If my husband goes into default on student loans can they take the $ out of my bank?

Ella:

If your husband defaults on his student loans, the lender will spend at least 270 days trying to cajole him into either honoring his obligation, or negotiating a payment plan. If your husband does not respond to the lenders efforts, they will turn his account over to a collection agency, which will pursue him a lot more diligently, and which will add service fees equivalent to approximately 25% of the balance on his loan.

The collection agency will do their best for a while, contacting your husband by phone and letter (even at work), but eventually, they'll return the file to the lender.

If any of the loans were government backed loans (Stafford, Perkins, PLUS), they will contact the IRS, and instruct the IRS to withhold all of your joint tax refunds and any stimulus checks until the loan has been repaid in full.

The Department of Education can also issue a wage garnishment order, without the necessity of going to court. A wage garnishment order requires your husband's employer to withhold 15% of his disposable income from every paycheck, and mail that to the Department. Disposable income sounds warm and fuzzy, like the "extra money" that you had planned to spend on a boat, or something, but that's not the disposable income the Department of Education has in mind. They'll withhold 15% of everything above and beyond the absolute minimum that your husband would need to purchase the cheapest available food, clothing and shelter. The garnishment will continue until the loans have been repaid in full.

The government will report your husband's defaulted student loan debt to all of the major credit bureaus. A defaulted student loan is one of the worst black marks that you can have on a credit history - not only will he be rejected for credit cards, car loans, and mortgages, but his existing credit cards will seize upon that event to cut his credit limits, and to raise his rates to the maximum allowed by law in your state.

Getting back to the tax returns, for a minute. There is a way for you to make a claim to the IRS ('injured spouse") that will protect your share of the joint return refund, but that's extra paperwork you'll have to file every year. If you don't file it, the IRS normally holds both of you responsible under the legal premise of "joint and several liability".

There's a better way, Ella. If your husband can not afford to repay his student loans, he'll need to face up to them, and approach his lenders, hat in hand. If a borrower goes to the lender and acknowledges his/her debt, expresses a desire to repay, and works with the lender to document his/her inability to maintain the scheduled payments, the lender will negotiate a new repayment plan that the borrower can afford.

If your husband hides from his lender, makes them put the debt out to collection, and forces them to pursue legal action, garnishment and refund seizure, all that gets your husband is a much larger bill, and a much less cooperative lender. Student loans are not dischargeable in bankruptcy, so it's better that your husband stand up to the agreements that he made. If he doesn't, it will be a long time before any other creditor trusts him with a loan.

Oh, by the way - no, they can't take money out of your bank account - or your husband's either. The closest that they could come is to sue your husband, get a debt judgment from a court, place liens on your property, and attach certain of his possessions.

Good luck - I hope that helped you understand the risks a little better.

My mom defaulted on her loans and they started taking it out of her paycheck. I don't think that they are allowed legal access to his bank account right off the bat. They would have to take some serious legal actions against you guys first. In some states, the spouse of the person who defaulted on the loan is just as responsible for the debt, so any money he or she makes would be considered communal money and would be fair game for garnishing wages.

Assuming your husband has stafford loans, upon graduation he has a 6 month grace period before he is required to make the first payment.
If the sixth month is approaching and he is still unemployed, have him contact the lenders of his loans (some students have more than one lender) and inform them that he wants a deferment due to a "financial hardship" or is "unemployment". They'll change his loan status and he will not be required to make any payments for however many months that he request, I believe you can request up to a year or two (check with lenders). Bear in mind that interest will continue to accrue on top of his principal balance while he is in deferment.

They cannot take money out of your bank account if you default. It'll just screw up your credit really bad and stick with you for the next 7 years. They'll do wage garnisments if you're in default. More info here: http://www.ed.gov/offices/OSFAP/DCS/default.html

~~I highly recommend that he consolidates his student loans at least a month before his grace end period is up (processing times vary). Especially if he has mulitple lenders (they don't talk to each other of course). If he doesn't know who his lenders are, he needs to get on top of it once he's nearing graduation. NSLDS will have accurate info regarding that here: http://www.nslds.ed.gov/nslds_SA/

It'll save him time in the future if he ever needs to contact them - one lender, one phone call. Also, it'll average out his interest rates (which may be beneficial depending on the when the loans were disbursed). Consolidating student loans will not adversely affect your credit score, it helps a bit actually.

Actually, Student Loans CAN be discharged in Bankruptcy but it is getting harder and harder to do so. (The government doesn't want you to know this). You have to prove that re-paying the loans would be a great hardship and that there is no way in the future that the borrower will make any more money. Its almost impossible to do so, though.

Yes and they can garnish his pay check don't play with the government. It happen to my cousin. They can also, take any income tax return. Tell him to request a hardship, this will help defer some payments, also if you get behind on your car payments you can do the same thing. They can put your payments on the back of the loan. This will just delay ownership two months. You can do that every year if you want. Look into it. Tell them someone lost their job.