Student loan wage garnishment: What you need to know

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Student loan wage garnishment is when student loan servicers collect a portion of your paycheck to pay down a defaulted student loan — up to 25 percent of your disposable pay, depending on the type of loan. Wage garnishment can happen if you’ve missed several student loan payments, and it may continue until your loan is paid in full or the default status is resolved. If you’re in danger of falling behind on your student loans, here’s what to know and how to be prepared.

What is student loan wage garnishment?

Wage garnishment takes place when a loan holder orders your employer to withhold a percentage of your pay in order to force you to repay past-due student loan balances. For federal loans, you must have missed nine months of payments before the government can garnish your wages, although this may vary for private loans.

For the most part, garnishment is a last-ditch effort to try to get student loans paid back. When it comes to federal student loans, wage garnishment can take place without your loan holder taking you to court. However, most states require loan holders to obtain a court order to garnish your wages if you default on private student loans.

With federal student loans, wage garnishment can continue until your loan balances plus interest and fees are paid back, but it can also end if your loan is removed from default. Also note that as part of a series of COVID-19 protections, the federal government has paused all wage garnishment on defaulted federal student loans through at least Sept. 30, 2021.

How much can be garnished for student loans?

Loan holders can garnish up to 15 percent of your disposable pay to repay your federal student loans and up to 25 percent of your disposable pay to repay private student loans — though this can vary by state. “Disposable pay” in this case means the amount of money you receive in your paycheck after applicable deductions.

How to stop student loan wage garnishment

When it comes to federal student loans, you have plenty of rights when it comes to wage garnishment. For example, you have the right to be sent a notice from the U.S. Department of Education that explains its plans to garnish your wages in 30 days, as well as the information regarding your debts. You also have the right to see records relating to your student loan debt.

Additionally, there are plenty of steps you can take to avoid wage garnishment on defaulted student loans.

Enter into a voluntary repayment agreement

To avoid wage garnishment relating to federal student loans, you can negotiate repayment terms with the U.S. Department of Education or the collection agency assigned to your account. For this to work, however, you have to ensure that your first payment is made no later than 30 days from the day the wage garnishment notice was sent.

Entering into a voluntary repayment agreement is the first step you should take to get back on track and to eventually get your federal student loans out of default. Eventually, though, you could also consider loan rehabilitation or loan consolidation.

With loan rehabilitation, you are asked to sign an agreement to make nine agreed-upon monthly payments based on your income over a period of 10 consecutive months. To consolidate defaulted federal student loans, you must either sign up for a new income-driven repayment plan or make three consecutive, on-time, full monthly payments on the defaulted loan.

Private lenders may also be willing to negotiate a repayment agreement or a loan settlement, although the details are up to the specific lender.

Object to garnishment and request a hearing

With federal student loans, you may also decide to object to wage garnishment and ask for an official hearing. This could be your best option if you do not agree to the existence of the student loan debt you’re being asked to pay or if you disagree with the amount. You may also ask for a hearing if you believe that wage garnishment could create an extreme financial hardship in your life, or if you have been employed for less than 12 months after losing a previous job.

In any case, you must make a request for a hearing in writing and ensure that it is postmarked no later than 30 days from the date the wage garnishment is sent. You also have to provide proof to support your objections to the debt or the garnishment and pay any expenses related to hiring a lawyer to represent you in an in-person hearing.

If your hearing is successful, your wages won’t be garnished for a 12-month period, or you may qualify for a partial (reduced) garnishment. If your hearing is unsuccessful, your wages will be garnished at 15 percent of your disposable pay.

Tips for avoiding student loan default

Student loan default can quickly become a costly mess, and that’s especially true once a collection agency gets involved. As a result, your best bet is avoiding default at all costs if you can.

If you’re worried about the future repayment of your student loans, here are some tips that can help:

  • Look into deferment and forbearance. While federal student loans don’t require any payments until Sept. 30, 2021, at the earliest thanks to the coronavirus forbearance period, you may be able to apply for additional deferment or forbearance options after that date. The federal government has several of these options available, and you can learn what options you have on your private loans by reaching out to your lender.
  • Switch repayment plans to get a lower monthly payment. Several repayment plans are available for federal student loans, including extended repayment plans that can last up to 30 years. You may be able to get a lower monthly payment if you opt for a longer repayment term.
  • Switch to an income-driven repayment plan. Income-driven repayment plans let you pay a percentage of your discretionary income toward federal loans for 20 to 25 years, at which point remaining loan balances are forgiven. Considering your monthly payment could be as low as $0 on these plans, they can be a good option for borrowers with low incomes who are struggling to repay their loans.
  • Refinance your student loans. Consider refinancing your student loans to get a lower interest rate, a lower monthly payment or both. Just remember that refinancing federal loans with a private lender means giving up federal protections like deferment, forbearance and access to income-driven repayment plans.

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Written by
Holly D. Johnson
Author, Award-Winning Writer
Holly Johnson began her career working in the funeral industry, which may make you wonder why she works in personal finance now. Yet, the funeral industry taught the author everything she needs to know about the value of one's money and time. Johnson left the mortuary business a decade ago in order to explore her passion for personal finance and travel the world, and since then, she and her husband have built a debt-free lifestyle that has them on the path to retire very wealthy in their 40s. Holly's love of budgeting also led to the creation of her debt payoff book, “Zero Down Your Debt: Reclaim Your Income and Build a Life You’ll Love."
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