end up very very sick.

[zebra15]

Yes- this.  Also SSI is notorious for declining applications.  SSI is a long process, having someone help you is always a good idea.  Most SSI atty's get paid after the settlement, meaning you don't have to pay upfront.
 

Originally Posted by Marsupialmom 

Get a lawyer about the SSI, your doctor might not be the best person to give you advice about SSI. I have a friend with MS and at the time she could work, but that didn't means should could always work. Her lawyer gave her the advice that got her SSI....in her situation she volunteers the months she is feeling well enough to work. With some disorders you have to manipulate the system,  Manipulating the system is different than scamming.  

Originally Posted by frugalmama

I have an autoimmune disease, and stress & fatigue make it worse. I might could get SSI, but I haven't tried yet as my doc says it's not very likely. I've tried three times in the last 4 years to work, and each time within 2-3 months I end up very very sick.