Wage Garnishment on Student Loans

Final Notice
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How to Prevent & Stop Employers from Taking your Pay

Student loans can fund your education, but sometimes your income after graduation is not sufficient to repay those loans. If you’re unable to qualify for deferment or find a repayment plan that fits your budget, you may end up defaulting on those loans. At that point, you risk wage garnishment to collect on your student loan debt.

Federal and private loans: The federal government (and private lenders) can and will garnish wages. For federal student loans like Stafford and PLUS loans, there’s no need a legal judgment against you—garnishment is allowed “administratively.” Private lenders generally need to successfully bring legal action against you (take you to court).

Cosigners and family: It’s not just students who are at risk. Lenders can garnish wages when parents take out loans for their children. Likewise, anybody who cosigned a student loan for somebody else is at risk.

Limited information: Unfortunately, most loan servicers (the company that you send payments to) do not provide much information on how to stop wage garnishment due to student loans. They might not know what all of your options are, and they have no incentive to spend time helping you figure everything out. You might have more options than you think.

Other collection tools: Beyond taking your earnings, the Department of Education has additional ways to collect on student debt, including withholding tax refunds, reducing benefits such as Social Security, and taking assets from your bank accounts.

How to Stop Garnishment for Student Loans

Lenders generally only garnish wages after they try to collect using other approaches. You’ll get plenty of mail (electronic and old-fashioned) informing you that you need to make payments. It’s always best to communicate with lenders, even if you can’t send money right away. Doing so helps you know what to expect and keep track of the options available.

This page primarily covers federal student loans. If you have private loans, your options may be different.

We’ll cover the specifics below, but for a quick overview, there are at least four ways to prevent or stop garnishment:

  • Win a hearing
  • Consolidate your student loans into a new loan
  • Loan rehabilitation
  • Pay off the debt (or at least get into a repayment agreement)

If you do nothing, the federal government can start taking 15 percent of your pay each pay period until the loan is paid off using Administrative Wage Garnishment (AWG).

The Letter

Before garnishment begins, the Department of Education must notify you of the intent to garnish your wages. You’ll receive a letter at least 30 days ahead of time with important details. If you get a notice of intent:

Read the letter as soon as possible. You need to act quickly to prevent garnishment from starting.

  1. Read the information carefully. It explains your rights.
  2. Verify that the debt is legitimate and that the amount is correct.
  3. Contact your lender to discuss any alternatives available to you.
  4. Evaluate your options (including consolidation into a new loan) but be careful about moving from federal student loans to a private lender.
  5. Get help if you need it. Contact a local credit counselor or attorney for guidance.

Plead Your Case

To prevent your wages from being garnished, request a hearing with the Department of Education. This gives you a chance to explain your side of things and postpones the start date of your garnishment. There are several ways to get out of garnishment. The list below contains some of your options, and there may be additional strategies available.

Hardship: The proposed garnishment would create an “extreme financial hardship” for you or your dependents. You need to provide documentation, with details about your finances, to prove that you’re facing a hardship. Show that your income and necessary expenses make your student loan payments unrealistic.

Employment: You’ve been in your current job for less than 12 months, and you were involuntarily terminated from your previous job (fired or laid off, for example).

Bankruptcy: You recently filed for bankruptcy, or the loan was already addressed in bankruptcy.

No default: You repaid the loan, you’re current on the loan, or you’re already in a repayment program with your loan servicer. You must be current on those payments. Other potential avenues include:

  • Your loan is eligible for forgiveness if you’ve worked in public service for over ten years.
  • You’ve been confused with somebody else due to an error, and you don’t owe the money.

ID theft: You did not take out the loan. Somebody else used your name and Social Security Number fraudulently.

Consolidate Loans

If you can’t win a hearing, consolidating your student debt is another way to stop wage garnishment (or prevent it from happening in the first place). Consolidation happens when you get one big loan to pay off multiple smaller loans. Then, you just make one monthly payment until the debt is gone. Of course, you don’t reduce the amount of debt—you just move it to a different loan.

How does consolidation help? You might be able to get a lower (more affordable) monthly payment—surprisingly low in some cases. What’s more, you end up with a brand new loan in good standing instead of your old defaulted loans. To consolidate a loan that is already in default, the Department of Education requires that you use a consolidation loan with an income-driven repayment option (or get agreement from your current lender), such as:

  • Pay as You Earn Repayment Plan (PAYE)
  • Income-Based Repayment Plan (IBR)
  • Income-Contingent Repayment Plan (ICR)

Getting a loan with an affordable payment helps you get out of garnishment, and it also puts you on the road to better credit scores. Your credit improves with each successful payment, so you gradually rebuild your credit. Just be sure to make all of your payments on time, and communicate with your lender if you have trouble making payments. Lenders may be able to adjust your payments, or you might qualify for deferment or forbearance.

If you decide to consolidate, be careful about switching out of federal student loans and into private loans. Federal loans have borrower-friendly benefits that will be gone for good if you get out of the federal system. It’s rarely a good idea to give up those benefits. However, some private lenders offer attractive terms, so you have to evaluate the risks and benefits of both types of loans.

Loan Rehabilitation

With loan rehabilitation, you keep your existing loans. But you get them out of default by getting back on track with payments. Your loan goes into default after 270 days without making a payment, and you lose eligibility for certain benefits (like deferment, forbearance, and forgiveness) while in default.

Generally, you must make ten successful monthly payments to remove the default status. However, you can stop having wages garnished after five successful payments. The loan remains in default until you complete the rehabilitation program, but at least your employer stops taking money out of your paycheck.

Rehabilitation can be difficult when money is tight. You essentially make two monthly payments on your student loan: The garnishment amount taken from your pay, and the payment required from you under the rehabilitation program (the garnishment is counted separately). On the bright side, it’s possible that your rehabilitation payment will be relatively small. Depending on your income, it could even be as low as $5 per month.

Speak with your loan servicer to start rehabilitation. As you do so, discuss what happens after rehabilitation. How much are your payments, and are any alternative payment plans available?

Pay off the Debt

A final option is to simply pay off the loan—or at least get into a repayment program that satisfies your lender, loan servicer, or collection agency. Of course, if you had that kind of money available, you wouldn’t be in default. Still, it’s always possible that your circumstances have changed or your lender is willing to work with you.

Employer Behavior

Things can be a little awkward at work (briefly), but garnishment really shouldn't be a big deal.

If your employer gets an order from the Department of Education to garnish your wages and pay off your student loans, your employer needs to comply. However, your employer cannot fire you for having a single garnishment from your paycheck. If you owe on multiple debts or obligations, it’s possible that you could be terminated, but laws vary from state to state.

Garnishing your wages creates a small amount of administrative work for employers. But the work is not far outside the scope of their normal duties. Employers might be allowed to charge a small fee for each payment, but they cannot discriminate, and they cannot share information about your garnishment with other staff. This is a private matter, and employers face stiff consequences for breaking the law.

Given all of that, don’t expect your employer to be happy about garnishing your wages or to be especially helpful when you have questions. Don’t take it personally. There’s a good chance that your payroll contacts do not have the answers you’re looking for because they simply don’t know. What’s more, your employer is anxious about saying the wrong thing and getting into legal trouble.