Solving Student Loan Problems

Do you have defaulted student loans? The government has an impressive array of tools for collecting on defaulted student loans. Fortunately, the law also provides you with a way to cure the problem starting right now!

There is Still Hope!

There is no statute of limitation for collection of student loans. Forget about hiding out until the collectors give up and fade away. They will hunt you down forever. And to make it worse student loan collectors have special powers that can make your life a misery. Fortunately federal law provides a variety of options that will aid your credit repair effort, help you stop collectors, and even come out ahead!

It’s Up To You

If you take action you can stop collectors, reduce your payments, and have the student loan default status removed from your credit. But you have to initiate these efforts. If you don’t take action no one will help you and the situation will get worse. Are you are involved in a credit repair program? You have everything to gain by acting today. Let’s take a look at the powers the government has, and then explore the tools that you can use to put an end to the hassles once and for all.

Say Goodbye to Your Tax Refunds

If you are in default and have a tax refund coming you should expect it to be taken by the government. This is a virtual guarantee. If you want to avoid this action while you determine your options, you should act today to eliminate your next tax refund so that there is nothing to seize. This is easily done. Just decrease the amount of income withheld by your employer, or reduce your estimated tax payments if you are self-employed.

The Paycheck Surprise

Student loan collectors now have the right to garnish your wages without a court order. At the moment they are allowed to seize the lesser of 15% of your disposable income, or the amount of your disposable income in excess of $154 per week.

Social Security is Now Fair Game

In 1996 a law was passed allowing student loan collectors to seize the Social Security income of student loan defaulters. But there are limits to the amount that can be seized. The first $9000 per year, or $750 per month, is safe. And under all circumstances there is a limit of 15% of your total benefits that can be taken.

Cancellation of Student Loan Debt

It is theoretically possible to cancel your student loan debt if you had serious trouble with your school (such as it closing down while you were enrolled), if you became totally and permanently disabled after you took out the loan, or by convincing a judge to dismiss the debt in bankruptcy. If you pursue one of these options you should expect to be faced with extreme documentation requirements and slim odds of success. I’m sorry to say that after almost twenty years of counseling people on credit repair I have never seen anyone succeed in canceling their student loan debt. Fortunately there are two easy methods of resolving your student loan problems that will help you stop collection efforts and establish a reasonable, affordable payment plan.

Student Loan Consolidation

There are two types of consolidation plans available based on the type of student loan you have. Most student loans are either FFEL loans (Federal Family Education Loans) or Direct Loans. FFEL loans are given by banks or institutions and guaranteed by the government, Direct Loans are obtained through your school, but come directly from the government. Stafford Loans, Guaranteed Student Loans, and Plus Loans may be either FFEL or Direct Loans. The FFEL plan requires that you pay at least the interest due each month. The Direct plan has no set minimum. You can qualify for the Direct plan if you have at least one Direct Loan, even if all of the others are FFEL loans. Are you in a credit repair program and considering your options, but are concerned about your budget? Both plans offer the possibility of up to three years forbearance (no payments) after consolidation.


Rehabilitation, unlike consolidation, will not allow you to combine your existing loans into a single new loan, but it does have the benefit of eliminating the default status from your credit report, which makes it attractive for those in credit repair programs. Like consolidation you have the right to request a payment plan that is affordable to you. Rehabilitation requires a trial period where you will be expected to make nine of your next ten payments on time. Once you have completed the trial period your loan will be sold to a new lender and the default status removed from your credit report.

Getting Started

Before approaching your lender or collector to discuss your choices I strongly recommend that you contact one of the resources established to provide guidance on these issues. Please contact the Student Loan Ombudsman Office at (877) 557-2575, or the Federal Student Aid Information Center at (800) 4FED-AID to discuss your rights.

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