Do federal student loans come with IRS-like arbitrary levy power?

Question

I have a nelnet loan for 10k. If it was tax debt I understand the irs could bypass the courts, give no service and seize my bank account. Does this apply to student loans as well? Or is it limited to wage garnishment and due process in court like a normal debt?

I.e., would the federal government bypass the courts and levy my account with no court judgement OR would they be required to sue me in court and serve a lawsuit like a normal debt?

Answer 1

Levy power is limited to tax liability and at the federal level, only the IRS has that power (they do: see Brian v. Gugin, 853 F. Supp. 358. This is where they can seize your car or bank assets. Presumably you are speaking of the situation where the Department of Education is legally involved, for example the DoE actually holds the loan, or the private guarantor has requested DoE assistance. In such a case, the DoE can request of the Dept. of Treasury that they withhold payments to you (tax refunds, SS payments, etc.), through what is known as treasury offset. They can also garnish some of your wages, without court order. This is a list of statutory provisions that allow this. 31 CFR 285.5

governs the centralized offset of Federal payments to collect delinquent, nontax debts owed to Federal agencies in accordance with 31 U.S.C. 3716, 3720A and 26 U.S.C. 6402 and applicable regulations.

Answer 2

The procedures for garnishing wages due to unpaid taxes and due to unpaid federal student loans are quite similar. Note that in most tax cases, and (it appears) in all student loan cases, you have a right to a hearing to argue against the garnishment.

IRS procedure:

From IRS Publication 594, page 6:

If you don’t pay your taxes (or make arrangements to settle your debt), we could seize and sell your property. We will not seize your property to collect an individual shared responsibility payment. We usually seize only after the following things have occurred.

• We assessed the tax and sent you a bill,
• You neglected or refused to pay the tax, and
• We sent you a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days before the seizure.

However, there are exceptions for when we don’t have to offer you a hearing at least 30 days before seizing your property. These include situations when:

• The collection of the tax is in jeopardy,
• A levy is served to collect tax from a state tax refund,
• A levy is served to collect the tax debt of a federal contractor, or
• A Disqualified Employment Tax Levy (DETL) is served.

...

You can request a Collection Due Process hearing within 30 days from the date of your Notice of Intent to Levy and Notice of Your Right to a Hearing. Send your request to the address on your notice. For more information, see Form 12153, Request for a Collection Due Process or Equivalent Hearing. At the conclusion of your hearing, the Office of Appeals will provide a determination. You’ll have 30 days after the determination to challenge it in the U.S. Tax Court. If Collection Due Process rights aren’t available for your case, you may have other appeal options, such as the Collection Appeals Program.

Federal student loan procedure:

From the website of the Federal Student Aid office:

With garnishment, you have the right to:

• be sent a notice that explains ED’s [the US Dept. of Education's] intention to garnish your wages in 30 days, the nature and amount of your debt, your opportunity to inspect and copy records relating to your debt, your right to object to garnishment, and your option to avoid garnishment by voluntary repayment;
• be given an opportunity to enter into a written agreement under terms agreeable to ED to establish a voluntary repayment agreement;
• be given an opportunity for a hearing to present and obtain a ruling on
  • any objection you have to the existence, amount, or enforceability of the debt;
  • any objection that garnishment of 15 percent of your disposable pay would produce an extreme financial hardship; or
  • any objection stating that garnishment cannot be used at this time because you’ve been employed for less than 12 months after having previously been involuntarily separated from employment;
• have the garnishment action withheld by filing a timely request for a hearing, until the hearing is completed and a decision issued; ...

For student loan garnishments, there do not appear to be exceptions for the right to a hearing (in contrast to the exceptions that exist for certain IRS garnishments.) It also does not appear that there is an equivalent of the U.S. Tax Court, to which one can appeal the result of the initial hearing.