Paying for higher education tends to be expensive. And student loans are a popular way to pay for college, graduate school and other types of education. Over 40 million people get help paying for higher education with federal student loans.[1]
Sometimes, life gets in the way of people paying back their student loans. You may not be earning as much as you thought you would, or living expenses are taking a bigger chunk out of your pay than you budgeted for. Or maybe you’re having trouble finding employment in the first place. If your budget woes are keeping you from making your student loan payments, you could be looking at a student loan default.
But if you default on your student loans, your lender or the U.S. Department of Education (ED) can garnish your wages. This kind of garnish doesn’t mean that you’ll get a piece of parsley to go with your loan. It means that the lender can take a portion of your income and apply it to your student loan debt. It’s their way of making sure you pay back what you owe on your student loan.
Yes, we know that sounds alarming. But that’s not the end of the story. We also know there are several avenues toward preventing student loan garnishment (and turning off the alarm sirens!).
And yes, there are ways to stop student garnishment.
We’ll tell you what student loan garnishment is, how it works and several ways to prevent it. Then we’ll give you pointers on what to do if your lender or the ED garnishes your wages.
What is Student Loan Garnishment and How Does it Work?
Student loan garnishment is when part of your pay is taken to repay a student loan you’ve defaulted on. Both federal and private student loans are subject to wage garnishment. And if your loan has a co-signer, the co-signer’s wages can be garnished, too.
Federal student loan garnishment
For federal student loan garnishment, you must have missed 9 months worth of payments, not communicated with the ED about missing the payments and not responded to the ED’s attempts to contact you or to make a repayment plan.
After nine months, the ED can garnish your wages without needing to go to court or get a legal judgment against you. Instead, the ED typically takes the following steps:
- The ED sends a letter to your employer to garnish 15% of your wages. What this means is that your employer will send the ED 15% of your paycheck after deducting social security, medicare and taxes (“disposable pay”).[2]
- The ED uses the money to pay down your student loan debt until it is paid off, a repayment plan has been made, or you’ve been removed from default.
Administrative Wage Garnishment is the rule that a federal agency can order an employer to withhold 15% of an employee’s wages to pay a federal loan.[2]
Private student loan garnishment
For a private student loan garnishment, the lender has to sue the delinquent borrower and get a judgment to garnish wages. Depending on the state, a private lender can garnish up to 25% of the borrower’s pay. And there is no 9-month waiting period, as there is with federal student loan garnishment, before the garnishment process begins.[3]
Your lender probably won’t pursue garnishing your wages after just one missed payment. But it’s important to read your loan agreement carefully and ask your lender what can happen if you default.
What else could happen with student loan garnishment?
As if having your wages garnished weren’t bad enough, the fallout from student loan garnishment could cause additional repercussions. Let’s look at a few:
- Your tax returns could get garnished: The ED can apply your federal tax refunds toward paying off your student loan.
- You could lose benefits: If you default on your federal student loan, you might lose any future opportunities for deferment (your payments and interest accrual are suspended) or forbearance (a deferment, but interest continues to accrue). And you might also be ineligible for repayment plans or future federal student aid.
- You’ll have to pay the entire balance: If you default on a federal student loan, the whole unpaid amount of your loan, including interest will be due immediately. That could be a lot of money you have to come up with all at once.[4]
- Your credit score could suffer: Defaulting on your loan can negatively affect your credit score. Missed payments count for 35% of your score.[5] A low credit score can mean more difficulty getting other loans like a car loan or mortgage, or credit cards, and higher interest rates on loans.
How Can I Avoid Student Loan Garnishment?
You can take positive steps to avoid wage garnishment caused by a default on your student loans. And there are some excellent reasons for keeping up with your loan payments from the get-go.
What are some steps to prevent wage garnishment?
Here are some important steps you can take to stave off student loan garnishment:
- Keep on top of payments: Make all your payments and get alerted if one is late. Many lenders or loan servicers will allow you to set up messaging alerts, as well as autopay or automatic deductions from your account, so that you’ll never miss a payment.
- Check the status of all your loans: Make sure all your loans are in good standing. If you’ve consolidated multiple loans, it’s possible that one could get left out, so be sure that isn’t the case. If you have federal student loans, check on them at studentaid.gov.
- Quickly respond to a notice of intent to garnish: If you receive a notice that wage garnishment is forthcoming, read it carefully so you understand everything it says. Be sure you respond within thirty days of the notice being sent.[6]
- Ask for documents: If you believe the wage garnishment is in error or you just want to make sure you understand your loan circumstances, ask for documents to prove why you’re actually a candidate for wage garnishment.
- Request a hearing from your loan servicer: You can request a hearing from your loan servicer to talk about the reasons you defaulted, such as a layoff or other economic hardship.
- Negotiate a plan: Try to negotiate a repayment plan or a loan consolidation with your loan servicer. Be sure to discuss other alternatives, such as loan forgiveness, if you’ve worked in public service for at least a decade.
Can I Stop or Dispute Student Loan Garnishment Once It’s Started?
Yes. Even if your wages are already being garnished, you can still make the effects less harsh, or stop the garnishment from progressing far into the future.
You can reverse student loan garnishment by taking actions, such as negotiating a settlement, declaring bankruptcy or entering a loan rehabilitation program. You can also dispute student loan garnishment, but the process can take months.
- Negotiating a settlement: Even if wage garnishment is underway, contact your loan servicer to negotiate a settlement or to set up a repayment plan.
- Filing bankruptcy: In some cases, if you can prove in bankruptcy court that wage garnishment and/or loan repayment would cause “undue hardship” on your family, you may be able to declare bankruptcy and get the loan discharged.[7] But be warned that bankruptcy can spur a host of challenging circumstances, including credit issues and even liquidation of assets.
- Entering the loan rehabilitation program: You may be a candidate for a loan rehabilitation program. In that case, after you make five payments that satisfy their requirements, lenders may temporarily suspend garnishment while you’re in the program.[6]
Are Student Loan Garnishments on Hold Due to COVID-19?
Because of the Covid-19 forbearance, the hold on federal student loan garnishment has been extended until May 1, 2022.[8] Note, though, that private student loans are not part of the federal forbearance program, and so loan garnishment will probably not be on hold, either.
The ED has options available to borrowers as they begin making student loan payments again, and you can also meet with your loan servicer about repayment plan options. One option is an income-driven repayment plan, where your payments are adjusted based on your income so they are easier to afford.
Where Can I Get Help?
Rest assured, you are not the first borrower to default on your student loans or face wage garnishment. By all means, take advantage of the resources and options available to you. Seek out professionals who are well versed in ways to pay off your loan to avoid wage garnishment. We’ve listed some resources that can be helpful:
- Credit counseling agency: Credit counselors help people repair damaged credit, get out of debt and prevent future credit issues. The U.S. Department of Justice has a list of approved credit counseling agencies.
- Credit union: Credit Unions are not-for-profit financial institutions that often have free financial counseling services, including credit and debt counseling. Try one or more of your local credit unions to see how they may help you.
- Your college’s financial aid office: Many times, the people best equipped to help you with your student loan are those who work in your college’s financial aid office. You can set up an appointment to talk about your loans and see what advice and help they could offer.
- Lender or student loan servicer: Meeting with your student loan servicer or lender will be time well spent, as it’s likely that they will be familiar with repayment options or other solutions.
- Consumer Financial Protection Bureau (CFPB): The CFPB can point you toward helpful resources. They may even be able to help you decide whether a dispute is in order and help you file the dispute.
Don’t Wait. Make a Plan Today
Whether you’re already in default or are having trouble making ends meet, taking action sooner rather than later will benefit you and keep your debt and credit in good order and help you avoid garnishment. Visit a credit counselor or talk to your loan servicer before issues begin.