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Wage garnishment is when a court orders an employer to keep a specific portion of someone’s paycheck to transfer to a lender or another person. This action is usually taken because an individual stopped paying their debts. The most common types of wage garnishments are for child support, consumer debts and student loans.
Student loan wage garnishment occurs when an individual’s federal or private student loan goes into default. It’s estimated that 1 in 10 Americans has defaulted on a student loan and is at risk for or already has student loan wage garnishment.
How does student loan wage garnishment work?
Student loan wage garnishment can happen when you let your student loans go into default. The government doesn’t need to take legal action against consumers to enact student loan wage garnishment on federal student loans. This process is known as administrative wage garnishment.
On the other hand, private lenders typically need to take you to court and win a judgment against you. Going to court costs your lender money, and the whole process can take several weeks or months.
Note that if your parents cosigned your student loan, they can have their wages garnished too.
Student loan wage garnishment doesn’t happen overnight. For federal loans, you have to miss nine months of payments, ignore communications about defaulted loans and ignore a notice of wage garnishment.
If all this occurs, your lender will notify your employer to withhold up to 15 percent of your paycheck (after taxes and deductions). Your employer legally has to abide by this request.
The student loan wage garnishments will stop when:
- Your loans are paid off
- You’re no longer in default
- You’ve made other arrangements with the lender
Private lenders may have different definitions for when your loan is officially in default. However, regardless of whether your loans are with a private or federal lender, you should receive a letter notifying you of the student loan wage garnishment at least 30 days before the first action occurs. This is known as a notice of intent.
Legally, the letter has to mention that you can take the lender to court and challenge the repayment plan. If you plan to go to court, you’ll have to take action within 30 days of receiving the notice.
How much money can be garnished?
The maximum that can be garnished for federal student loans is 15 percent of a person’s disposable income. A private student loan lender can potentially garnish up to 25 percent of an individual’s disposable income, but you should check the wage garnishment laws for your state specifically.
Take action before the garnishment starts
Wage garnishment is a situation you want to avoid at all costs. Luckily, if you understand what puts you at risk for wage garnishment, you can also be proactive to handle the situation before it spirals out of control. As soon as you start to miss payments, contact your lenders. There’s a chance your lender will work with you to find a solution.
Some of the potential options include another repayment plan that’s within your budget or even forbearance. If you can make your first payment on a repayment plan within 30 days of receiving the notice of intent, it can stop the wage garnishment from moving forward.
If you’ve already received a notice of intent, review it carefully and look for errors. If there are any mistakes, contact the lender immediately to notify them and discuss the errors. You can request to see proof that you’ve made late payments or missed payments.
How to stop student loan wage garnishment
If none of the options above work for you, there are still other options to stop a student loan wage garnishment.
Court hearing
Depending on your circumstances, a court hearing can work in your favor to stop the student loan wage garnishment. Some of the arguments you can make are:
- Hardship: You can try to prove that the wage garnishment would cause extreme financial hardship for you and your dependents (if applicable). You’ll need to show your financial records, including details of your income and necessary expenses.
- Employment: You can object to wage garnishment when you’ve been at your job for less than 12 months and have been fired or let go from your previous job.
- No default: If you have the records to prove it, you can show in court that your loan shouldn’t be in default. Show proof that you’ve been paying your loan on time. However, if this is the case, try to have this conversation directly with the lender first so you avoid court entirely.
- Forgiveness: Federal student loans have forgiveness programs, such as your loan being forgiven if you’ve been working in public service for 10 years.
- Mistaken debt: If your wage is being garnished for a debt that isn’t yours, make sure to prove this in court.
Keep in mind that even if the court hearing doesn’t go in your favor, the entire process will push back the start date of your wage garnishment.
Loan consolidation
Another option is to consolidate your loan before your wage garnishment goes into effect. Loan consolidation is when you take out a new loan to cover your existing loans. For example, if you have a federal private loan and a private student loan, you can take out a new loan with a private lender.
You use this loan to pay off the existing loans and now have only one lender and one payment. Additionally, you can negotiate with your new lender for a new loan payment plan that fits your budget.
Loan consolidation can stop wage garnishment because you’ll be using new loan money to pay off your outstanding balance entirely. However, note that consolidating a federal student loan to a private lender comes with some drawbacks.
For example, federal student loans offer forgiveness programs, multiple payment plan options and more. If you switch to a private lender, you’re no longer eligible for these benefits.
Loan rehabilitation
Your loan goes into default when you don’t make nine months of payments, and this is when wage garnishment can start. Loan rehabilitation, which is when you make nine months of payments on time and in full, can get you out of loan default.
However, note that loan rehabilitation is often challenging for people. You’ll have to make two monthly payments for nine months: your wage garnishment and the additional rehabilitation monthly payments.
Still, it’s worth discussing this option with your lender. Loan rehabilitation programs consider your income when setting the monthly amount. So, the program can offer a payment plan as low as $5 a month for some. If this is the case, you can stay on top of your loan and be free of wage garnishment in just a few months.
Debt repayment
The last option is to pay off the loan entirely or arrange a repayment plan with the lender for the nine months of missed payments. This is an unlikely solution for most people. Individuals get into default because they typically don’t have enough money to afford their payments, so increased payments aren’t feasible.
Who can help you with your wage garnishment?
There are many resources available to you to help with your wage garnishment. You can seek out credit counseling services or talk to your college’s financial aid center. You may also want to consider debt relief programs.
Debt relief includes negotiating a smaller loan with your lenders by proving you can’t afford your current loan. It’s often challenging to get lenders on board with debt relief, but it may be worth trying.
Know your wage garnishment rights
It’s important to understand your wage garnishment rights. There are specific rules lenders have to follow: they can’t garnish more than a certain percentage of your income, they have to provide you with fair warning and they can’t lie about missed or late payments.
Don’t forget that defaulting on your student loans has serious consequences for your credit score and financial future. If you need help paying off your student loans, check out our credit education services, which help give people the tools they need to become financially independent.
Student loan debt can feel overwhelming, but a concrete plan can show you how to get free.
