Student loans can put a lien on your house. But only if your student loan defaults, then you're sued, and a court enters a judgment against you.
Once a court judgment is entered against you, then the laws in your state may let the lender put a lien on your home, bank accounts, and other personal property you have in the state.
It is uncommon to be sued for federal loans. There's no statute of limitations for federal loans, and the government has super collection powers.
It's common to be sued for private student loans that have gone into default. Private lenders have few collection powers. They're limited to dinging your credit report and dropping your credit score, hiring debt collection agencies, and, if that fails, suing you for breach of contract.
The only way a private student loan lender can forcefully collect from you is if they sue you and get a court judgment against you.
You default on a federal student loan when you miss 9 months of student loan payments (270 days). You typically default on a private student loan after you miss 1 student loan payment.
Federal student loan collection powers
When a borrower defaults on federal student loan debt, the federal government can:
- garnish wages
- offset tax refunds
- offset Social Security Benefits
The Department of Education, and the debt collectors it hires, can do those things without a court order. Because they don't need to sue you to collect, the federal government rarely sues someone for a defaulted student loan debt.
That said, a few thousand federal student loan borrowers have been sued by the Department of Justice over the past 5 years. The result of almost all of those lawsuits is that the borrower loses, and the government wins.
If this happens to you, does that mean that the government will sell your home?
Likely not. That seldom happens. But it could. So don't default.
But if you do default, explore your options to get out of default quickly. Look into consolidation or the loan rehabilitation program.
Click here to learn What Happens When You Default on Federal Student Loans
Can private student loans put a lien on my home?
Private student loans can put a lien on your home if you default, and they get a court judgment against you. A lawsuit is the only tool a private lender has to forcefully collect (usually a wage garnishment) from borrowers in student loan default.
Lawsuits for private student loans are common.
Here's what to do if you're sued for a private loan:
- review the lawsuit paperwork
- check to see how much time you have to answer the lawsuit (contact the court if no date is listed)
- speak with a lawyer near you to discuss options to negotiate a settlement, enter into a repayment plan, have the case dismissed due to statute of limitations, etc.
- answer the lawsuit.
Hopefully, you're able to work out a payment plan before a judgment is entered against you.
But if a judgment has already been entered against you, your options are limited. You may be able to offer a lump sum settlement. But if they don't accept that, your only other option may be to file bankruptcy to try and discharge the loans due to undue hardship.
Click here to learn Can Your Inheritance be Garnished to Pay Your Student Loans?
Options to get out of student loan default
Once you're in default, you're typically not eligible for deferments and forbearances. Likewise, you may not be able to qualify to refinance with a different lender. Your eligibility for student loan refinancing is based on your payment history and credit score. Both of those things are typically trashed if you've already defaulted on your loans.
Also, you're no longer eligible for loan forgiveness. And aside from settlement, there's usually no way to waive the interest or have the collection fees removed. Your current loan amount is likely the amount you're stuck with from this day forward.
The only thing you can do at that point is to stop the bleeding and get out of default quickly.
You can get out of default with your federal student loans by:
- negotiating a settlement (you may save 10-15%, but you have to pay within 30 to 90 days)
- applying for loan consolidation
- entering into the loan rehabilitation program
You'll want to call the Default Resolution Group to determine which debt collection agency has your loans.
Your options to get out of default with private student loans varies from lender to lender.
You may be able to get out of default with your private student loans by contacting your loan servicer. They may allow you to set up a loan repayment plan or make monthly payments to bring the loans back current.