How to Stop a Student Loan Tax Garnishment
Maybe you're planning an application, waiting for a response, or you've been accepted to college! (Congratulations!) Now the big question is: How are you going to pay for it?
Anyway, when you want to buy something, you have to pay for it. Going to college is definitely no different. You must pay annual attendance fees or tuition and other fees and expenses. Because of the cost of tuition (and don't forget the fees) of attending college, most students and co-borrowers, such as a family member, borrow money or take out a loan from a financial provider. According to the Federal Reserve, there are 48 million student loan borrowers! In total, the outstanding loan balance is about $1.57 trillion. Of those 48 million borrowers, about 45 million college students have chosen to pay for tuition and fees using federal loans. It is funded by the government and not by private lenders.
Another option available for help with tuition and fees is to apply directly to the college for financial aid to help cover the costs and expenses of education. If you applied for and received a financial aid package, you have likely seen the loan(s) included as part of that financial aid package. Whether the student is using loans provided by the government or private lenders, paying off college loans is a must. There are consequences for not paying.
Debt Repayment
If you take out college loans, you probably won't have to start paying them back for several months after you graduate. This "glove period" can give you time to find a job and earn the money you need to pay your monthly dues. But what happens if you can't find a job or can't earn enough to pay your monthly loan payments? In this case, the co-borrower may be responsible for the repayment. What if the co-borrower is unable to repay the loan? The loan then goes into default or default.
What happens when you default on a student loan?
When you don't pay, the lender will send a report to the credit bureaus. Credit bureaus provide this information to other potential lenders such as credit card companies who use the information to determine a consumer's credit score. This score reflects their ability to make loan or credit card payments on time.
A notice from the lender indicating that you are now in "default" due to a missed payment. This non-payment situation will remain on your credit file and affect your credit score. You may be able to "rebuild" your credit by making on-time payments for a certain period of time. Although it may take seven years or more, a credit provider can eventually remove the default notice from your credit report. But, a missed payment remains on your credit report and will affect your credit score.
Defaulting or defaulting on a loan can have severe consequences. If it is not paid, the loan provider will notify the credit bureaus. If the borrower—the student and co-borrower such as another family member—doesn't pay the loan on time, they can be subject to a variety of costly penalties, including foreclosure.
What is a student loan Garnishment?
Garnishment is an option that the lender can use to get money back when the loan is not repaid. This is a process in which the lender attempts to recover the money owed by the borrower. In the case of multiple student loans, the lender usually requests the total amount of all loans. A student loan garnishment is the taking of any income earned by the student and/or co-borrower to pay off the loan. Any income can include Social Security payments, but while a creditor can begin to earn Social Security income, there are limits to the amount that can be collected.
How do I stop a student loan Garnishment?
How can you avoid or prevent a student loan garnishment when you can't make the loan payments? Check with your lender first. They can help you avoid getting a student loan garnishment. They may agree to pay you "interest only" which may reduce the payment amount or the payment amount may be based on a percentage of your disposable income instead. But, the interest will still be added to the loan balance or "accuracy" which will affect the amount you will need to pay back.
What is a Student Loan Tax Garnishment?
So what happens if you or the co-borrower can't pay and the loan is in default? The loan provider wants to pay. It's their job. Therefore, when the loan is not repaid and becomes in default or non-payment, they are entitled to collect the loan repayment amount through other means. This includes tax refunds. If you're expecting a tax refund, you may not get it if your loan is in default. If you receive a "Notice of Tax Offset" or "Notice of Garnishment Tax" from the Treasury Department, expect the full amount to be withheld on your tax return and as direct payment for the outstanding debt balance.
Keeping up with your student loan payments is important to your financial future.