Can the Bank Take Your Home if You Owe Student Loans?

Higher education can be expensive, depending on where you go. According to College Board, some schools cost $35,000 per year or more in tuition as of 2011, and these costs are expected to rise. The federal government finances education through loans, but once the student graduates, he may owe $1,000 or more per month, according to the Seattle Times. Defaulting on student loans can ruin a student's credit before he has even established himself financially, and federal lenders have more power to collect outstanding loans than private lenders; seizing the student's home is one of the few things the creditor cannot do directly.

Unsecured Loan

The bank cannot take your home if you default on your student loans because your student loans are not secured by your home. In other words, you did not agree to use your home as collateral for the student loan, so the bank has no right to repossess the home if you default on the agreement. Student loans are not secured by any property, so the bank cannot repossess any of your property if you fail to pay them.

Wage Garnishment

Your lender can garnish your wages to satisfy your student loan obligations if you default on your loans. The lender must sue you first to get a judgment for the amount you owe. It then must ask the court to garnish your wages. Student loan lenders must not take more than 15 percent of your disposable income -- your income after paying necessary expenses such as your mortgage. Thus, the bank should not take so much of your paycheck that you cannot make your house payment and therefore lose your home.

Tax Refunds

Your creditor may seize state and federal tax refunds if you default on your student loan. The Internal Revenue Service has the right to intercept your refund checks after you file your taxes each year and use them towards the balance you owe. This is one of the most popular collection actions the federal government takes against debtors who default on student loans, according to


Defaulting on a student loan can have negative financial consequences for an indefinite period of time. Unlike most creditors, student loan providers have no statutes of limitations on how long they have to sue you for your unpaid balance. In addition, student loans are usually not eligible for discharge if you file for bankruptcy, and once you default on a loan you become ineligible for any forbearances or deferments on it as well as ineligible for further student loans. Thus, you should make every effort to pay your student loans each month and avoid default.