College students graduate with an average debt of $29,000, for both private and public student loans. For some, making those payments just isn’t possible. Failing to make the required payments on your student loans can lead to default. Here’s what you need to know about student loan wage garnishment and how to stop it.
What student loan wage garnishment means
If you stop making payments on your federal student loans, they don’t disappear.
- After 90 days of nonpayment, they will be reported as delinquent to the major credit bureaus.
- If you still haven’t made payments after 270 days, the government will designate your loans as defaulted, which will go on your credit report, too. Having your loans in default will have an adverse effect on your credit score, making it difficult to get approved for an apartment or a new credit card.
When your loans are in default, they are accelerated, which means the entire balance of your loan, plus any interest, is due immediately. Even if your loan balance is very high, you’ll owe that amount right away. Not only that, but your loans will be sent to a collection agency. You may be subject to collection charges, which, depending on the type of loan you have, could amount to 17.92% of your loan balance if your loans are public.
If you do not take action right away, the federal government can contact your employer to garnish your wages. That means they can legally deduct up to 15% of your income directly from your paycheck in order to pay back your loans.
How to avoid wage garnishment
Wage garnishment can be avoided. Typically, it’s a last resort for creditors. They will let you know when your payments are past due and give you several warnings before your loans end up in default.
However, if you miss your payments, expect your servicer to take aggressive action to get their money back. If you’re worried about wage garnishment, follow these steps to prevent defaulting on your student loans.
1. Make consistent, timely payments
If you have multiple student loans, remembering the different minimum payments and due dates can be confusing. Setting up automatic payments or reminders can help you keep track of your payments, minimizing the risk that you’ll miss one.
2. Sign up for an income-driven repayment plan
If you are struggling to afford your payments, an income-driven repayment (IDR) plan may make your payments more manageable. Under these plans, the government extends your repayment term and caps your monthly payment at a percentage of your discretionary income. An IDR plan can dramatically reduce your monthly payment.
While you will likely pay more in interest over the length of your new repayment term, an IDR plan can be a big help when you’re on a small salary compared to your balance.
3. Apply for deferment or forbearance
While making your payments is important, there may be times when it’s not affordable. If you’ve lost your job or are facing a medical emergency or other economic hardship, your student loans may be your last priority.
Rather than letting your loans enter default, you can contact your lender and defer your payments or enter forbearance. This process allows you to postpone payments — without entering default — while you get back on your feet.
How to stop student loan garnishment
If you’re already facing wage garnishment, don’t give up hope. You can still take control of your debt — and your paycheck. Consider these three ways to get out of default and stop student loan wage garnishment.
1. Consolidate your loans
One way to get out of default is to combine one or more federal loans into a direct consolidation loan.
If your loans are in default, the government requires you to sign up for an income-driven repayment plan in order to repay a direct consolidation loan. Or you can make three consecutive, voluntary and on-time payments on your defaulted loans before consolidating.
Consolidating your loans can extend your repayment period and reduce your payments, but you may end up paying more in interest over the length of the new loan. Still, consolidating your defaulted loans can help get your loans back in good standing.
2. Rehabilitate your student loans
Another option is to rehabilitate your loans. Under a loan rehabilitation agreement, you promise to make nine monthly payments during a period of 10 consecutive months. The loan servicer will work with you to set monthly payments that are 15% of your annual discretionary income divided by 12.
Depending on income and financial obligations, rehabilitating student loans may result in some borrowers paying as little as $5 a month.
3. Pay off your debt in full
While it may sound impossible, paying off your debt in full can be the fastest way to get out of default and end wage garnishment. Because defaulting on your loans can wreck your credit, it may be worth dipping into savings, if possible.
Or, if you have a relative or loved one who can help, it may be a smart idea to ask them for assistance with your debt. But make sure to keep some emergency savings intact in case of job loss or a medical emergency while you’re planning to pay off loans.
How to dispute student loan garnishment
If you receive notification from the U.S. Department of Education that your wages will be garnished to pay off your student loans, you may be able to dispute it for the following reasons:
- A wage garnishment would put you in “extreme financial hardship.”
- You’ve been involuntarily unemployed and are now employed, but have been for less than 12 months.
In order to object to the garnishment, you’ll need to request a hearing in writing within 30 days of receiving notification that your wages will be withheld. Your student loan lender will arrange the hearing, and, in the meantime, you’ll need to gather proof to support your dispute.
After the hearing is held, you should be given a ruling within 60 days, starting from the day your request was received.
- If the decision is made in your favor, either you may avoid garnishment for the next 12 months or the withholding percentage will be reduced.
- If your dispute is unsuccessful, the government will move forward with the 15% wage garnishment.
Where to get help
Because student loan garnishment can involve legalese as well as other challenges, navigating what your next steps should be on your own can be difficult. Instead, consider asking for help. Asking for outside guidance doesn’t necessarily mean you have to hire an expensive attorney either — there are many available resources at little to no cost available to you.
- Credit counseling: Some credit counseling agencies specifically offer student loan counseling, and, because many of these organizations are non-profits, they provide low- or no-cost guidance.
- Your lender: Consider reaching out to your lender where your student loan debt originates from. Your lender may be able to help clarify information on the hearing process as well as how wage garnishment works.
- Consumer Financial Protection Bureau (CFPB): Contact the CFPB to file a complaint or learn more information about student loan garnishment. Not only does the CFB regulate the student loan industry, but it can also provide online tools and education for borrowers.
Getting out of default
Defaulting on your student loans is serious and can have severe consequences, including wage garnishment. Whether your student loans are private or federal, if you’re in danger of falling behind on your payments, contact your lender to discuss your options. Creating a plan with your servicer can stop student loan wage garnishment and help you avoid losing out on the paycheck you’ve earned.