Tax season isn’t anyone’s idea of a good time, but if you’re in a position to receive a refund, that can certainly take the sting away. Unless, of course, you’re worried that the IRS is going to intercept your tax refund because you’re behind on your government-backed student loan debt payments. Most borrowers think that if you have a government-backed loan and the IRS (A.K.A. the government) seizes your money to pay for it, there’s nothing you can do about it, but that’s not true. You have every right to fight for what’s yours.
For many Americans—for example, the 25 million American households who rely on the Earned Income Tax Credit or Child Tax Credit to stretch their budget through the year—that annual tax refund can mean the difference between making ends meet or going deeper into debt. If the IRS is jeopardizing your tax refund because you haven’t been able to pay your unaffordable student loan debt, forcing you into the position of either fighting the federal government or letting one debt turn into even more, then it’s time to put the government on notice.
We’ve written before about the terrible impact of American student loan debt. We’re certainly not alone in that. Student loans are the largest source of non-housing debt in America. And, as even the most optimistic articles will tell you, it’s generally much more difficult to dispute government-backed students loans and/or get them to negotiate for a reduced lump sum settlement because of they way in which the laws are written that make it harder to dispute a government-backed debt and the special power that the government has.
But difficult is not the same as impossible.
Don’t let them just take your money
When borrowers become delinquent on government-backed student loans, the government can take your money in a variety of ways, thanks to incredibly weak consumer protections. They can levy your bank accounts, they can garnish your wages, they can intercept your Social Security benefits, and yes, they can snatch away your tax refund. And unlike a private lender, they can do any of these things without having to first win a judgment against you in court.
Here’s the key: they can’t do any of those things without notifying you first. The U.S. Department of Education or the relevant guaranty agency must send a written notice to your last known address. This notice grants you the right to request loan documents (i.e., the documents that prove you really owe the debt, they really own the debt, and state the amount owed), as well as the right to request a hearing before an administrative law judge.
If you haven’t engaged an attorney from DebtCleanse’s network yet, now’s the time. Because you’re going to do both.
The fight begins
When it comes to collecting debts, the government has some special powers. Like we mentioned above, they can shrug off attempts to negotiate a settlement by pushing you into various payment programs, or seize your money without taking you to court first. But once you request loan documents and a hearing, you drag them back down to earth.
Don’t get us wrong, this is still the federal government we’re talking about, here. They’re not going to be pushed around. But the goal is the same as it is with any other debt you can’t afford: to get them to settle for a one-time lump sum payment of a fraction of your debt’s original value. And the method for getting them to settle is mostly the same, too.
Clearing Government-backed Student Loans
Stop paying your unaffordable debt
If the government is trying to take your tax refund or garnish your wages, you’ve probably already defaulted on your loan. Getting that notice in the mail can make you feel like you need to scramble to scrape together whatever money you can to start paying again, even if it means being unable to pay other bills, or even going hungry. Don’t.
Hopefully in the time since you stopped paying your student loan, you’ve been saving up whatever money you would have paid toward the loan—even if it was just a few bucks a month—to afford an attorney and a future settlement. If you haven’t been setting that money aside, start immediately.
Request the documents and hearing
Reply to the government’s notice saying that you want all the loan documents and requesting an in-person hearing (not a telephone or written hearing; doing it in person is less convenient, but more likely to work in your favor). This is where you will likely want the help of an attorney because, like everything else to do with the federal government, these seemingly straightforward requests are more complicated than they ought to be. For instance, requesting an in-person hearing requires you to submit not one, not two, but three separate letters.
You can find samples of these letters, plus tons of information about this step and many others in DebtCleanse’s free guide to student loan debt.
Find creditor mistakes
Many student loan borrowers facing unaffordable debt are turning to strategic default, which, as we’ve covered here, is essentially defaulting on a loan with a game plan for managing the consequences. It’s similar to our advice above to stop paying and start saving up for a settlement But without taking it to the next level by looking for creditor deficiencies, strategic default is like an army going into battle with weapons, but no ammunition.
Attorneys familiar with the DebtCleanse method are empowered with tools and strategies to examine loan documents to find deficiencies. And government-backed loans are just as filled with them as any other. A single deficiency is typically not enough to force a creditor to accept a settlement, but every one you and your attorney find gives you more ammo to use in your hearing, any future court proceedings, and at the negotiating table.
These hearings are usually held in Chicago, San Francisco, and Atlanta. If you already live in one of those cities, great. But if not, that’s okay. You don’t need to be there in person. You can send your attorney, or, instead of paying for those travel costs, ask your attorney to engage another one who works near the hearing location through the DebtCleanse network.
You will also want to pay for a court reporter to be there. It’s an added expense, but you’re going to want a formal record of the hearing. It’s rare for these hearings to be the end of the road in contesting a student loan, but it’s common for creditors to make mistakes in them, and you can use those mistakes later.
No matter how the hearing goes, it’s also an opportunity for your attorney to let the guaranty agency know that you’re happy to settle this whole matter for a specified amount—target 10% of your full loan amount. Even if they say no, you will have made the offer, and they’ll have to keep it in mind as things move to the next stage.
Within 60 days of your hearing, the judge should give a ruling. Unless the guaranty agency makes a colossal mistake, like losing the original note that proves the debt existed in the first place (and yes, that does happen), you’re probably going to lose your case. That’s alright. It’s just time for Round 2.
Round 2: the lawsuit
Bear with us here, because this might sound crazy, but your next move is to sue the guaranty agency, the U.S. Department of Education, the debt holder, the servicer, your school, and anyone else who stands to benefit from your unaffordable student loan debt. And you’re going to request a jury trial.
During a lawsuit, you get to conduct discovery, which means your attorney can request every document imaginable that your creditors might have that pertains to your loan. You might already have some of these documents. Request them again anyway. You want everything, because—you guessed it—you’re going to examine every word for possible mistakes and deficiencies.
It is sadly all too common for schools to push students to take on loans that they know they likely won’t be able to afford, to steer students from borrowing from specific lenders from whom they get a kickback, or to lure in students with the promise of a lucrative career that they know simply doesn’t exist anymore.
These are all ways in which schools and lenders set student borrowers up to fail, and they are just a few of many compelling grounds for a lawsuit, all of which are strengthened when you have a laundry list of creditor deficiencies on your side.
Extend the olive branch
Before your lawsuit ever sees the inside of a courtroom, you will have multiple opportunities for your attorney to reach out to the opposing counsel to offer to settle. If they won’t agree to it as soon as you file the suit, they may after some formal mediation. Remember, that’s the goal here: to settle for a lump sum that you can actually afford.
The main event
Hopefully they’ll agree to your terms just to avoid the hassle and expense of going to trial. But if they won’t settle, be prepared to go the distance in court. You wouldn’t be the first person to take the federal government to court over unreasonable student loans and win. And just know that if you do have to go to trial, you’ll have millions of student loan borrowers behind you, supporting you every step of the way.
Taking the U.S. government to court over an intercepted tax refund may seem like an extreme reaction. But the stolen refund is just a symptom of a larger disease that’s making it impossible for working people to get ahead in this country. Neither the U.S. government nor the U.S. education system should be in the business of pushing people to go deeper into debt to pay off a loan they should never have been forced to take out in the first place. If you don’t take a stand against a broken system, who will?
Download DebtCleanse’s free guide to student loan debt for more information on standing up to unaffordable government-backed student loans.
And join our email list to stay informed about DebtCleanse’s ongoing fight against America’s consumer debt epidemic.
Questions? Contact Us Today!
For more information about pushing back on student loan creditors, fill out the form below or call 800-500-0908 and one of our support experts will be happy to help.