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My Student Loan Lender Wants to Take My House

Written by Steve Rhode

“Dear Steve,

I have a very old defaulted student loan that is being paid via an attachment to my tax returns annually. I just received a letter that I may be forced to sell my house to fully pay this loan off. What can I do to protect my house? I have the sense that my loan was purchased by someone and the amount never seems to go down buy actually increases every year.



Dear Arlene,

If they are intercepting your tax refunds then these are probably old federal student loans. Why don’t you just get on an income based repayment plan to avoid tax intercepts and further action? See this article for details.

Please post your responses and follow-up messages to me on this in the comments section below.


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READ  My Tax Refund Was Intercepted Because of Delinquent Student Loans

About the author

Steve Rhode

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.


  • A court-supervised repayment plan (also known as a Chapter 13 bankruptcy) may also be an option in this case. I agree though that the income based repayment plan is always the first place to start when you can’t make a payment on a federal loan.

    • Bankruptcy won’t discharge the federal loans, and as far as I know there’s no way they can “take” her house. Sounds like a collection agency threat.

      • You don’t file the bankruptcy case to discharge the loans. You file it to stop any collection action and to be able to make payments you can actually afford. You pay no interest on a defaulted student loan in a Chapter 13 bankruptcy and it stops all collection actions.

        • Yes, the automatic stay still works for federal loans. But there are usually better options than having a BK on your CR for 7-10 years when you don’t even get the loans discharged. Might want to check your facts because I’ve seen several people who did this and were automatically put on forbearance, and interest DID accrue. And there was nothing they could do about it. Not a good idea in 99% of cases. Especially since student loan lenders can’t actually take someones house for federal loans. For payments you can afford, consolidate out of default with the DOE and apply for income based repayment or a related plan. It has the benefit of giving you payments you can afford without destroying your credit for the next decade.

          • In a Chapter 7, interest does continue to accure. Not in a Chapter 13. I’m a lawyer and handle these cases all the time. The myth about bankruptcy hurting your credit is just that: a myth. Usually, people who are having problems on student loans have a very low credit score anyway and a bankrutpcy only helps, especially if they’ve already bought a house or car or both. If you have equity in a home, it could be affected if the federal government sues you to get repaid on a loan. Also, for federal loans, the goverment can do an administrative wage garnishment, take a tax refund, or take your social security benefits. A Chapter 13 can avoid all these problems if you are behind on the payments and need extra time to pay.

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