student loan servicers require court before seizing?

[IOIOIO]

If a student loan servicer claims you've defaulted, are they still required to get a judgment against you in court (where you can answer their claims) before levying your bank account or garnishing your wages?

[treehugger1]

If your SL is a Federal backed loan (GSL, Direct, etc) the loan officially defaults at 270 days. At that point the servicer can send the notice to the dept of education. It could go to a CA next. The DE can also begin immediate administrative wage garnishment of wages. There will be no court process. They can take 15% of disposable (after-tax) earnings. I'll write more detail later. You can also search this site for student loans or look under past posts of mine. There is a website from the DE that explains it all. I've never heard of them going after bank accounts. If your loan is a private student loan, then I have no idea what the rules are. I would guess it like any other unsecured debt and all other collection attempts are allowed. I don't know.

[IOIOIO]

That's bad news. The issue here is the servicer's failure to process deferment forms properly filled out by the university registrar for a full-time student. Repeated re-sends of newly filled out deferment forms have only resulted in bills, payment booklets, and robotic dunning phone calls. Once garnishment happens, is there any way to challenge it by showing the deferment forms to a judge? To the Department of Education (which is what I assume "DE" means--please, no acronyms)?

[treehugger1]

I would call the department of education and see what their thoughts are. You might also send one more request return-receipt.

[bk2009]

Yeah, they'll just swipe bank accounts, garnish wages or swipe tax returns.

[IOIOIO]

http://www.ed.gov/offices/OSFAP/DCS/disputes.html#Hardship-AWG

[IOIOIO]

Now I talked to the Department of Education about this. They said their posted policies only affects loans they hold. In the case of servicers of federally insured student loans outside the department, they can and do have different policies. When I asked them if the collections policies of federally insured student loan servicers were regulated by law, not just their own individual policies, she said she didn't know and I needed to consult an attorney. It would be convenient for servicers if they set a policy that allowed them to collect from clients directly without any review of a dispute.

[treehugger1]

That is true. The servicers will potentially try a CA first. But, I already decided to let mine default and attempt to get the servicer to send the loan back to the Department of Education. Eventually they must do this. They can tack on 20% - 25% collection fees. I have called my servicer and explicitly told them I'm not paying another dime. So, send the loan to the DE (sory for the acronym, but I'm in a hurry.) They said they would hold the note for the minimum of 270 days. However, they never, ever call me anymore. I also called the DE and the gentleman I spoke with told me he is geting more and more requests related to wage garnishment. Why? Well, student loans don't go away. In my case a BK 13 in my district forces the loans into interest-bearing deferment for 5 years. I have no intention of going the route of a BK 13 at this time. Now, after the loans default and wage garnishment is occurring, there is the possibility of "rehabilitating" the loan. In such cases the collection fees are reversed and one can resume "normal" payments after a few months of garnishment.

I don't think I'll have that much of a problem convincing the servicer to forward the loan back to the DE. I made it crystal clear (even begged) that they begin wage garnishment immediately. Of course the servicer CANNOT do this prior to 270 days; only the DE can enact and enforce a wage garnishment. That's my take, and I've spent hours and hours on the phone with the servicer and DE. I have also met several folks who eventually forced the wage garnishment. I know this sounds strange, but it's an option I'm willing to work with. In addition, once the servicer forwards the defaulted loan to the DE, the credit reports must show a 0 balance with the servicer. I don't think the DE reports to the credit reporting agencies, so there is the possibility of a gradual credit recovery.

Sorry about getting so far off topic. But, there are options out there to deal with student loans, if you are not prepared to file BK and wage garnishment does not bother you.

[IOIOIO]

Actually, after my conversation with the Dept. of Ed. I described above, I thought I would request the servicer to turn the loan over to them. I have much more faith in the Dept. of Ed. that they won't play the health provider game of claiming they didn't receive forms. I also thought I'd ask the serviver to get to default and garnishment as quickly as possible. I thought that would be sarcastic of me and useless even if it felt good to do, but after reading your post it looks like this is actually a viable way to go and I will look into it. I have an appointment with a free attorney for tomorrow.

If it's true that servicers outside the Dept. of Ed. don't have garnishment powers then I can see the incentive for them to sell the loan to an honest servicer. But if they don't have actual collection powers, the power to garnish, etc., and only Dept. of Ed. has that, I don't see why they play this game in the first place. In that case it's just their system screwing up out of control, benefitting no one. My only real problem with that, at this point, is how much of my time it's taking up to keep acting in good faith, meeting with people, making phone calls, etc. I'd like to be able to just tell them they've been sent all the correct paperwork enough times and to just go ahead and do what they need to do, without delay.

[treehugger1]

It is my understanding that the servicers and potential CA's cannot invoke a wage garnishment. In fact, if you dig into the Dept. of Ed. site you will find a booklet that contains all the instructions and proper forms that the employer must fill out. It is a Dept. of Ed. form. This makes sense if you can't be sued under normal channels in a court of law.

https://www.ed.gov/offices/OSFAP/DCS/Employers_Handbook.pdf

I have to ask what the servicers and lenders get out of this? I wish I knew. The financial institution that loaned the money or the current holder of the notes must get the guarantee repayment from the Feds. So, they are covered under the loan guarantee. I wonder if they also receive the interest? Otherwise, what's in it for them? Perhaps they must make a good faith effort to exhaust all collection possibilitites.

[treehugger1]

IOIOIO, Wait a minute. The following is also from the DE.

"The Department and guaranty agencies also pursue recovery of defaulted student loan debts through litigation. If you refuse to voluntarily repay your student loan, you may be sued in State or Federal District Court for the outstanding balance plus attorney's fees and court costs."

Why on earth would they bother if they have immediate access to 15%?

Now, does this imply one could be sued and wages taken to the amount of 25%? Do normal civil laws apply?

[treehugger1]

Here is an exceptional resource!

https://www.studentloanborrowerassistance.org

[IOIOIO]

I read through your phone exchange with AES requesting speedy default in a previous thread. This is exactly what I need, but--to be levelheaded about it--the best thing is to do nothing, or else it just becomes more wasted time. I'm thinking there's really no benefit to having some doofus customer service person in Jamaica make farcical notations on my account just so I can vent my own anger--I'll do that with the lawyer, once, and be done with it. The idea is to get the loan to the Dept. of Ed. as quickly as possible, then prove to them, with the assistance of the registrar, the default is incorrect because the loan should never have entered repayment per the registrar's documentation of enrollment. The registrar wasn't too happy about the servicer's behavior, so getting documentation from this University officer will be easy. I'll just make sure with the lawyer about the servicer's ability to garnish (with or without a hearing). It's just that I'll have to go back to putting up with robo-calls like I did before my chapter 7, but that's a piece of cake.

I would guess that the servicer is just screwed up and they don't have enough incentive to fix these kinds of errors since the loans are federally insured. On the other hand, failure to process four deferment forms each sent a month apart is hardly plausible as an honest mistake. They can always turn their mistakes over to Dept. of Ed. without a loss, and tack on "collection charges" in lieu of the future interest they would have collected. Perhaps they can use their own mistake to squeeze extra funds out of people who don't know how to defend themselves. My only concern was that they could have garnished wages without a hearing, then collected on a debt that they would then say has gone to the default rate of 30% instead of 7%. It appears such a scam is beyond their power.