If you fall too far behind on your federal student loan payments, the Department of Education can garnish your wages from each paycheck. Student loan wage garnishment can have a huge impact on your finances, especially if you’re on a tight budget. Continue reading to learn more about student loan wage garnishment!
Also read: All about income-driven repayment plans
About wage garnishment
Wage garnishment is a form of collections that is used by student loan lenders. It occurs when federal student loans go into default. The Department of Education can take up to 15% of disposable pay from your paychecks for the defaulted loan. Disposable pay is what remains of your paycheck after deductions such as taxes. Wage garnishment continues until the debt is repaid or the default is resolved.
Federal student loans go into default after 9 months of missed payments. When federal loans default, you will receive an offer to make arrangements to rehabilitate the loans. If you do not make arrangements to remedy the default, a wage garnishment notice will be sent. Wage garnishment begins 30 days after the notice is sent if arrangements are not made to prevent it.
See also: Student loan default: What it is and how to avoid it
What can you do to avoid wage garnishment?
If you are at risk of incurring wage garnishment, it’s important to act quickly to rectify the situation. There are a few ways you can go about doing this. Many federal loans allow for income-driven repayment plans, which can reduce your monthly payments to as low as $0. You might also be able to defer your loans, especially if you are in grad school.
If you are not in immediate risk of wage garnishment, but see it as a potential risk, make sure to have a good sit-down with your finances and figure out how to avoid it. Whether it is sticking to a firm budget, cutting some expenses, or working extra hours for a set period of time, it’s worth it. This will help you to avoid losing additional money and hurting your credit score.
Your rights in wage garnishment
It’s important to know your rights in wage garnishment, especially because the order may be lifted if one of your rights is violated.
Remember, borrowers have the right to:
- Be sent a notice that the Department of Education intends to garnish their wages in 30 days.
- Inspect records relating to their debt.
- Avoid wage garnishment by making voluntary payments under an agreement with the Department of Education.
- File for and be given a hearing.
- Have the garnishment suspended until a ruling is made by filing for a hearing in a timely manner.
- Not be discharged from employment, refused employment, or subject to disciplinary action due to the wage garnishment.
- Take legal action against an employer if they discharge, refuse to hire, or take disciplinary action due to the garnishment.
- Not have any information about the wage garnishment shared with an employer other than what is necessary to comply with the garnishment order.
Additionally, borrowers whose wages are being garnished will always be allowed to keep an amount equal to 30 times the national minimum wage. The national minimum wage is $7.25. 30 x 7.25 = 217.50. Therefore, $217.50 is protected from each paycheck.
Learn more: How to get out of student loan default
How to stop wage garnishment
Wage garnishment can be stopped before it starts. Once garnishment begins, however, it’s more difficult to stop. The first way to stop or prevent wage garnishment is to negotiate repayment terms that are acceptable to the Department of Education. The first payment must be made within 30 days of when the garnishment notice was sent
Wage garnishment can also be stopped if you were involuntarily fired from your job. Garnishment will be suspended for the first 12 months of your new job.
Also read: How to qualify for student loan bankruptcy
Wage garnishment hearings
Another way to stop wage garnishment is by filing for a hearing. With a hearing, you can object to the wage garnishment by showing that either the loans are not actually yours or the garnishment would cause extreme financial hardship.
A hearing may sound intimidating, but it just involves presenting documents to show your case. Hearings can even be done over the phone or be based only on the records you provide. To file for a hearing, you must make a request in writing and send it to the Department of Education.
If the request is sent within the 30 days of receiving notice, the wage garnishment will be suspended until a decision is made. You can file for a hearing at any time, but the garnishment will not be suspended if the request isn’t made in that timeframe.
Once a request is sent, the lender will arrange the hearing. Typically, a decision will be made in 60 days. The outcome of a hearing may be either stopping wage garnishment, reducing wage garnishment, or no change.
Take action early!
The best way to avoid wage garnishment because of student loans is to take action before it happens. If your loans are in default, make arrangements to remedy the debt. If you fear you may go into default, consider changing your repayment plan. The goal is to avoid wage garnishment as best you can!
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