Know What to Expect if you Fall Behind on Student Loan Payments
When chefs talk about garnishing on some food preparation, the topic can only turn delicious and fun. But when college graduates discuss loan garnishment over beer bottles, you know it’s going to be heated and bitter.
A garnishment proceeding is anything but sweet and fun. It usually means broken commitments, unpaid loans, lawsuits, and pained look in the eyes of young graduates starting careers and families, and a future full of doubts and what ifs. A garnishment is what could happen if you fail to settle or pay back your student loan.
Garnishment is a means of collecting the monetary judgments against a delinquent borrower. It happens as a result of a court case, when the court orders a third party to pay money otherwise owned by a delinquent borrower. Oftentimes, it comes in the form of a wage garnishment, where money is ordered deducted from a debtor’s wage until the entire debt is paid.
This is the darker side of student loans. It happens when a student fails to recognize his responsibility as a beneficiary of a loan he took out in the past, and takes this accountability for granted.
It’s not unusual for college students to need funds for their studies, which they, their parents or other family members may not immediately have. It’s therefore not rare for them to avail of funds that are available in the form of a loan, which is covered by an agreement for repayment of the borrowed funds. Once you sign that piece of document that allows you to take out a loan for your college education, it means that you’ve successfully earned your ticket to college. But it also means your commitment to pay off that loan later when you graduate. And if you fail to do that, there will be serious consequences. A garnishment is one of them.
If you took out a loan from private banker or lender, you could find yourself initially at the receiving end of an endless stream of demand letters and telephone calls soon after your graduation. If you take these letters and calls for granted, chances are you’ll be sued and the court could order garnishment against you.
Aside from your salary, the courts could order the garnishment of your tax refunds. The government collects millions of dollars from tax refunds garnished from defaulting borrowers. Garnishments can have other serious consequences in your young life. It adversely affects your credit ratings and reputation. This means your application for new loans, say to buy a house, could be rejected on the basis of an existing garnishment against you.
Remedies
If you took out your loan from the federally-funded student financial aid agencies, then you have plenty of legal remedies. If you have a legitimate excuse for the delay in paying off your student loan, then you could file for either loan deferment or forbearance. This means you can request your funder to allow you to defer your monthly payments for a couple of months more due to extreme economic difficulties or for the reason of unemployment.
Under deferment, you can delay your payments without added interest or interest payments for the months that your lender allows you to defer payment. Under forbearance, you get the same interest rate, but you’ll have to pay accrued interest for your suspended loan payments.
Another remedy – a better one at that if you get approved – is to apply for loan forgiveness. In this case, you will have to submit all the necessary documents to strengthen your case “for loan forgiveness,” including tax documents to prove your extreme neediness.
Responsibility and Commitment
A student loan is a major responsibility and commitment. If you can’t handle your money well, it’s a good idea not to take out one until you’re ready. If you have a cosigner, the bank will likely offer to give you more funds than you need, and you should be wary of this. It may seem enticing at first, but there may be dire consequences if you cannot make the payments. A young couple had amassed $500,000 in principal and interest charges for a private student loan!
You have to resist this temptation. Prudence should be exercised in the use of loan funds and a singleness of purpose is necessary to pay off your loan without fail. Make no mistake about it. A loan is something you have to pay back at some later date. A student loan is made for a specific purpose. Don’t veer away from this objective.
You need to pay your loan because it’s a commitment to your lender and to society in general. If it’s a federal-funded loan, you need to pay it just as well to allow others to enjoy the loan to pay for their college education as well. That’s the least you can to do to pay forward the opportunities that your college education opened for you.
What To Do
It’s good to have a positive mindset about paying off your loans to avoid possible complications later on. But if there are circumstances beyond your control for garnishment to happen in your life, the last thing that you should do is to panic.
Find out what options are available to you. There’s vast information in the internet. Talk to friends who went through the same experience. Discuss the problem with your family. Talk to a lawyer. Face your lender and see what settlement you can reach. The last thing you should do is cower in fear and avoid facing the problem, like an ostrich hiding its head under the ground in the face of an impending problem or danger.
Certainly, your best options are to request for deferment or forgiveness. But these options usually work best before a garnishment. If you know beforehand that you could not immediately pay back your student loan, then you need to seek out these options immediately. Not when a lawsuit has already been filed against you.
If you’re already faced with a garnishment, you can still see your lender and discuss a possible settlement. As long as a garnishment is up against you, then your credit rating will suffer. Try to work out a win-win settlement with your lender and be prepared to tighten your belt a bit. The sooner you pay off your loan without garnishment, then the better.
It could also happen that you will have nothing more to offer to your lender, except the garnishment on your salary. If this is the case for you, you just have to make sure that the garnished amount is not too much to cause hunger in your family or lose basic utilities, like electricity and water. These things are necessary for your basic survival. More so if you have a family to share your roof and to support.
Student loan lenders are not monsters out to ruin your life. If you explain your case to them, they will listen and will probably request an itemized list of monthly bill for consideration. But if their humanity is overshadowed by their desire to recover their investment, if not greed, there are laws to protect you as well As a first recourse, you can dispute the garnishment with the U.S. Department of Education. With that, a garnishment cannot take place. If you’re unemployed, or were unemployment within one year preceding the garnishment, you cannot be garnished as well
If you decide to dispute the garnishment before the U.S. Department of Education, you have to make sure to send all the necessary attachments – bills, medical expenses, your latest income tax statement, rental contracts, and other documents you think are necessary to explain your “extreme hardship” case.
A hearing could be held about your case without your presence, and a decision could be made. It helps to have all the necessary documents to support your appeal. If your appeal is found justified, then you get a favorable judgment, probably even a loan rehab or a chance to reconstitute your loan with extended payment terms.
Talk and Listen
In the event that the U.S. Department of Education decides against your appeal, then the garnishment resumes. This allows your creditor to take away 10% to 15% garnishment from your disposable income as payment for your student loan.
This may not be much, but if it took years for full repayment to happen, then your credit ratings will take a beating for years as well. Your best option is to talk to your lender and see how you can work things out. A sincere, heart-to-heart talk can still work wonders even in this day and age of impersonal business dealings.
There are instances when a simple loan consolidation can resolve a dispute. Nothing is impossible between two parties who have decided and are willing to talk and listen to each other. After all, at the end of the day, the student loan lender just wants a reasonable return on his investment. He sees in garnishment as an objective, impersonal option to collect what is due to him, not a way to punish the borrower.
For the student loan borrower, the threat of a garnishment is a real possibility that can have an immediate impact on his young career. It should serve not as a deterrent, but a motivation to be true to his commitment.
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