How Your Student Loans Can Destroy Your Business — If It’s Structured the Wrong Way

Dewayne Williams
Apr 25
4 min read

Published: April 24, 2025

Let me make this plain.

The Department of Education just announced that on May 5, 2025, they will restart involuntary student loan collections. If your loans are in default, they’re not going to ask nicely. They’re going to garnish your wages, seize your tax refund, and take your Social Security—legally. And if your business is still filed under an LLC with a Schedule C, your business income is not safe.

This is not theory. This is federal law.

Here’s everything you need to know—and why it’s time to leave that LLC or S-Corp behind before it costs you your business.

📌 Who This Applies To

This affects borrowers with defaulted student loans under any of the three federal loan programs:

William D. Ford Direct Loan Program
Federal Family Education Loan (FFEL) Program
Federal Perkins Loan Program

If your loans are managed by the Department of Education (check your servicer’s name in your dashboard—if it starts with “DEPT OF ED,” it’s federal), you’re in this group.

⚠️ What Happens When You Default

Once you default, your entire balance—including interest and principal—is immediately due. This is called acceleration. The government then moves in to collect by:

Seizing your income tax refunds
Withholding Social Security or disability payments
Garnishing up to 15% of your disposable wages
Reporting negative credit
Offsetting state tax refunds

And guess what? If your business is tied to your SSN and you're filing with a Schedule C, they can come for that money too.

💡 The Problem with LLCs

LLCs are state-level entities. The problem?

Student loan collections are federal.

So while your LLC might shield you from some liability in state court, it offers zero protection against federal debt collection. Why? Because when you file taxes on a Schedule C, you’re telling the IRS, “This business is just me.” And now your business income becomes your personal income.

That’s why your bank account, merchant deposits, and income streams are on the table if you're in default.

🚩 And It Gets Worse: The S-Corp Myth

People love to say, “Well I don’t have an LLC, I set up an S-Corp.”Let me be blunt: There’s no such thing as opening an S-Corp.

S-Corp is a tax election, not a business structure. You’re either a corporation or an LLC electing to be taxed as an S-Corp. And when you make that election, you’re required to be an employee of your business.

That means:

You must be on payroll
You must report wages
Those wages are subject to garnishment

If you're trying to escape employment, why are you creating a structure that forces you to be an employee again? You left your 9–5 just to sign up for garnishments all over again.

✅ The C-Corporation Advantage

Here’s why I teach the C-Corporation:

A C-Corp exists federally
It’s a completely separate legal entity
I’m not an employee, I’m a shareholder
The C-Corp pays corporate taxes, not personal
I don’t report a salary, which means I don’t show income

And guess what?That’s exactly how I was able to qualify for a $0/month income-driven repayment plan through Nelnet, the federal loan servicer.

No income. No salary. No garnishment.

I structured it right—and now, my loans are serviced, and my business is protected.

🧠 Real Steps to Protect Yourself

Before May 5th hits, do this:

1. Stop Filing a Schedule C

That’s not a business return. That’s self-employment. And it makes your income garnishable.

2. Convert to a C-Corporation

Separate yourself. Let your business pay its own taxes. Become a shareholder—not a target.

3. Open New Business Accounts Under Your EIN

If your current business bank accounts are under your SSN or tied to an LLC, you’re still exposed.

4. Stop Saying You “Opened an S-Corp”

You didn’t. You elected to be taxed a certain way, and now you’ve signed up for wage garnishments. Fix it.

5. Apply for Income-Driven Repayment Now

If your business isn’t paying you a salary, you may qualify for $0/month payments like I did. Apply through your servicer before May 5 to avoid offset and collections.

🚧 This Is Where Most People Go Wrong

Student loan debt isn’t going away because you ignore it. And if your structure is wrong, your business won’t survive when the government comes to collect.

If you’re serious about real protection, it’s time to move beyond the LLC and S-Corp mindset.

We help people restructure every day. If you’re ready to set up your business the right way, click below to learn more about the Legacy Builder Package—and finally build something that lasts.

Need help before May 5th?

We can restructure you.

Stop waiting. Stop guessing. Let’s get to work.