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Tax Returns for Student Loan Default

Due to the cost of higher education in the US it’s no wonder why a lot of people turn to student loans for help. While this debt may be helpful for them to finish college, sometimes it is the same burden that leads the students drop out.
Josh Brooks, for instance, was a student studying at Valencia College in Orlando, Florida in 2006. Due to financial constraints he was forced to obtain a student loan worth $4,000 from Stafford Loans when he was still pursuing an associate degree in graphic design at Valencia College in Orlando, Florida. However, because it was difficult for him to juggle both work and school at the time, he eventually dropped out.
Due to his inability to finish his associate degree, he instead entered into a program which certified him in graphic production and graphic design support in 2009. Nevertheless, his debt kept growing.
In his effort to make his loan payments more manageable, he decided to enter into a debt relief program with a debt consolidation company. Unfortunately, his plan was unsuccessful.
He was left with no option but to put his dream of finishing his degree on hold. When his manager informed him that a student loan servicer called for his information, he had learned that his low income has exempted him from wage garnishment. Nevertheless, the servicer opted to deduct his debt from his tax returns instead.
Brook’s annual tax returns usually amount to around $500 to $700, which he could conveniently use for his credit card bills and health care; but for the last 3 years he was unable to do so, because his creditors continue to take them as payment. He claims that although he wanted to pay for his debts, it was impossible for him to pay them on time because he was broke.

270 Days of Nonpayment

Paying for student loans are easier if you are a college graduate as they usually have better job opportunities than others. More often than not, they will be consistent in paying their debts. For people like Brooks, however, who has a lesser paying job and no health care, it becomes a lot more difficult.
The student loan is considered to be in default if the borrower has deferred payments for 270 days. When Brooks dropped out of school, he left with student loans he still needed to pay. Due to the financial difficulties he experienced during college and upon dropping out, his loan had defaulted and as a result, new costs were added to the balance of his debt.

Default is a Continuing Predicament

A lot of student loan borrowers face the same problem everyday. According to the Department of Education, student loan defaults has continued to increase in the past 6 years. Recent reports show that in 2012, borrowers were found to owe a total of $1.2 trillion in student loans from federal and private loans. Nearly half of them are dropouts.
In effect, the US government vowed to help borrowers and held schools responsible to guarantee that students are not given the burden of paying unfeasible loan debts.

Wage and Tax Return Garnishment

When a borrower is in default of loan payments, creditors may resort to wage or tax return garnishment. This happens if after at least six months, the borrower has not paid nor communicated with his creditors.
Private creditors may be granted by court of a Writ of Garnishment; the same is not necessary for the Federal government. The Writ of Garnishment is sent to the employer of the borrower and a notice of the same is sent to the address of the borrower within 30 days. This notice must include the following:
1. Amount of defaulted loan
2. Rights as a student loan borrower
3. How to avoid a tax offset
4. How to request for the documentation of the defaulted loan
5. How to request a hearing to oppose or object such offset
Disposable earnings can be garnished by up to 10% to repay federal student loans, while private loans can garnish earnings by up to 25%. Each state have different garnishment laws but there is a common wage garnishment requirement for all. Aborrower may have more or less the same case as Brooks if he has a disposable income of less than $290. The appropriate action then is for the creditor to opt for tax return garnishment instead.

Addressing the Problem

Student loans may be quite burdensome and troubling, but it is possible to manage them and avoid having wages or tax returns from being garnished. For instance, talking to your creditors could help you work out a solution with them. If not, it is also possible to apply for a long term loan to help you repay your student loans.
For Brooks, he admits that it might take time before he finishes paying for his student loan, but believes he is on his way to a better financial status.

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AssistingAmerica.org (AA) is a private organization and is not a government entity. AA is a Document Preparation, Submission and Tracking Service. AA will not pay your student loans for you or on your behalf. We offer our service only for the Preparation, Submission & Tracking of Federal Student Loan Consolidation Documents. Document Preparation Services are not available for residents of the following states, IL, CT, GA, KS, NY, WI, WA. *Results May Vary and are Solely Based on The Federal Consolidation Program You Choose. Not available in all States.