What you need to know about student debt collection

Your federal student loan is considered to be in “default” if you don’t make payments based on your loan agreements. For most federal student loans, you will default if you have not made a payment in over nine months. If you do hit that point, what comes next isn’t pretty.

When you default, your loan could be accelerated, which means the entire balance (what you owe plus the interest on it) may become due in a single payment. And if it’s accelerated, the holder of your loan — the Department of Education or your school — may send your loan to a collection agency.

Once you’re with a collection agency, you become responsible for all costs the agency incurs on getting you to pay. The Education Department has the authority to collect the payment by withholding either your federal tax refunds or your salary/wages. A maximum of 15 percent of your disposable pay (the amount that remains after deductions) can be withheld from you.

The withholding from your wages may continue until the entire loan is paid or it’s removed from default. Before the proposed deduction from your wages (called garnishment) starts, the loan holder will send you a notice at your last known address. You have 30 days to object, in writing, to the garnishment. If you object, a hearing date is set where you present your case.

Private student loans are trickier, because these can go into default if you’re late by over 120 days, or sometimes, even if you miss just one or two payments. Filing for bankruptcy or default on another loan could also put you into default on your student loan. Reading your private loan’s contract is the best place to start your information search.

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