For many individuals, student loan repayment is a significant challenge. Navigating the complex world of student loan debt, from consolidation to dealing with default, can be overwhelming. One of the most stressful situations for borrowers is facing the prospect of wage garnishment due to defaulted loans. This guide will provide a comprehensive understanding of student loan wage garnishment and how to stop it.
How Does Student Loan Wage Garnishment Work?
Understanding Wage Garnishment
Wage garnishment is a legal process that allows a creditor to directly withhold a portion of an individual’s earnings to repay a debt. This usually occurs when a debtor has been unable to meet their financial obligations and the creditor has exhausted other means of collecting the debt. The creditor, in this case, could be a bank, a credit card company, or a student loan servicer, or the Department of Education.
How Student Loan Wage Garnishment is Different
Unlike other types of debt, student loan wage garnishment involves both your employer and the loan holder. The garnishment notice given allows your employer to withhold and send a portion of your earnings to pay off the defaulted loan. Student Loan garnishment holds other implications as it may affect your credit score and future borrowing capabilities. Moreover, student loan wage garnishment can also be an embarrassment at the workplace as your employer becomes aware of your defaulted loans. In some cases, the garnishment can take up to 25% of your disposable income, which can make managing other financial obligations quite difficult.
Sequence of Events Leading to Wage Garnishment
Typically, garnishment works when your student loan is classified as defaulted. You generally have 30 days from the date on the garnishment notice to enter into a repayment agreement or request a hearing. If unsuccessful, wage garnishments commence, making it crucial to act quickly to prevent or stop student loan garnishment.
The Process of Student Loan Garnishment
The process of student loan garnishment typically follows these steps:
1. Default on Student Loan: If you miss payments for 270 days, your loan is considered to be in default. This timeframe can vary depending on whether your loan is federal or private.
2. Notification: Once the default occurs, your lender will notify you about the default and the intent to garnish your wages within 30 days. This is your critical window to act, potentially make your first payment on time, and avoid garnishment altogether.
3. Legal Process: Before garnishment begins, in most states, a court order is required. However, the federal government has the authority to garnish your wages without a court order.
4. Garnishment: If you fail to respond or appeal, the lender can now garnish your wages.
Wage garnishment can continue until the defaulted loan is paid off in full. It’s important to take the notification seriously and contact your loan provider to discuss possible options for repayment instead of wage garnishment.
In addition, declaring bankruptcy doesn’t relieve you from student loan debt – it’s one of the few debts that are exempt from bankruptcy filings. The only way to get rid of student loan debt is to pay off the loan, have it forgiven due to a program like income-based repayment, or prove that repayment poses an undue financial hardship.
It is always advisable to find an arrangement with your lender to avoid wage garnishment. Many programs provide loan forgiveness, income-based repayment plans, loan consolidation, or loan rehabilitation that can help you manage your defaulted student loans better.
Types of Student Loans and Their Implication on Garnishment
Differences Between Federal and Private Student Loans
Federal and private student loans differ significantly. Federal student loans have specific borrower protections in place, such as loan forgiveness and rehabilitation. Private student loans, though, require a court order to garnish your wages, which often provides you with more time to maneuver and potentially stop student loan wage garnishment.
How Federal Student Loans Handle Garnishment
In a federal loan default situation, the Department of Education may be able to garnish your wages without going to court. They send a garnishment notice, and if unchallenged within an allotted period, generally 30 days, wage garnishment begins. The burden is on the borrower to take action to dispute, stop or mitigate the impact of garnishment.
Garnishment Processes for Private Student Loans
Unlike federal loans, a private lender must file a lawsuit and successfully secure a court’s approval before they can garnish your wages. As such, a borrower has more chances to negotiate, consolidate, or restructure their repayment plan before facing wage garnishment.
How To Stop Student Loan Garnishment
Request a Hearing to Contest Wage Garnishment
You’ll get a Notice of Intent to Garnish before the garnishment of your wages. If you request a hearing within 30 days of receiving this notice (or 15 days for some federal student loans), you could stop the wage garnishment before it begins. You can still get a hearing after the notice period passes, but your wages will be garnished during this process. Wage garnishment will only end if the hearing finds in your favor.
You should request a hearing if you think there’s a legitimate reason to challenge your wage garnishment. People most commonly call a hearing because they feel the wage garnishment will place significant financial pressure on themselves and their families. For example, you might qualify if the garnishment could lead to your eviction or your home’s foreclosure.
You could also ask for a hearing in other circumstances, such as:
- You think the loan has already been repaid.
- The loan doesn’t belong to you.
- You already have a repayment plan in place.
- You’ve started making loan payments.
- Your school owed you a refund that it hasn’t paid.
- Your loan documents were forged.
- You’ve filed for bankruptcy.
- Your loan qualified for forgiveness, cancellation, or discharge.
To request a hearing, submit a Request for Hearing form to the U.S. Department of Education. Your hearing can be conducted in person, over the phone, or in writing.
Repay Your Loan
Repaying your loan is the simplest way to end your wage garnishment. However, if you’re like many former students, it’s not the easiest option.
The path is easiest if you’ve received the Notice of Intent to Garnish recently. Make a student loan payment without 30 days of receiving the notice, or 15 days for some federal loans, and you can stop the garnishment starting.
After wage garnishment begins, you’ll need to repay your college debt in full (including the interest charges and fees associated with it) to stop the wage garnishment using this method.
This will occur while your wages are still being garnished, reducing the income you have available to make payments. If you have generous and understanding family members, they might help you out. Otherwise, the process could easily take years.
Using Financial Hardship to Stop Garnishment
If you’re experiencing significant financial hardship, it may be grounds to halt the garnishment process. In this instance, it’s beneficial to contact your loan servicer or a collection agency, and present evidence of your situation to attempt to stop the garnishment.
Complete a Loan Rehabilitation Program
If it will take you years to repay your student loan in full, you may prefer completing a loan rehabilitation program.
Direct Loan Rehabilitation is the most common loan rehabilitation program. It’s available to most former students, excluding those with Perkins loans. The program requires making nine payments over ten consecutive months. Perkins loans recipients can also rehabilitate their student loan under a slightly different program. It also requires nine payments, but you must make these over nine consecutive months.
In both cases, you’ll negotiate the payment amount with the U.S. Department of Education. These programs typically ask for payments equaling 15 percent of your discretionary income, but they could be as little as $5. Your wages will still be garnished over this period, but once you’re done, the wage garnishment will stop. You’ll still be responsible for paying off the remainder of your student loan over this period, but you won’t be doing it with the added pressure of wage garnishment.
While these programs will get your student loan out of default, they could come at a cost. Most private lenders will add collection costs to your new student loan balance, so you’ll pay more in the long run. These collection costs can be no more than 16 percent of your student loan’s unpaid principal and interest. Student loans obtained through the U.S. Department of Education do not incur collection costs after rehabilitation. You can also rehabilitate a student loan only once, so it’s vital you get into better payment habits to avoid defaulting again.
Take Out a Direct Consolidation Loan
Consolidating your student loans into a Direct Consolidation Loan is another appealing option for many former students. You can become eligible for a Direct Consolidation Loan in one of two ways. You can get a Direct Consolidation Loan if you agree to the terms of a new repayment plan. This could be an Income-Based Repayment Plan, a Pay as You Earn Repayment Plan, or an Income Contingent Repayment Plan. These plans have extended repayment terms so their monthly repayments are much lower and easier to manage. Alternatively, you can become eligible if you make three consecutive, on-time monthly payments on your defaulted loan before applying for the new Direct Consolidation Loan.
Once you take out a Direct Consolidation Loan, your old student loans, including the one you’ve defaulted on, are considered to be paid off. The Direct Consolidation Loan is the only one you have left.
Getting Out of Default to Prevent Future Wage Garnishment
Repayment Plans to Get Out of Default
Altering your repayment plan to accommodate your financial situation can prevent you from reaching default status. Explore options like income-based repayment or deferment to manage your loan balance with your loan servicer.
Student Loan Consolidation to Avoid Default
Consolidating your loans can be an effective option to avoid default, and thus, wage garnishment. A direct consolidation loan combines all your federal loans into one, simplifying your repayment plan and making it easier to manage your student loan payments.
Working With a Collection Agency to Resolve Defaulted Loans
If you’ve already defaulted, working with a collection agency might be your best bet to halt wage garnishment. They can help negotiate the terms of your loan and potentially offer alternatives to wage garnishment.
What To Do After Successfully Stopping Wage Garnishment?
Improving Communication with Your Student Loan Servicer
After you stop student loan garnishment, it’s crucial to maintain clear communication with your student loan servicer. Make it a habit to inform them immediately of any changes in your financial situation. This can help prevent any future issues with your student loan payments.
Necessary Changes to Financial Habits
Heading off wage garnishment is an excellent opportunity to revisit and restructure your financial habits. Regularly reviewing your loan balance, making timely payments, and setting aside savings can significantly decrease the chance of another garnishment in the future.
Learning More About Student Loan Repayments and Rights
Educating yourself about the student loan process and your rights as a borrower is beneficial for your long-term financial growth. Armed with knowledge, you’ll be better equipped to negotiate terms, explore student loan rehabilitation, or even discover loan forgiveness opportunities.
