Consequences of Student Loan Default
Default can have several immediate negative consequences and a long-lasting negative effect on your financial future.
If you do not voluntarily make arrangements to pay back your student loans, money to repay your debt could be deducted directly from your paycheck without your consent. Federal regulations require guarantors, like Trellis, to collect payment on a student loan debt through a deduction from a borrower’s wages. This is known as Administrative Wage Garnishment.
You could have up to 15 percent of your disposable income garnished, or withheld, from your paycheck each pay period to make payments on your student loan debt. If you have multiple loans held by multiple guarantors or the US Department of Education (ED), you could have up to 25 percent of your disposable income garnished. In the state of Texas, your employer may charge an administrative processing fee of up to $10 per Administrative Wage Garnishment transaction. Disposable income is the amount of your total (gross) salary minus any deductions required by law, such as state and federal income tax, child support, and mandatory retirement deductions.
By law, you have certain rights when you’re facing Administrative Wage Garnishment:
- You can inspect and copy records relating to your debt.
- You can establish a repayment plan if an Order of Withholding from Earnings has not been issued.
- You can request a hearing.
- An employer may not fire you, refuse to employ you, or discipline you because your wages are garnished.
At least 30 days before the initiation of garnishment proceedings, Trellis will mail to your last known address a written notice that describes your student loan debt, states Trellis’ intention to collect the debt through deductions from your wages, and provides an explanation of your rights. If you don’t send your payment within the time period stated on this Notice Prior to Wage Withholding, then your wages may be withheld. Generally, once wage garnishment has been initiated, the wage withholding order will remain in place until your employment is terminated or your loans are paid in full.
Payments withheld under Administrative Wage Garnishment don’t appear as voluntary payments on your credit report, though they are deducted from your loan balance. In addition, if you’re subject to Administrative Wage Garnishment, you may not reinstate your federal student aid eligibility.
If you have been notified that Trellis is planning to garnish your wages and you want to find out more about your rights or how to avoid having your wages withheld, call (800) 222-6297, ext. 4125, or send email to firstname.lastname@example.org.
Money you’re eligible to receive from the federal government, such as an income tax refund, can be diverted to repay your defaulted student loans. This is known as a Treasury offset and is required by federal law and regulations.
If you’ve defaulted on your student loans, your loan may be certified for participation in the Treasury offset program. If you establish a repayment agreement satisfactory to Trellis and continue to make timely payments, your loan will not be subject to Treasury offset. However, if you become delinquent in your repayment agreement, you may once again be subject to Treasury offset.
By federal law and regulations, you have certain rights when you are facing Treasury offset:
- You must be notified that Trellis is proposing to use Treasury offset to collect money from you. A notice will be sent to the address you used when filing your most recent federal income tax return that explains your rights with regard to the Treasury offset process.
- You must be given an opportunity to:
- Avoid offset by arranging to repay your loan
- Review any records about your loan
- Show why the loan is not in default, is not delinquent, or why you aren’t legally responsible for repaying it
- If your spouse’s tax refund was subject to Treasury offset because of your federal debt, your spouse may be entitled to claim his or her refund. You can contact the IRS about your Treasury offset at (800) 304-3107.
If tax refunds or other federal payments are withheld, they won’t appear as voluntary payments on your credit report, although they will be deducted from your balance. Treasury offsets don’t count toward any program that requires voluntary payments, such as reinstatement or rehabilitation.
Borrowers who receive a letter from Trellis warning of possible Treasury offset should call Trellis at (800) 222-6297 or send email to email@example.com.
When you signed your promissory note, you agreed to repay the lender for your loan. You also agreed that if you defaulted on your loan, you would pay the cost of collecting on your debt. Collection costs of up to 24.34 percent (the maximum statutory rate) may be added to the balance of your loans. Collection cost rates are recalculated annually, and the percentage rate is subject to change due to factors such as a change in administrative costs, or whether your account is assigned to a collection agency or attorney. Upon recalculation, the adjustment in the rate could cause an increase or decrease in the total balance due on your account.
The total balance due on your account changes daily as simple interest accrues. Collection costs are calculated as a percentage of the total principal and accrued interest balance. The total amount due on any given day includes all principal, accrued interest, and the applicable percentage rate of collection costs.
If you set up a repayment arrangement and make your first payment within the first 60 days of the default claim payment date, collection costs won’t be added to your account as long as your account remains current. If your account ever becomes 60 days past due on the new arrangement, collection costs will be assessed at that time and will remain on your account until it’s paid in full.
For more information on collection costs, call Trellis at (800) 222-6297 or send email to firstname.lastname@example.org.
Federal regulations require Trellis to report to all nationwide consumer reporting agencies certain information, such as the original default amount and current balance of each of your defaulted loans. Trellis is also required to report the status of your loans during repayment, including delinquent payments. Even when your loans are paid in full, dismissed in bankruptcy, or consolidated, the record of your defaulted student loans will continue to show up on your credit report for seven years from the date of the delinquency that led to the default.
Trellis reports credit information to four nationwide consumer reporting agencies:
Even if your loan has already been reported as a default on your credit report, you can contact Trellis and establish a repayment arrangement. If you do, Trellis will report to all nationwide consumer reporting agencies that you’re in a voluntary repayment schedule. If you continue to make voluntary payments on an accepted repayment schedule, you may qualify for Trellis’ rehabilitation program.
After you have successfully completed the rehabilitation program, Trellis will delete its reporting of the default to all national consumer reporting agencies, and will request that the lender that filed the default claim on your student loans also remove the default status from your credit report.
If you’re interested in more information regarding the rehabilitation program, call Trellis at (800) 222-6297 or send email to email@example.com.
If the information on your credit report appears inaccurate or you disagree with the accuracy or completeness of the information being reported to the nationwide consumer reporting agencies, contact Trellis. Trellis representatives will answer your questions or send you information to assist you in addressing your concerns about your credit report.
You can also complete and return a copy of the Trellis Credit Bureau Dispute Form. Please note that this form is for Trellis defaulted student loans only. If you’re disputing any non-Trellis accounts or other items on your credit report, you must contact either the national consumer reporting agency or the financial institution that’s reporting the information to resolve your dispute.
For more information on credit reporting, call Trellis at (800) 222-6297 or send email to firstname.lastname@example.org.
If you default on a student loan that was guaranteed by Trellis, Trellis becomes the holder of your loan. One of the consequences of default is the loss of eligibility for additional federal student aid. Your eligibility for federal student aid may be reinstated if you request to make satisfactory repayment arrangements with Trellis. Under these arrangements, you must make six consecutive, voluntary, on-time, full monthly payments to Trellis before you’ll be eligible for additional federal student aid. After you meet these qualifications, Trellis will send the appropriate notification to your school, upon request, that you’ve fulfilled your obligations under these arrangements.
Once your federal student aid eligibility has been reinstated, you must remain current on your loan payments throughout the repayment period. If you fail to remain current in making your monthly payments, you’ll become ineligible for additional federal student aid until your defaulted loan is paid in full.
For more information on how to set up repayment arrangements or to request reinstatement of your federal student aid eligibility, call Trellis at (800) 222-6297 or send email to email@example.com.
If your student loans are in default, the Texas Lottery Commission is required to withhold your winnings to satisfy your student loan debt. For more information, call Trellis at (800) 222-6297 or send email to firstname.lastname@example.org.
Renewal of your Texas state occupational or professional license (e.g. Cosmetology, Real Estate, Optometry, etc.) may be withheld if you’re in default on your Trellis student loans.
Once you establish a satisfactory repayment arrangement with Trellis and are current in your payments, Trellis will send a license release letter to the licensing agency.
For more information on how to set up repayment or request a license release letter, call Trellis at (800) 222-6297 or send email to email@example.com.
Your Texas State Bar attorney license may be suspended if you default on your Trellis student loans.
Once you establish a satisfactory repayment arrangement with Trellis and are current in your payments, Trellis will send you a license release letter. It’s your responsibility to forward the State Bar license release letter to:
State Bar of Texas
P.O. Box 12487
Austin, TX 78711
For more information on how to set up repayment or request a State Bar license release letter, call Trellis at (800) 222-6297 or send email to firstname.lastname@example.org.
Reimbursements (warrants) from the Texas State Comptroller may be withheld if you default on your Trellis student loans.
Once you establish a satisfactory repayment arrangement with Trellis and are current in your payments, Trellis will issue a warrant release to the Texas State Comptroller.
For more information on repayment or to request a warrant release letter, call Trellis at (800) 222-6297 or send email to email@example.com.
If your Trellis student loans are in default, your school may not release certain academic records, such as enrollment and attendance records, academic transcripts, certificates, and degrees. Each school has its own policy for releasing academic records. Some schools may require documentation or verification of your current repayment status before releasing records or transcripts.
To request more information on the release of academic records or to set up repayment arrangements, call Trellis at (800) 222-6297 or send email to firstname.lastname@example.org.