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When a borrower defaults on their student loans, some assets can be seized to repay the debt, and some cannot be attached.
Secured Loans
If a defaulted student loan is secured by an asset, the lender can seize the asset to repay the debt without going to court. For example, in the past some private student loans have been secured by home equity.
Unsecured Loans
Most student loans are unsecured loans.
If a defaulted student loan is unsecured, like all federal student loans and most private student loans, the lender must sue the borrower and get a court judgment against the borrower before they can seize the borrower’s property.
Some states exempt a specific dollar amount of personal property and certain types of personal property from seizure. This can include appliances, books, clothing, food, furniture, household goods and tools.
Lenders can use a bank levy to seize cash in the borrower’s bank accounts. They can also seize the borrower’s brokerage accounts.
A certain amount of equity in one vehicle and the borrower’s primary residence may be exempt. If the borrower’s net equity exceeds the exemption, the lender can force a sale of the asset.
But, most lenders will place a lien on the property and wait until the borrower sells the property, since that is less expensive for the lender. A lien prevents the borrower from selling the property without satisfying the lien.
Money in qualified retirement plans cannot be seized.
