If you don't make payments on your student loans for 9 months, your servicer will probably consider this a default. A default occurs after non-payment for:
- 270 days for a loan repayable in monthly installments; or
- 330 days for a loan repayable in less frequent installments
If a loan is delinquent, meaning you haven't made payments, but is not in default, you should be able to get a deferment or forbearance if the situation is temporary.
When you are in default, the guaranty agency or the Department of Education (DOE) can do any or all of the following:
Refer your loan for collection
They may refer your loan to a servicing agency. The servicing agency will then try to collect the loan from you. The servicing agency will usually contact you by letter or phone asking you to pay the full amount, a part of the amount, or enter a repayment plan.
Report your failure to pay to a credit bureau
Your failure to pay your student loan can be reported to a credit bureau (a credit reporting agency). A credit bureau is not owned by the DOE or a guaranty agency. A credit bureau is another business that gathers a computerized record of all the bills that you have or have not paid off on time. This record is often called your credit report or credit history.
Your credit report is important because it is what other companies, including banks, stores, and credit card companies, look to when deciding if they should or should not give you credit.
Before your loan can be reported to the credit bureau, you must be given notice and a chance to enter into a repayment agreement. The notice will also tell you that you have 60 days to ask the government for an administrative review to make sure that their information about the debt is correct.
Learn more about Credit reports and scores.
Take your income tax refunds
The DOE or a guaranty agency can take, or intercept, your income tax refund, including your earned income tax credit. They do not have to get a court order to do this. First, they must send you a notice that says that they are going to intercept your tax refund and give you a chance to fight this decision.
You may be able to stop the tax intercept if:
- The debt has been paid;
- The social security number is wrong;
- The school closed while you were going there;
- The school did not pay a refund;
- The loan was discharged in bankruptcy; or
- The loan agreement was forged (someone faked your signature).
There is only one way to make sure a tax refund is not intercepted: lower the amount taken out of your paycheck for taxes each pay period to make sure there will be no tax refund for the government to intercept.
For example, if you got a $1,200 tax refund last year, ask your employer to take out $100 less each month this year. You can use the IRS withholding calculator to help you decide how much to have your employer withhold.
Sometimes a husband and wife file their tax return jointly, but only one of them worked during the year. If the tax refund is intercepted because of a student loan debt of the other spouse, tell the DOE of this to get the tax refund released.
Garnish your wages
Money can be taken out of your paycheck to pay back your loans. This is called "wage garnishment."
When you owe the federal or state government, the federal law makes it easier for them to collect from you. The Illinois Student Assistance Commission (ISAC) might collect your federal student loans from you.
Even though a court case is not required, you do have a right to a hearing before your money is garnished. To get this hearing, you have to request it by filling out the Request for Review form that you will be sent before your wages are garnished. This form will be sent to the address that the DOE has on file for you, so if you want to be sure that you get this notice, make sure that the address they have is correct.
The amount that can be garnished
Your employer cannot take any money out of your paycheck if your income is less than $217.50 each week (30 times the federal minimum wage of $7.25). If you earn more than this amount per week, your employer can take out the smaller of:
- 15% of your weekly wages or
- The amount of your take-home pay over and above $217.50 weekly
Disposable pay to ISAC is your total gross pay, minus deductions required by law (taxes, Social Security, and Medicare), and any health insurance premiums. Allowing the deduction for health insurance in calculating net pay for garnishment is about the only thing that's better about the federal rules.
Take, for example, gross pay of $375 per week, and "disposable pay" of $300. ISAC's administrative garnishment to repay your old student loan debt would get $56.25 per week. That 15%-of-gross is less than the net-over-$217.50 ($82.50). In a court case, a regular garnishment would get nothing.
At least 30 days before an administrative garnishment begins, you're supposed to get a written notice warning you that it's coming and offering a chance to avoid it with a payment plan. Once the garnishment begins, it's probably too late for a payment plan.
That 30-day notice is also supposed to say that if you'd previously been involuntarily unemployed, you can't be garnished unless you've been back to work for at least 12 months. The notice must also tell you of your right to request a hearing, to dispute or correct what you owe, and to request a hardship exception. By documenting that garnishment would create a financial hardship for your family, you can reduce or stop the garnishment.
You might be able to stop the garnishment by replacing your old loan with a new loan under the Federal Direct Loan Program. If your income is low enough, your payments on the new loan can be $0.
A new loan also stops tax refunds from getting intercepted. For more information, call (800) 557-7392, or go to the DOE website.
An offset of federal benefits
The government can take some of your Social Security benefits each month. While part of your Social Security benefits can be taken, the following cannot be taken:
- Supplemental Security Insurance (SSI) benefits
- SNAP benefits
- Many HUD programs
- Direct Loans for the Elderly or Handicapped
For a list of exempt federal payments, see the list of exempt categories.
The amount of Social Security benefits that can be taken is limited to:
- 15% of your monthly benefit payment or
- The amount of your monthly benefit check above $750, whichever is less
If it plans to offset federal benefits, the government must send you notice that gives you an opportunity to review the debt. In the notice, there should be a form where you can explain why you do not owe the loan.
The form should be sent as soon as possible and should be mailed return receipt requested. There should be a written file that contains a record of every attempt to obtain review of the case.
You have 20 days from the date of notice receipt to request a review. You can also request to review the file before hearing. You can request an oral hearing instead of a written review but must explain why the written review is not enough.
Tax refund offsets
The government can also take money out of your tax refund to go towards your student loans. The government must send you a notice of its decision to offset a tax refund. If you want to see the loan file, you must make a written request within 20 days of getting the notice.
To delay the offset, you must file a statement of financial status and request for review within 65 days of the notice of offset, or 15 days after your loan file is provided, whichever is later. After this deadline, you may still request a review, but the government is not required to put the offset on hold pending hearing or review.
You may also be able to avoid intercept by asking for a written repayment agreement within 20 days of the notice, and making the first payment within 65 days of the original note, or 7 days after a decision is made by a reviewer.
Like any other bill you may owe, if it is not paid, you can be sued in court. If you are going to be taken to court, you will get a complaint and a summons from your local sheriff. A complaint is a document filed by a person or an agency saying that they believe that you owe them money, how much they believe that you owe, and why.
If you get a complaint and summons, you should talk to a lawyer if possible. Learn more about Responding to a lawsuit.
Note: If you have been sued in Cook County by the Illinois Student Assistance Commission (ISAC), and you want to try to get the lawsuit moved to the county in which you live, you should fill out a Request for Transfer form and send it to ISAC.
A written request for transfer will be on time only if it is postmarked no later than 30 days after the date you were served with the summons. If you file your request for transfer on time, ISAC will ask the judge to transfer the case to the county where you live. You will not need to go to court if you file a request for transfer on time.
You should mail the form to the attorney for ISAC listed on the summons, or directly to ISAC:
Illinois Student Assistance Commission
James R. Thompson Center
100 W. Randolph Street
Chicago, Illinois 60601-3293
Updated: June 2017