Can They Garnish My Income Tax or Wages If I Have Deferred Student Loans?
Rita Long asks: I have student loans in default. I have made arangements to pay my deferred student loans and I have been paying them on time for the last several months. I would like to know can they still garnish my income tax or wages although I am paying on the loans?
Student Loan Guru: Under most circumstances your wages cannot be garnished if you are paying the student loans each month. The loan company has to update your account with the payments received from you. This leaves no reason for them to file a case against you. Make sure that your consolidation company is confirming the payments received by the loan company in writing.
Don’t get scared of the threats made by the loan company. Although most threats are real, creditors often do it to scare the people so that they get the money in quick time. Your payments done so far will be counted first before it results any actions against you. You counselor will be able to offer you some more practical advice on this issue.
Being in default of a student loan is not the end of the world, you will just be in a hard place until you get more income in.
“Default” is going sixty days without any payments. Only then can they garnish wages or offset taxes.
Many students think they will just blow off their student loans. Ha! Uncle Sam does not ever, EVER, forget about your student loan obligations. If you ever want anything that resembles a normal life, you’ll be wise to pay off those puppies quick! Failing to pay off your student loans can make it vey difficult down the road to get a car, home or nearly any consumer credit of any kind. Plus, if you default on your student loan, it will be turned over to a collection agency. You don’t want these people coming after you!
The IRS can garnish your tax returns and plus a defaulted student loan stays on your credit until it’s taken care of and then for 7-10 years after that it will show up on your credit reports. The U.S. Government is going to get their money one way or another so you might as well make up your mind to pay it and keep from destroying your credit, not to mention your life! They won’t hesitate to garnish your tax returns and if your not getting a tax return then you will face one of two scenarios. You’ll either get your wages garnished or get taken to court and face possible jail time. Uncle Sam does not play around.
Let me make this easy for a lot of you who think you’ll blow off your student loans and everything will be rosey. Because it won’t. Here’s what will happen…if you’re lucky.
You will accumulate massive fines, collection fees (and it will go to collections) and commissions. This alone can add thousands of dollars to your loan.
You income tax returns will be garnished until the student loan is settled. Even if that’s 20 years down the road.
Your employer could be notified of your defaulted student loan and the possibility of your paycheck being garnished.
You could have any Federal benefits such as social security and SSI taken away.
You can be sued by the Department of Education for the loan amount, any penalties, taxes, interest and collection fees.
So you see, it’s more than just a smudge on your credit report. In the end, it could easily cost you more than the original loan plus they will make your life a living hell until that loan is paid. I’ve seen student loans ignored that blossomed to double and almost triple the original amount, all because of late fees, interest on those fees, collection agency fees, etc, etc. Remember, the fees and interest accumulate on top of the new balance, not the original loan amount. For example, if you owe $25,000 and you have $10,000 in late payment fees, interest and such, and you still let it go, the new penalties and interest will be collected on $35,000, not the $25,000 that you orginally owned on your student loan. See why lenders love people who default on their student loans? An our government helps them break knee caps until they get all their money!