There are two general categories of student loans.
- Government originated or guaranteed student loans, and;
- Non-government originated uninsured student loans.
Both types of student loans may ultimately be collected by
garnishment upon default. However, the legal authority and the procedures
applicable in the event a garnishment is pursued depend upon the source and the
type of the loan.
Administrative wage garnishments to collect direct student
loans from the federal government are authorized by the federal Debt
Collection Improvement Act of 1996. Most student loans from the federal
government originate from the Department of Education. These are subject to the
procedures contained within 34 Code of Federal Regulations (CFR) Part 34.
The federal Department of Health and Human Services helps
fund specialized loan programs for medical and nursing students. These health
profession student loan funds are established and administered by medical or
nursing schools which do not have the legal authority for non-judicial
administrative garnishment debt collections. School administered health
profession student loan debts are collected through normal judicial procedures.
See: 42 CFR Part 57, Subparts C & D. Although these school based programs
are regulated and partially funded with federal money, the loans are
administered and collected by non-government entities.
Administrative wage garnishments to collect student loans
guaranteed by a state loan insurance program are authorized by the federal Higher
Education Act and corresponding state statutes and regulations. The
administrative wage garnishment procedures used by the Kentucky Higher
Education Assistance Authority (KHEAA) are contained in Kentucky
Administrative Regulation 11 KAR 3:100. These guaranteed student loans are made
and administered by private lenders. Initial collection of delinquent
guaranteed loans is undertaken by the private lenders but ultimately, defaulted
loans are transferred to KHEAA which pursues final collection methods, including
administrative wage garnishment.
The Kentucky Higher Education Student Loan Corporation
(KHESLC) was created by Kentucky Revised Statute 164A in 1978 as an independent
public corporation and political subdivision of the Commonwealth. KRS 164A.240(2)A3
specifically authorizes KHESLC to establish and use administrative garnishment
to collect defaulted student loans.
The KHESLC and the KHEAA share a common board of directors,
executive director, staff and office space and by statute, KRS 164A.050(12). They also provide technical, clerical and administrative assistance to each other.
In addition to its other functions, KHESLC makes direct insured student loans.
Presumably, the direct student loans made by KHESLC are insured by KHEAA.
The complex inner workings of these two public Kentucky
corporations are unimportant to a student loan debtor. For all practical
purposes, it seems, KRS 164A.050(13), a direct insured student loan from KHESLC
is collected the same as an insured student loan from a private lender.
There are countless non-government sources for uninsured student
loans, ranging from large financial institutions to small loan funds
established by local civic or non-profit organizations. These are ordinary
private loans that are recovered through standard debt collection and judicial
processes.
Wage and non-wage garnishments to collect ordinary uninsured
student loans from private lenders are subject to the same statutory law,
procedural rules and appellate opinions as are all other judicial garnishments.
It is important to know which type of student loan is being
collected, who currently owns the loan and who is collecting a delinquency. However complicated the abstract legal
framework may appear, it is actually fairly simple when compared to how the
student loan business is implemented in actual practice. For example, the Kentucky
Higher Education Student Loan Corporation, a public corporation, may
administer loans originated by independent private non-profit corporations and
then subcontract collections to a private debt collector. The loan account may
bounce around among different organizations depending upon the phase of loan
repayment, delinquency or default. Selling
loans in the secondary market is another common practice among lenders, possibly
including buy-back provisions on default, so the financial institution or
organization a borrower sends his or her payments to and ownership of the debt may
change during the life of the loan. The ownership, servicing and collection of
student loans may be divided among different organization and all may shift
over time.
It can become very confusing for a debtor. Keep good records
and keep your lender updated on your mailing address so that you always receive
important notices, which you faithfully collect and retain in a file.
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