Student loan default is an epidemic problem among senior citizens. The default rate currently stands at over 12%, more than three percentage points higher than borrowers under 30 years old. According to the U.S. Treasury, more than 156,000 seniors had money taken from their monthly Social Security checks to pay delinquent student loans last year. In contrast, the number of Social Security checks garnished for student loan payments during 2000 was. . . six.
The Trouble with Co-Signing
Many older Americans find themselves deep in student loan debt due to a co-signer obligation. Many are unaware that co-signing a student loan obligation makes the co-signer obligated for 100% of the loan. If the student/borrower is unable or refuses to pay, the lender may seek to collect from the co-signer.
Government-Guaranteed Student Loans
If a defaulted loan is government-backed, the government may collect from government funds owed to the debtor. That could be Social Security, disability checks, income tax refunds, government retirement pensions, or other government money the debtor is entitled to receive. The government may garnish 15% of the entitlement through the Federal Payment Levy Program.
Bankruptcy Can Help
While it is well-known that student loans are difficult to discharge, filing bankruptcy can provide time to repay student loans, or simply provide a breathing spell from collection. During a Chapter 13 case, the bankruptcy automatic stay protection stops garnishment and other collection actions against the debtor and all co-signers — regardless whether the student loan is paid during the bankruptcy case.
If you are in danger of garnishment from a defaulted student loan, speak with an experienced bankruptcy attorney. Your attorney can review your situation and discuss your options for repayment, forgiveness, or discharge using the federal law.