How to Stop Student Loan Wage Garnishment

Student loan wage garnishment is a legal process where a portion of an individual’s earnings is withheld by an employer and directed toward a defaulted student loan debt.

Understanding Federal Wage Garnishment and Your Rights

Federal student loan wage garnishment operates through Administrative Wage Garnishment (AWG), permitting the government to seize a portion of wages without a court order once a federal loan enters default. Default on federal student loans occurs after 270 days of missed payments. The government can garnish up to 15% of your disposable pay, which is the amount remaining after legally required deductions like taxes and health insurance premiums.

Before garnishment begins, borrowers are entitled to a 30-day notice period. This notice informs the borrower of the impending garnishment and the amount owed. Borrowers have the right to request a hearing to dispute the garnishment or to establish a repayment plan. During this hearing, individuals can present defenses, such as proving the loan is not theirs, it has been repaid, or that they are already adhering to a repayment agreement. Challenging the garnishment can halt it or result in a reduced garnishment amount.

Primary Pathways to Stop Federal Garnishment

Several primary pathways exist to stop federal student loan wage garnishment. These options aim to bring the defaulted loan back into good standing, thereby ceasing collection activities.

Loan rehabilitation is a method to exit default, requiring a borrower to make nine voluntary, on-time monthly payments over a 10-month period. The monthly payment amount is calculated as 15% of your annual discretionary income, divided by 12, though it can be as low as $5 based on financial circumstances. Discretionary income is your adjusted gross income minus 150% of the poverty guideline for your family size. To initiate rehabilitation, borrowers must contact their loan holder and provide income documentation. Upon successful completion, the default status is removed from your credit report, and collection costs may be reduced.

Loan consolidation is another route to stop garnishment by combining multiple federal student loans into a new Direct Consolidation Loan. This process removes the underlying loans from default and ceases collection activities like wage garnishment and tax refund offsets. To consolidate a defaulted loan, a borrower must either make three consecutive, voluntary, on-time monthly payments on the defaulted loan or agree to repay the new Direct Consolidation Loan under an income-driven repayment (IDR) plan. The application process involves completing a Direct Consolidation Loan application, available online. While consolidation stops garnishment, it does not remove the record of the default from your credit history, unlike rehabilitation.

Discharge options can stop garnishment if a borrower meets specific eligibility criteria. Total and Permanent Disability (TPD) discharge can cancel federal student loans if a borrower is unable to engage in any substantial gainful activity due to a physical or mental impairment. Death discharge is available if the borrower passes away. Certain discharges, such as borrower defense to repayment, are applicable if the school engaged in misconduct. Bankruptcy discharge for student loans is possible, though it requires proving “undue hardship” through a separate legal proceeding.

Executing Your Chosen Strategy

Once a strategy to address federal student loan garnishment has been selected, the next step involves execution of the application or agreement process. The primary point of contact for federal defaulted loans is the Department of Education’s Default Resolution Group, or the specific collection agency assigned to the loan.

For loan rehabilitation, after discussing your financial situation, the loan holder will send a rehabilitation agreement outlining the calculated monthly payment. Return this agreement within 10 business days. You will then begin making the agreed-upon nine on-time payments over 10 months. Payments should be made voluntarily, as amounts collected through garnishment or tax offsets do not count towards the rehabilitation payments.

If pursuing loan consolidation, the application can be completed online through StudentAid.gov or via a paper application. The application requires details of your current loans, employment status, and preferred repayment plan. After submission, the application is processed, and a new loan servicer is assigned. The Department of Education will send a summary of the consolidated loans and selected repayment plan.

For discharge applications, the specific process and required documentation vary by the type of discharge sought. For TPD discharge, medical documentation from a physician or a determination from the Social Security Administration is required to prove the disability. These applications are submitted directly to the Department of Education or its designated servicer. After submission, there will be a review period, during which collection activities, including garnishment, may be temporarily paused. Borrowers will be notified of the outcome of their application.

Addressing Private Student Loan Garnishment

Private student loan garnishment operates under a different legal framework than federal student loan garnishment. Unlike federal loans, private lenders cannot garnish wages administratively. Instead, they must obtain a court order or judgment to legally seize a portion of a borrower’s wages.

The maximum amount a private lender can garnish from wages can be up to 25% of disposable income, although this can vary based on state laws. If a lawsuit is filed, respond to all legal notices and seek legal counsel. Ignoring court proceedings can lead to a default judgment against the borrower, allowing the lender to proceed with garnishment.

Options for stopping private student loan garnishment are more limited compared to federal loans. Negotiation with the lender or debt collector for a payment plan or settlement is an avenue. This might involve offering a lump sum for less than the full amount owed or establishing a more affordable monthly payment schedule. Bankruptcy is another consideration, though discharging private student loans through bankruptcy is challenging. It requires proving “undue hardship” through a separate legal proceeding within the bankruptcy case. Due to the complexities of private loan laws and the necessity of court involvement, consulting with an attorney specializing in debt or consumer law is recommended for those facing private student loan garnishment.