Student Loans: Look Before You Leap

Student loan defaults are at an all time high. So are the numbers of students who haven't defaulted yet, but are barely able to keep up with their payments. At least one organization is gathering statistics on students who haven't defaulted yet but are having trouble repaying in order to suggest policy changes on student borrowing and collections.

While Congress debates what to do about the high rate of student loan defaults, student borrowers need to know some basic information about collection practices and student loans. For example, there is no statute of limitations on how long the federal government has to collect on a defaulted federal student loan, which means they can come after you forever, if you default. In addition, the feds can seize tax refunds, wages and even certain federal benefits that no other creditor can get at, such as Social Security. And, unlike other creditors, the federal government does not have to get a judgment in court to seize your assets. In some states, they can even revoke a professional license for unpaid student loans. (Not New York, as of yet).

The government can also garnish the wages of someone who has defaulted on a federal student loan, but must leave you a certain minimum amount of wages to live on, ($217.50/week right now). They can't take SSI payments or the first $750 month in benefits.

Private student lenders have less collection powers than the government, and are therefore more likely to sue you for the balance due. They also tend to charge higher interest rates than the federal government does.

Military service members have some special protections on loans incurred before active duty, including a 6% limit on the interest rate, under the Servicemember Civil Relief Act.

If you're not in debt yet, but are thinking of taking out a student loan, be sure to do your research on lenders, both public and private. Some important questions to ask include: what is the interest rate, and will it remain the same for the entire life of the loan; what is the total amount I will need to pay over the life of the loan; what will the monthly payments be; does the lender typically sell its loans, and will my borrower benefits or rate discounts continue if my loan is sold.