The Supreme Court will clarify soon whether the federal government can dock Social Security benefits from delinquent student borrowers, but experts say existing measures have lowered default rates successfully on student loans.
The court will resolve two conflicting Circuit Court rulings about whether the government can garnish Social Security benefits to repay overdue student loans.
The confusion stems from a series of conflicting federal debt collection laws.
Regardless of the court’s ultimate decision, lenders still will have many options to collect overdue loans.
Wayne Johnson, director of guaranty agency services for the N.C. State Education Assistance Authority, said North Carolina rarely has to deal with the problem of collecting defaulted loans. He said the state boasts a 1.6 percent default rate — the lowest in the country.
But NCSEAA and other guarantors, in extreme cases, can take drastic measures to ensure that lenders and the government are repaid.
Bob Murray, manager of corporate communications for United Student Aid Funds, said that a borrower will default on a federal Stafford Loan after 270 days, or about nine months, if the loan goes unpaid.
After the grace period, the consequences are severe.
“Collection costs are added to your (entire) costs,” Murray said. “You may be denied professional licenses. In some cases your wages can be garnished and you can be sued.”