Student loan debt can follow you until you pay it off.
It isn't uncommon for students to exit college with high student loan debts. In 2009, the average college tuition for a student attending a public institution in his home state totaled over $56,000 for four years. When students fail to repay their student loan debts, however, lenders often turn to aggressive collection tactics to facilitate payment.
Types
Student loans are either issued to a student by the federal government or by a private lender. Federal student loans carry lower interest rates than private loans, but carry lending limits that may leave some students to seek additional financing elsewhere. While private lenders don't possess the same extensive collection rights as the federal government, the mere fact that these lenders extended student loans entitles them to certain collection benefits not extended to other creditors.
Time Frame
State laws prohibit most unsecured creditors from filing a lawsuit against a debtor after a certain amount of time passes. This statute of limitations protects consumers from lawsuits over debts that their state governments consider too old to enforce. While private student loan lenders must adhere to the statute of limitations in the student's state of residence, the federal government is exempt from this requirement and may pursue legal action against a debtor at any time.
Considerations
In 1970, Congress passed the Fair Credit Reporting Act which established the amount of time that any financial record could remain within an individual's credit file. While the FCRA calls for the removal of most unpaid debts after seven years, it permits unpaid student loans to remain on a borrower's credit record indefinitely. The credit bureaus may not remove these adverse records until seven years after a debtor pays off his student loan.
Effects
Students that default on their federal student loans shouldn't expect to see an annual tax refund until the debt is paid in full. This is because, unlike other creditors, the federal government has the right to offset tax returns to collect federal debts.
Although garnishment is a common collection method used by unsecured creditors following a lawsuit, federal benefits, such as Social Security payments and civil service retirement checks, are exempt from garnishment--unless you happen to be the government. The federal government won't hesitate to seize a portion of an individual's otherwise exempt income to satisfy an old student loan debt. Private lenders, however, do not have this option.
Warning
For individuals who cannot afford to pay their creditors, bankruptcy is always an option. Unfortunately, both federal and private student loans aren't easily discharged through bankruptcy proceedings. The National Consumer Law Center states that in order for an individual to obtain a discharge, he must prove that he made good faith attempts to pay the debt in the past and that remaining responsible for the loan will leave him unable to maintain a minimal standard of living.
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