Student Loan Debt

Federal Student Loans vs. Private Student Loans

It is important to understand what type of student loan debt you have.

A federal student loan is owed to the United States government. Debts owed to the federal government are exempt from the laws protecting retirement incomes from debt. A private student loan is owed to a private bank or a finance company. It is ordinary consumer debt, and it cannot touch protected income at all.

If You Are in Default (behind on payments) on a Federal Student Loan

There are three pathways to getting out of default: loan rehabilitation, loan consolidation, and loan payoff.

Loan Rehabilitation

Loan rehabilitation is one way to get a federal student loan out of default. When your loan is rehabilitated, the default status will be removed and collections will stop. Additionally, you’ll regain benefits that were available on your loan before you defaulted.

You begin loan rehabilitation by signing a rehabilitation agreement and making 9 voluntary, reasonable, and affordable monthly payments (calculated at 10%–15% of discretionary income, sometimes as low as $5/month) within 10 consecutive months.

Completing loan rehabilitation removes the notation of default from your credit report (though late payments reported prior to default remain for up to 7 years).

Loan Consolidation

Loan Consoldation allows you to combine defaulted loans into a new Direct Consolidation Loan. To consolidate out of default, you must either:.

Agree to repay the new consolidation loan under an Income-Driven Repayment (IDR) plan, or

Make 3 consecutive, voluntary, full, on-time monthly payments on the defaulted loan first.

Loan Payoff

Pay the remaining loan balance in full, or apply for cancellation if eligible under specific statutory programs (e.g., Total and Permanent Disability Discharge, Closed School Discharge, or Borrower Defense to Repayment).

Offset (Taking) Social Security Benefit Payments to Repay Defaulted Student Loan Debt.

If a federal student loan goes into default, the federal government can withhold part of your Social Security to repay the debt. This does not happen overnight. You should receive a notice of offset or warning if the federal government is going to withhold a portion of your benefits.

The federal government cannot take ALL of your Social Security benefits to repay a defaulted student loan. While they are very outdated, there are limits on the percentage of benefits that can be taken by the federal government to pay this debt.

The federal government can take:

• No more than 15 percent of your monthly benefit.
• Nothing that would drop you below $750 a month. If your benefit is $750 or less, nothing can be taken at all.
• SSI is completely exempt. Supplemental Security Income cannot be reached for a student loan under any circumstances.
• Veterans benefits are exempt as well.

So a $1,200 monthly retirement benefit could have have $180 taken from it to repay a defaulted student loan. A $900 benefit would lose $150 because taking the full 15% would leave the recipient with less than what the law allows. A $740 benefit would lose nothing.

Remember, offset only happens after default, which for most federal loans means roughly nine months of missed payments. Being behind on student loan payments is not the same as default.

Disability Discharge for Federal Student Loans

Federal student loans can be discharged entirely — liability eliminated, not reduced — for a borrower who is totally and permanently disabled.

Since 2021 the Department of Education has matched its records against Social Security’s and discharged many qualifying loans automatically, with no application. Whether you qualify through that match depends on how your disability review is scheduled in Social Security’s file. You can verify how your disability is qualified through the Social Security Administration if you are unsure of this information.

A discharge for total and permanent disability is not treated as taxable income by the IRS.

Private Student Loans are Ordinary Consumer Debt

A private student loan has none of the government’s collection powers behind it. It cannot reach your Social Security, your pension or your veterans benefits. The lender has to sue you like anybody else, and a judgment still cannot take protected income.

What a private lender can do is call you, and keep calling, and hire collection agencies to do the same. This is the part we handle. A private student loan is debt HELPS can take on exactly like a credit card or a medical bill: we become your lawyers for the purpose of receiving that contact, and it stops coming to you.

If You are Not Sure What Type of Student Loan You Have

The federal government maintains a central database of all federally backed student loans (Direct Loans, FFEL Loans, and Perkins Loans) at studentaid.gov. Log into StudentAid.gov using an FSA ID, or call the Federal Student Aid Information Center at 1-800-433-3243. If your loan appears on the website dashboard under "My Aid," it is a federal loan. If a loan does not appear anywhere on StudentAid.gov, it is a private loan.

You can also determine the source of your student loan by reviewing your credit report. Free credit reports are available weekly at AnnualCreditReport.com. Once you have a copy of your credit report, review it for an account name and lender details. If you see DEPT OF ED, US DEPT OF EDUCATION, FEDSTUDENTAID, you have a federal student loan. Private student loans will appear under the names of banks, credit unions, or specialized private lenders.

Finally, indicators of a federal student loan will appear on the billing statements you receive. If you see terms like Direct Subsidized, Direct Unsubsidized, Direct PLUS, Stafford, Perkins, or FFELP, you have a federal student loan.