Student Loans

Will I be Sued for School Debt?

Question: Will I be sued for school debt? This is a reasonable question because nearly 11.2 percent of the $1.48 trillion in total U.S. student loan debt is in delinquency, meaning loans that are significantly past due with 90+ days or in default. 

If My Student Loans Default, Will I be Sued for School Debt?

Will I be sued for school debt that falls into default? As of 2018, around 4.3 million borrowers have defaulted with nearly $74.9 billion in student loan debt. If you’re reading this as one of those borrowers, surely you’ve wondered that same question, among other questions such as whether you could go to jail for not paying your student loan debt. 

No worries, the U.S. hasn’t had debtor’s jail for a really long time. There are other methods of obtaining the debts owed. The biggest determining factor whether you can be sued for your school debt is if your loan is guaranteed by the government or not. 

Government Guaranteed Student Loans

You have 270 days to make a payment on your student loan debt before it defaults. The federal government guarantees the majority of student loans. This means if you do not pay back your student loan, the government will make certain the loan is repaid in some way or another. 

The federal government typically doesn’t sue because they can obtain the payment for defaulted student loan debt using other methods. For example, the government can garnish your federal tax refund, disability benefits, and even from your Social Security check. Another method of forcing your hand is to garnish your wages. The creditor is required to sue you if they choose to garnish your paycheck. 

However, if the creditor owns a government-backed loan, they do not need to sue you before trying to garnish your wages. The creditor is obligated to mail a 30-day garnishment notice to the last-known address on record before they attempt to garnish your paycheck. This gives you the opportunity to request a hearing with an administrative law judge for the final determination of whether you should have your wages garnished.

At the time of the hearing, you will be able to contest the debt amount, whether the loan is truly in default, or you can tell the judge that you prefer entering a payment plan. If the garnishment has begun, then you can still request a hearing before a judge to address your concerns. The garnishment will still come out of your wages until a hearing is held and a determination is made.

How Much can be Garnished?

Will I be sued for school debt and have most of my income taken from me? Creditors cannot take any more than up to 15 percent of your disposable income by federal law. This amount refers to your net pay after taxes are withheld. Your employer is responsible for removing a set percentage from your paycheck and then sends it to the creditor that owns your student loan debt.

Loans not Guaranteed by the Government

Will I be sued for school debt if my loan is a privately held student loan not guaranteed by the government? Yes, you can be sued because the only way for a private lender to obtain the money owed to them is to sue the borrower. This is because these loans don’t have any guarantee by the government and aren’t under any special status. 

The creditor will need to sue you to collect and will almost certainly do so aggressively. They must obtain a judgment and submit a court order to your employer in order to begin garnishing your wages to pay back the student loan debt.

Financial Hardships

Will I be sued for school debt if I am unable to make the payments due to job loss? The economic threat of student loan default is very real and staggering. When you have a mountain of student loan debt staring you in the face, and you’re left without the means to pay it back, it can be frightening. Speak with your loan officer regarding your personal situation. 

If you can arrange for a deferment, forbearance, or an income-based repayment plan, then you should apply for them. There may also be a chance for you to put payments on hold until you’ve found employment elsewhere or for at least a few months. If you wait until it’s too late, then you might be sued because you didn’t get ahead of the situation when you had the opportunity.

Don’t Wait Until It’s Too Late

Garnishment is typically the last resort that student loan debt creditors use as a means to collect on student loan debt. If you have refused to make any payments after they’ve repeatedly tried to work out a repayment plan, then they most likely will either begin garnishing your wages or they will sue you in order to begin garnishing your wages. 

Repercussions include damage to your credit score, which makes it difficult to borrow money in the future to purchase a house or a vehicle. Not to mention the penalties and fees for not making a student loan debt payment can be as much as 18 percent of your loan balance! 

If you’re struggling to make payments on your student loan debt, speak with a debt counselor who can advise you on your current situation. Don’t wait until it’s too late and your wages are garnished or your tax refund disappears. If you’re in the process of being sued for your student loan debt, be certain to request the paperwork and speak with a professional student loan debt attorney to determine a path forward.

Finally, before you take out a student loan for school, it is absolutely vital to research the different options to fund your way through college. Be realistic and never borrow more than you can anticipate being able to repay. It’s also essential to understand the repayment requirements and to have a backup plan in place if things do not go as planned. Being proactive is the best step you can take to avoid being sued for school debt.

Published by
Chad Van Horn

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