Should I Just Wait Till I’m Sued or Have My Tax Return Intercepted Over My Student Loans?


Dear Steve,

I have a few questions about student loans in default. First, I will give you a quick background review:

I have received two pieces of mail of note recently. The first was a bill from GC Services, which I believe holds all three of my private student loans. However, my memory only recalls a total amount borrowed around $65k, but, according to the most recent statement from GC Services, I owe $214,869.75. Obviously, I cannot account for this number and I have no idea where they have calculated this from. I’m not sure how far into default I am, though I have been out of school for about two and a half years and I have never made one payment on any of the private loans. (Side note: the company who holds this debt right now, GC Services, has been calling my boyfriend’s parents about this debt, on their home phone. They gave my boyfriend’s mother personal details on the loan, telling her my name, what the debt was, and my birth date. She lives in Florida (I live in California) and she very specifically told them she is not related to me in any way, I did not live there, and to not call me at their number ever again. They still call every day. They also claimed her name was listed on one of my loan application as a reference, explaining that is how they got her phone number, but I did not even know my boyfriend or his mother when I was in college — this is a complete lie.)

The second piece of mail was received yesterday. It is a notice from the Treasury Department informing me that my tax refund will be held to pay back my federal student loans. Again, I have been out of school for about two and a half years and I have never made one payment on any federal loan, either. The amount they are claiming will be taken from my taxes is $15k which accounts for about one-fifth of what I believe I have in federal student loans. I will not be receiving a tax return this year because I am unemployed (so a wage garnishment is also not an option) and when I do work, I make very little money. I am not married, do not own property, a car, stocks, or anything of value at all.

My course of action on these items is as follows:

Private loans: Continue to not pay them anything until they sue me in which case I hire a lawyer and request that they prove this debt is mine. After seeing the amount they are saying I owe, and its astronomical difference from what I borrowed, I feel that a great portion of this bill could be ruled uncollectible. Not to mention, I have several instances of the collector breaking the law regarding what they’re allowed to do when contacting people about the loan. They also call my dad at work multiple times per day.

As for my federal loans and this tax offset letter, my plan is to request proof of the loan from the government via my loan file, then request for review. However, because the amount that has been noted in the tax offset letter is only one-fifth of the total amount I have borrowed from the government, I wonder if it would be smarter to wait until the full amount has been turned over to the Department of Treasury? The end-goal is to have them all lumped back together in default and then I either consolidate and make low payments using or rehabilitate and arrange either Pay As You Earn Repayment Plan, Income-Based Repayment Plan, or Income-Contingent Repayment Plan.

My questions for you today are:

Would be smarter to wait until the full amount of my federal loans has been turned over to the Department of Treasury for tax offset and then consolidate or rehabilitate?

With regard to my federal loan plans, do you typically see a better outcome when a person consolidates or when they try rehabilitation?

Do you know if there are any pitfalls to arranging either Pay As You Earn Repayment Plan, Income-Based Repayment Plan, or Income-Contingent Repayment Plan?

Would you amend any part of my plans with better options?

Should I wait until the private loan collector sues me before requesting to review my loan files? (The extremely high amount they’re claiming I owe is worrisome, but I honestly don’t care that much about my credit score, so if we’re not factoring that it, are there any reasons why I should force their hand here?)

And finally, triple-checking the facts on this one: Can my bank account be frozen or levied because I’m unemployed and they will not be able to get money from me using wage garnishment or a tax offset, at least for the near future?



Dear Sandra,

Well that was a well detailed question. Thank you.

On the federal loan front you should tackle them right away. Contact your servicer or login to the National Student Loan Data System and confirm the status of your current loans. Then attempt to consolidate all the loans into a new direct loan and select one of the Income Driven Repayment plans to repay that new loan.

The two IDR repayment options that can be problematic are REPAYE and PAYE if you file a joint tax return now or in the future. However, you can qualify on your income alone for the IDR if you file married but separate if you get married. But the IBR repayment option will be based on your income alone.

Even if you are unemployed you should jump on this right now. You will most likely qualify for a $0 payment plan and still remain current. Ignoring your loans will only inflate the balances and fees you will pay.

The loan with the tax offset may have to be rehabilitated first. More on rehabilitation can be found here.

On the private student loan front it sounds like the lack of payments has exploded the balances. There is no way for me to guess if the reported balances are accurate but with no payments the balances will grow large and fast. Fees and even collection costs can be tacked on.

Your approach on this is certainly more optimistic than mine is. If your private loans were from National Collegiate Student Loan Trust then you’d have a better shot and having them unable to validate them. Otherwise, that’s not a guaranteed strategy.

The more logical approach would be for you to connect with an experienced student loan attorney now to come up with a plan. You might want to check with one of the attorneys on My List of Student Loan Attorneys You Should Consider for Assistance.

Strategically defaulting on your private student loan debt is always an option but the more likely outcome will be to settle them rather than have them wiped out. See Top 10 Reasons You Should Stop Paying Your Unaffordable Private Student Loan.

If you retain a lawyer they may be able to run interference for you with the collector.


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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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