Can Student Loans Take My Personal Injury Settlement?

Personal Injury - May 24, 2021

According to the most recent data available, more than half of college students in this country have to go into debt to pay for their college education. Right now, the average student loan debt is above $37,000 per person. In total, people in this country owe approximately $1.6 trillion in student loans. Student loans are a major problem in this country, and all of the most recent presidential administrations have tried to find solutions.

However, if you or somebody you love has been awarded a personal injury settlement, do you know whether this settlement will be garnished in order to pay your student loans? Here, we want to talk about this exact topic because we think this issue comes up more often than most people realize.

Wait, Student Loans can be Garnished?

If you have federal student loans that you have not paid, it is entirely possible for the federal government to garnish your wages. When a federal student loan wage garnishment occurs, your employer actually deducts a portion of your pay and sends it right to the federal government until your student loans are paid. Additionally, the federal government can come after your income tax refund in order to pay your student loans.

We do want to take a moment to recognize that all federal student loan wage garnishments have been halted due to the COVID-19 pandemic relief programs. As of this writing, federal student loan wage garnishments have stopped until at least September 20, 2021.

But Can They Take My Personal Injury Settlement?

If you are expecting a personal injury settlement or if you expect to receive a favorable jury verdict for your personal injury lawsuit, there is good news. Personal injury settlements or awards are generally considered exempt under garnishment laws. Similarly, personal injury settlements are usually not taxable at either the federal or state level but ask your personal injury attorney for clarification.

Many people ask whether or not the federal government can actually go into their bank account in an effort to recover money owed through student loans. In general, the federal government does not have the power or the resources to actually levy bank accounts or go after other assets. The federal government typically sticks to garnishing wages or going after tax refunds when they want repayment of their student loan money. This means that your personal injury settlement should remain safe from student loan repayment issues.

However, if you do owe student loans, it would not be a bad idea to open a separate bank account to keep your personal injury settlement money in. This could help clear up any confusion about what money came from wages and what money came from the settlement.

What Are Your Student Loan Options?

If you are in default with your student loans, you are not alone. There are various options available directly from the federal government that can help assist people who are seeking to repay their loans. There are graduated repayment plans, standard repayment plans, extended repayment plans, deferment, and more. In some cases, student loan borrowers may need to consider consolidating their student loans so that they can all be paid with one monthly payment as opposed to many monthly payments.

Some people view unpaid student loans as something that is not a big deal. However, please understand that student loans can negatively impact your credit and become a hindrance when it comes to obtaining loans in the future, including mortgage loans. We do not know right now whether or not there will be any student loan forgiveness put forth by the federal government, and we strongly suggest that you work with a financial planner when making decisions regarding your student loans moving forward.