Student loan collection methods

Blog written by Columbia, SC bankruptcy lawyer Daniel Stone

I have previously written articles about student loans. Student loans are often one of the worst loans you can sign up for. Why do I say this? Unlike most unsecured loans you may sign for in your life, student loan debts will stay with you the rest of your life until they are paid. In addition, government backed student loans have collection powers most of your other creditors do not have. Below is a list of theses powers:

1. Tax Refunds. Your student loans can seize your federal student loans. In some case these amounts can be substantial (over $5,000). This is probably the most popular and easiest method that student loans have of collecting on their debts.

2. Professional licenses. Are you an attorney, physician, or other profession that requires a state license?  Student loans are notifying your state licensure board of your default and in many states this results in your license being suspended until the debt is paid. In South Carolina, I have not seen attorney licenses being suspended – but this could be coming.

3. Garnishment of wages. Wait, I thought you had previously said in another blog that South Carolina does not have wage garnishment? The answer is we do not for consumer debts. However, the Federal backed student loans do. Ouch!  Yep, beware of student loan defaults because they can garnish your wages.

4. Social Security and disability checks. The student loans can also seize portions of your social security and disability checks. I have seen people who have not paid on their student loans for years suddenly find out that their social security is being garnished.

5. Lawsuits. If the student loans have not had any success with the above methods, they can sue you. What makes matters worse is that they do not have a statute of limitations like other debts do. So even though you have not heard from your student loans in years, they could one day start a lawsuit.

How do you defend or stop these collection acts? Unfortunately, this is one area of the law where there are not many remedies. One remedy is to file for a Chapter 13 bankruptcy. While bankruptcy will not discharge the student loan debt, if your wages are being garnished, you can file a Chapter 13 bankruptcy and put a halt to these garnishments for 3-5 years. The bad news is that you will still owe the debt once the bankruptcy is discharged.


- Stone Law Firm