Student loans fall into the category of unsecured debt - debt that is not tied to a piece of collateral such as a car or your home. When you default on an unsecured loan, the lender, and by extension, any third party debt collector trying to collect on that loan, cannot threaten to take your home or car, garnish your wages or freeze your bank account. In order to do any of that, they need to go to court and obtain a judgment against you.
One of the defenses that the consumer has in the case of unsecured debt is the statute of limitations. Once a debt has reached a certain age, the debt holder or collector can no longer go to court to seek a judgment against you. The number of years varies from state to state, but every state has a statute of limitations to prevent debts from coming back to haunt you years down the line.
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One difference between most unsecured debts and student loans from the Department of Education is that there is no statute of limitations. No matter how long it has been since you took out the loan, it is still legally enforceable. The holder of the debt can go to court to seek a judgment against you for the loan.
A second difference between most unsecured debt and educational loans is that default student loans, unlike most other types of unsecured debt, are not discharged in a Chapter 7 bankruptcy. Except in the case of extreme financial hardship, which you must prove, you'll still have to pay your student loans even if you file for bankruptcy.
Education Loan Debt Collection
The Department of Education also has a number of ways to collect on default educational loans that aren't available to most bill collectors. They can, for example, "claw back" money by subtracting it from your tax refunds or from Social Security payments, as well as require employers to withhold wages from those who have defaulted on their student loans. The department sometimes sends loans to outside collection agencies. If your defaulted student loan is sent to a third-party debt collector, you'll be responsible for paying the collection costs. If you're taken to court over a default educational loan, you'll be responsible for paying the court costs.
Can You Dispute Student Loan Obligations?
There are three legitimate reasons to dispute student loan obligations. The first is that you are not obliged to pay the loan. There are a number of reasons why you may not be obliged to pay the loan. Generally, you must prove that you don't actually owe the loan, such as when your identity was stolen or you didn't sign the promissory note for the loan, or if you've already paid the loan or settled it in another way. There are also certain conditions under which your student loan may be forgiven, such as if you are permanently and totally disabled. There are a number of other, usually rare, conditions under which your student loan may be discharged.
The other two reasons for disputing your student loan are to dispute the amount of the loan and to claim financial hardship. All of the situations where you may be able to dispute your student loan or attempt to have it discharged are complex and require a lot of legal work. A good collection attorney who works with student loan debt can work with you and help you to make the best case possible.
Third Party Debt Collection
The Department of Education releases a number of default loans to third party debt collectors each year. These agencies get to keep 25 cents of every dollar they collect, and are highly incentivized to do whatever they can to collect as much as possible. That being the case, it's not unusual for these debt collection agencies to step over the line into illegal debt collection practices. Despite the differences between educational loan debt and other consumer debt, those agencies that collect on education loans must abide by the Fair Debt Collection Practices Act just as any other debt collector must. If a debt collector threatens, misleads, harasses or deliberately embarrasses you, they are guilty of violating the FDCPA and may face penalties for their actions. Don't be a victim of unfair and illegal debt collection practices. A fair debt attorney can help you understand the law and what you can do to obtain justice.
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