Consequences of Default
Collection Costs
If you default on your student loan, HESC will charge you collection costs. This fee, currently 16.2% of your payment, goes toward covering the costs of collecting your loan.
For instance, if you pay HESC $100 on your student loan, HESC will deduct $16.20 for collection costs. The rest of the payment — $83.80 — will go first to any outstanding incidental charges such as returned check fees, then to interest on the loan, and only then to the principal.
The rate of collection costs will be re-established each year and goes into effect on the first day of each new year.
Collection costs will not be added if you establish a repayment agreement within 60 days after you default and maintain that arrangement until your loan is paid in full.
Seizure of Federal and/or State Payments
If you’ve defaulted on your student loan, any Federal and/or State payments that you are entitled to receive in the future may be seized for repayment.
The IRS and New York State government will seize your Federal and/or State payments if you’ve defaulted on your loan without making satisfactory arrangements for repayment, or if you have an open legal judgment against you.
- A warning letter is sent to all borrowers subject to tax seizure.
- The letter includes instructions you must follow if you wish to object to this action.
- To avoid seizure of your Federal and/or State payments as well as other consequences of default, call us and make arrangements to repay your loan.
Wage Garnishment
If you default on your student loan and fail to enter into a repayment agreement, HESC can initiate an administrative wage garnishment and take payments from your wages.
- HESC must give you notice of its intent to garnish your wages.
- You have the right to a hearing before an administrative law judge before garnishment.
- At the hearing you may contest the enforceability of the debt, the amount of the debt, or the existence of the debt.
- If you do not enter a repayment agreement, fail to ask for or attend a hearing, or if the judge finds against you, your employer may be ordered to withhold and send to HESC up to 15% of your disposable wages.
If you’re having trouble with repayment or are in default on your student loan, HESC will work with you to assess your situation and help you enter a satisfactory repayment agreement. For more information, contact HESC at 1-866-991-HESC (4372).
