U.S. Government Targets Student Loan Default

By admin on July 4, 2012

Those who default on their student loans are at risk of having their bank accounts drained and wages garnished — more than 30 years after the fact, according to a Bloomberg report.

Such was the situation that confronted 58-year-old Linda Brice, a first grade teacher in Los Angeles who defaulted on $ 3,100 she had borrowed more than three decades ago to pay for college.

Goldsmith & Hull, a law firm representing the federal government, withdrew $ 2,496 from her bank account and seized a quarter of her wages, which amounted to more than $ 900 a month. This was after the chief federal judge in Los Angeles sided with Brice, ruling that she should pay only $ 25 a month due to her financial state.

Student-loan debt in the United States totals $ 1 trillion – eclipsing the amount owed on credit cards. The average borrower graduating from a public or private institution owes $ 25,250. When not repaid, the U.S. Education Department is at liberty to turn borrowers’ names over to federal prosecutors, who in turn hire private law firms to retrieve the money. These firms then take a cut for themselves.

As a result of a 1998 change in federal law, student loans can rarely be discharged. Deanne Loonin, an attorney with the National Consumer Law Center in Boston, told Bloomberg that student-loan borrowers who default are being pursued and punished more severely than almost any other kind of debtor — despite President Obama’s public statements emphasizing leniency on the matter.

H.R. 4170, the Student Loan Forgiveness Act of 2012, was introduced in April,proposing the relief of student loans for current borrowers who have paid the equivalent of 10 percent of their discretionary income for 10 years, or who are able to do so in the future. It would also allow current borrowers to be freed from large fees by converting private loans to federal ones.

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