Student loan wage garnishment is when a lender orders your employer to withhold a certain percentage of your paycheck every month to pay back a past-due loan. You’ll receive a smaller paycheck, since a portion of it will go directly toward paying back your student loan.
If you’re in good standing on your student loans, you don’t have to worry about wage garnishment. But if you’ve missed payments for more than nine months on your federal student loans, they go into default.
Once you’re in default, the answer to “Can my wages be garnished for student loans?” is definitely yes. At this point, the government can authorize a collections agency to garnish your wages. Note that the government also has the power to garnish your tax refund or Social Security benefits over defaulted student loans.
Wage garnishments, however, have been paused since March of 2020 in response to the Covid-19 pandemic. Throughout this student loan moratorium, lenders couldn’t garnish your wages over defaulted federal student loans.
Student loan interest will resume starting on Sept. 1, 2023, and payments will be due starting in October.
In terms of private vs. federal student loans, private lenders can also pursue wage garnishment, but they must bring you to court and get a judgment first. Private student loans, unlike federal loans, also have a statute of limitations, a period of time after which a collections agency can no longer legally demand repayment. The statute of limitations varies from state to state, ranging from three to 20 years. A common period is six years.
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How Much Can Be Garnished for Student Loans?
The government can garnish up to 15% of your disposable pay to repay your federal student loans. This garnishment can continue until your loan has been paid back in full or you’ve gotten your loan out of default.The amount of wage garnishment for private student loans varies by state, but it typically maxes out at 25% of your pay. State laws also dictate how a lender or collections agency must proceed when bringing you to court.
(Learn more at Personal Loan Calculator)
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How to Stop Student Loan Wage Garnishment
To stop a student loan wage garnishment, you’ll have to get your loan out of default or prove that the garnishment is unfair. Here are a few steps you can take.
Set Up a Voluntary Repayment Agreement
If your wages are going to be garnished, you should receive a warning 30 days in advance. To prevent garnishment, you can contact the collection agency and try to come to a repayment agreement.
To revive federal student loans, your repayment agreement will likely take the form of rehabilitation or consolidation (more on this below).
If you and the collections agency agree to terms, you must make your payment within this 30-day window to prevent wage garnishment. If you’re dealing with defaulted private student loans, it could also be worth trying to negotiate with the collections agency for a repayment agreement or lump-sum settlement.
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Make an Objection and Ask for a Hearing
If you believe the wage garnishment is unfair or would cause extreme financial hardship for you, you can try objecting to it and requesting an official hearing. As with negotiating a repayment agreement, you’ll likely need to make this request within 30 days of receiving notice of the wage garnishment to stop it from happening.You must make this request in writing and provide proof of your objections to the debt. If you’re summoned to an in-person hearing, you might have to hire a lawyer to represent you.
The outcomes of this approach can vary. You may be able to postpone the wage garnishment, reduce the amount, or stop it completely. If you lose, however, it will likely proceed as planned.
(Learn more at Are Forgiven Student Loans Taxed?)
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Rehabilitate Your Loan
You can also stop your wages from being garnished by getting your student loans out of default. You have two options for federal student loans: rehabilitation and consolidation.
With rehabilitation, you agree to make nine reasonable monthly payments within 20 days of the payment due date and within a period of 10 consecutive months. Your payment amount is typically 15% of your annual discretionary income divided by 12.
After you rehabilitate your loans, the default will be removed from your credit report. Note that you can only use loan rehabilitation once.
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Consolidate Your Loan
Your other option for getting loans out of default and stopping a wage garnishment is Direct loan consolidation. Under loan consolidation, you agree to make three consecutive, full monthly payments on your loans and pay them back on an income-driven repayment plan.
Consolidation can get your student loan out of default faster than rehabilitation, but your initial monthly payments might be higher. Plus, consolidation does not remove the default from your credit report.
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The Takeaway
The best way to prevent wage garnishment is to avoid student loan default in the first place. As mentioned, you have nine months to get a federal student loan back into good standing before it goes into default.
If you’re worried about missing payments (or already have), contact your loan servicer about your options. For federal student loans, you might apply for an income-driven repayment plan or pause payments through forbearance or deferment. Some private lenders might also be willing to negotiate so you don’t default on your debt.
If you’re struggling to pay back your debt due to high interest rates, you could also consider refinancing student loans for lower rates. Be cautious about refinancing federal loans with a private lender, though, as doing so means you’ll lose access to student loan forgiveness, consolidation, and other federal protections.
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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