Every day, 3,000 fail to pay their federal student loans — and those lack of payments amount to an unpaid bill of $137 billion for the federal government. For decades, the government has tried to get borrowers to pay up by hiring debt collection agencies to call and send letters, but now, the government is trying a new lawsuit strategy.
In the last two years, more than 3,300 student loan borrowers have been sued after defaulting, according to the Department of Justice. In nearly every one of those suits, the borrower loses and the government wins. What does the government win? A lien on the borrower’s assets, meaning that the debt is now attached to his or her most valuable belongings, like a home. Jennifer Schultz, an attorney with Community Legal Services of Philadelphia, says that a lien traps a person, like house-handcuffs.
“I describe a lien as a kind of marker on the house,” Schultz says. “Any time a person tries to do a transaction involving their house — a new mortgage, a refinance, or if they try to sell it — they’re going to be expected to clear up any debt that’s attached to that house.”
The government has long been able to garnish wages, take income tax returns and divert Social Security and disability benefits. But targeting property is a way of applying even more pressure to get former students to pay up. It’s a way to get to avoiders to wake up from their slumber.
The end result of these suits — the liens — can be seriously threatening to borrowers. For many it’s a matter of housing preservation, says Joanna Darcus, an attorney on the student loan team at the National Consumer Law Center.
“For folks already living on the margins financially, the fear of losing that house can be palatable,” Darcus says.
Once a lien is in place, the government can force the sale of a former student’s home. That’s “exceedingly rare,” officials say, but it does sometimes happen.
The federal lawsuit program is expected to keep expanding, and with more than 8 million people currently behind on their federal student loans, it doesn’t look like the private firms will run out of work any time soon.
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