July 3, 2012

Teacher’s Wages Garnished as U.S. Goes After Loan Default

Lawyers drained Linda Brice’s bank account and seized a quarter of her take-home pay, or more than $900 a month. Brice, a first-grade teacher and Coast Guard veteran, begged for mercy, saying she couldn’t afford food, gas or utilities.

Brice’s transgression: she defaulted on $3,100 she had borrowed more than 30 years ago to pay for college. The chief federal judge in Los Angeles took her side, ruling that Brice should pay only $25 a month. The law firm of Goldsmith & Hull -- representing the federal government -- then withdrew $2,496 from her bank account.
Enlarge image Linda Brice

Linda Brice, a Los Angeles first-grade teacher, had more than $900 a month taken from her wages to pay for student loans that were more than 30 years old. Photographer: Tim Rue/Bloomberg
Enlarge image Linda Brice

“I am at the end of my rope,” Brice wrote in a May 2009 court filing. “I apologize for taking the court’s time, but I simply do not know what to do.”

Brice’s case shows how tough the government can be when it comes to collecting its share of student-loan debt, which totals $1 trillion, surpassing the amount owed on credit cards. Students who borrow as teenagers and whose degrees don’t pay off confront some of the harshest treatment and fewest chances for a fresh start of any debtors, except those owing child support.

When the U.S. Education Department fails to get repaid, the agency can turn borrowers’ names over to federal prosecutors. In turn, U.S. attorneys are hiring private law firms to retrieve money for taxpayers -- after the firms keep a cut for themselves.

Lawyers representing federal prosecutors have told borrowers to turn over their cars and cancel their health insurance, debtors said in interviews and court filings. Attorneys have insisted on steep wage garnishments while turning down offers that would have satisfied their obligations over several years.
Giving Back

Borrowers have almost no way out. Because of a 1998 change in federal law, student loans can rarely be discharged through bankruptcy. Unlike most consumer debt, there has been no statute of limitations on collections since 1991.

Brice, 58, said she had no idea that she could be pursued for debts from the 1970s.

“If you are a person who gave to your country, who does the kind of work I do, or is a police officer or firefighter -- anyone who gives back to their community -- I think the government needs to give you a break,” Brice said in an interview at a Burbank, California, coffee shop, after a day of teaching in the Los Angeles school system.

www.bloomberg.com

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