How to Get Out of Student Loan Wage Garnishment

Wage garnishment is a sobering reality and something you want to avoid if possible. But what if that’s your current reality? Your student loan is in default. You’ve received countless calls from a collection agency looking for payment. Now your paycheck is being garnished.

What is wage garnishment, and what effect can it have on your life? Let’s take a closer look at student loan wage garnishment and what you can do to stop or prevent it.

What is wage garnishment?

Wage garnishment is when part of your weekly paycheck goes toward paying off your debt.

This occurs when you fail to make your student loan payments. You can face wage garnishment for federal student loans and private loans, though they have different rules and regulations.

There are consequences when you don’t make payments on your federal student loans, up to defaulting on your loans. When this happens, you can no longer make monthly loan payments. Instead, the balance of your student loan debt is due immediately. You also lose access to deferment and forbearance options.

If you don’t make payment arrangements, your loans may be turned over to a collection agency. If the collection agency is unable to collect payments from you, the next option is wage garnishment. The Department of Education uses this as a last resort after exhausting other alternatives.

Private lenders typically have to take legal action against you to garnish your wages, as they can’t force your employer to garnish wages without a court order. Some states don't allow garnishment on private loans at all.

Student loan wage garnishment process

The Department of Education will send a notice of wage garnishment. It’s required to give notice 30 days before wage garnishment starts. You’ll be given the option to establish a voluntary repayment agreement as well as to request a court hearing.

If you don’t set up a voluntary repayment agreement and make a payment before 30 days of notice or you don’t request a hearing, wage garnishment will start. Should you request a hearing within the 30 days, the Department of Education isn’t allowed to take money from your paycheck until the hearing is over and a decision is made.

You can request a hearing after 30 days, but although there’s a chance of stopping student loan wage garnishment, it may continue. The government isn’t required to have a court order before it begins wage garnishment. And your employer is required to comply with a wage garnishment request from the government.

You’ll continue having money garnished from your paycheck until your loan is paid in full or has been removed from default.

Consequences of student loan wage garnishment

Typically, wage garnishment isn’t reported to credit bureaus. However, your student loans could be marked as being in default. This can damage your credit and create difficulties in making any large purchases, such as buying a house or car. It may also keep you from being approved for credit cards or rental properties. Rebuilding your credit could take years.

Not only is your credit affected but you also might face paying more than just your loan balance. Because your loans are in default, you may have to pay for collection fees, court costs, attorney fees and various other charges.

There’s also a chance that your school will withhold your academic transcript until your loan is paid off. This makes it difficult to find a good job or start your career.

Wage garnishment affects more than just your current paycheck. It can have a lasting effect on your life for years.

How much can be garnished because of student loans?

You can have up to 15% of your disposable income withheld from your weekly paychecks for student loan repayment. Disposable income is what’s left of your income after taxes are withheld.

The government can’t garnish more than the lesser of the following: 15% of your disposable income or the difference between your disposable income and 30 times the minimum wage, which is currently $7.25 per hour. So, 30 x $7.25 = $217.50 of protected weekly income.

If your weekly disposable income is $450, 15% of it is $67.50. Now, if you take your $450 income and subtract the protected income of $217.50, you’re left with $232.50.

The lesser of these two numbers is $67.50. So the government can’t garnish more than $67.50 from your weekly paycheck

If you have other garnishments beside your student loan, the max amount that can be garnished from your paycheck is 25% total.

Nobody likes having money withheld from their paychecks. Wage garnishment can put a serious dent in your income and affect both your short-term and long-term finances.

How to stop student loan wage garnishment

You can request a hearing to challenge the wage garnishment. The hearing can either be in person or over the phone and is arranged for you by the Department of Education. You can also request a hearing via written records that you submit for your case.

What can you challenge in a hearing?

• The existence of your student loan debt
• The amount of your student loan debt
• The enforceability of your student loan debt
• That 15% of your disposable pay would cause a financial hardship
• That your wages shouldn’t be garnished because you’ve been employed less than 12 months after previously being involuntarily separated from employment

You’ll need to provide proof to support any of your claims. If you’re successful, your wages won’t be garnished for 12 months, or you could receive a reduced garnishment.

If you’re unsuccessful in challenging the student loan wage garnishment, your paychecks may be garnished the full 15% rate.

Know your rights

Even though you’ve defaulted on your student loans, you still have rights concerning wage garnishment:

• You must be notified of the wage garnishment 30 days before it starts.
• You have the right to a hearing concerning your loan garnishment.
• Your employer can’t fire you for having your wages garnished. (You could be fired for having more than one garnishment, though.)

Just because you’ve missed loan payments doesn't give anyone the right to treat you unfairly when it comes to wage garnishment. Take time to understand your rights as a borrower.

How to avoid wage garnishment in the first place

Wage garnishment is nothing to mess around with. We’ve discussed ways to stop wage garnishment, but the best way is to prevent it from happening in the first place.

1. Get out of default

If you can get your loans out of default quickly, you may never face wage garnishment. One way to do this is through student loan rehabilitation. This involves setting up payments for 15% of your annual discretionary income, divided by 12. You’ll then make 10 consecutive monthly payments.

2. Consolidate your student loans

You could also consolidate your defaulted student loans into a Direct Consolidation Loan. To consolidate a defaulted loan, you need to either agree to repay your new loan under an income-driven repayment plan or make three consecutive, voluntary, on-time, full monthly payments on the defaulted loan before consolidation.

Your last option to get your loan out of default is to simply pay it in full. However, if your loan is in default because of missed payments, it’s unlikely that this is a realistic option.

If you currently have your wages garnished or received notice of wage garnishment, take steps to get your loan out of default. Strive for a repayment program that works for you and satisfies the Department of Education.

Having money taken from your income can create financial troubles that are hard to recover from. Wage garnishment and defaulted loans can have a long-term effect on your financial status. Take measures to avoid both scenarios if possible.