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3 Important Facts About Student Loans & Garnishment

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In a Nutshell

After 9 months of missed payments, your federal student loan will go into default, making a garnishment likely. For private student loans, default happens much sooner. Keep reading to learn three facts about student loan garnishment that could help you keep your take-home pay and tax refund.

Written by the Upsolve TeamLegally reviewed by Attorney Andrea Wimmer
Updated November 28, 2021

Your wages and taxes can be garnished if you stop paying your student loan. The government could keep a good chunk of your wages or your entire tax refund if you default on your student loan. If you’ve only missed a few student loan payments, you may be able to avoid a default status and garnishment. If your wages are garnished, you may be able to stop the garnishment. Keep reading to learn three facts about student loan garnishment that could help you keep your take-home pay and tax refund. 

What Happens When Your Wages Are Garnished Due To Student Loan Default

Your federal student loan starts defaulting after 270 days have passed without payment on your loan balance. According to the Congressional Budget Office, about 20% of students default within three years. If you’ve only missed a couple of payments, you still have time to get back on track. Two hundred and seventy days is about nine months. 

Once you hit the nine-month mark of nonpayment, your entire federal student loan debt will be due immediately. It then enters the acceleration phase. Acceleration severely limits your options for payment alternatives on your student loan. At this stage, the government can use an administrative process to garnish your income.

The government doesn’t follow the traditional court process when they start student loan wage garnishment, they use an administrative wage garnishment process. Through the administrative wage garnishment process, the federal government can garnish 15% of your wages. They can also garnish your tax refund  and your social security benefits until the student loan money is paid back. 

Your student loan will likely be sent to a collection agency. Once your loan is in default and collections, you’ll have an additional interest rate of 17.92% to cover the costs of collection. This is in addition to your principal, original student loan interest rate, and fees. You’ll owe more, and the debt will keep growing. Your credit score will suffer.

Wage garnishments and tax refund garnishments against student loan borrowers with federal loans are paused in 2021 under the CARES Act due to the coronavirus pandemic. If you have a Perkins Loan, it may be held by your school and the forbearance (pause in payment requirements) may not apply. Similarly, some Federal Family Education Loans (FFELs) are owned by private lenders, so the lenders can choose whether to join in and pause FFEL loan payments through a forbearance. 

The student debt relief through the CARES Act is temporary. When garnishments resume, you might find that your take-home pay is lower, or your Earned Income Tax Credit and tax refund are paying off your school loan instead of going into your bank account. Your student loan default will also affect your credit score, which will make it harder for you to qualify for a car loan and home loan. 

If you have a private lender, the agency must go through a court process to garnish your wages.

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How To Avoid Student Loan Wage Garnishment

If you make your loan payments on time, you don’t have to worry about wage garnishment. The government isn’t going to start garnishing your wages if you’ve only missed one or two payments. 

The federal government offers several repayment plans, including REPAYE, PAYE, IBR, and ICR. Several of these plans have repayment terms based on income. There is even an income-based plan that allows you to pay zero dollars per month if you meet the income qualifications. 

Here’s how the REPAYE, PAYE, IBR, and ICR plans factor in your income:

  • REPAYE (Revised Pay as You Earn): 10% of your discretionary income, divided by 12.

  • PAYE (Pay as You Earn): 10% of your discretionary income, divided by 12.

  • IBR (Income-based): 15% of your discretionary income, divided by 12.

  • ICR (Income-driven): The lesser of 20% of your discretionary income divided by 12 or what you would pay on a repayment plan with a fixed monthly payment over 12 years.

The Congressional Budget Office found that students are less likely to default if they participate in one of the above payment plans. The above plans are not available if you have defaulted on all your student loans. 

Borrowers can also ask for a deferment or forbearance on a federal student loan. A deferment or forbearance allows monthly payments to stop for a certain amount of time, but interest is still charged, and borrowers end up paying more in the long run. That’s still better than having a student loan in collections. You can ask for forbearance as often as you want, but it can only last for a year. Due to the coronavirus pandemic, all student loans are on automatic forbearance until September 31, 2021, under the CARES Act. 

Private loan lenders don’t offer as many options, but you can call your loan servicer to see what options are available. You can ask them if they have an income-based student loan payment plan. You could also consider refinancing or consolidating your private student loan if you can qualify for a lower interest rate. 

How To Stop Student Loan Wage Garnishment Once It Starts

If your paycheck is being garnished for your defaulted federal student loan, there are a few things you can do if you can make payments on your loan. The federal government offers a chance to rehabilitate a defaulted student loan

Loan rehabilitation requires you to make a new promise that you’ll make nine payments over ten months—and you must make the payments, or it will go right back into default. The monthly payments will be based on your income, so they may be easier to manage. Bonus: the default will be removed from your credit record (but not your late payments). Once the default is removed, you then have the potential to start an income-driven plan. 

It’s important to keep an eye out for a notice of intent to garnish wages if you’re behind on your monthly payments. The Department of Education or a collection agency will send you one. Once you receive the notice, you can call your loan holder directly and try to negotiate a settlement for your past-due debt. If you take this route, your first payment must be no later than 30 days from your official notice of garnishment.

The federal government also offers borrowers the option to consolidate federal student loans into a new Direct Consolidation Loan. If you choose this option, you’ll have two choices: 

  1. Enter into an income-driven plan; or,

  2. make three full on-time payments on your defaulted loan before you start monthly payments on the new Direct Consolidation Loan. 

Interest rates will be averaged, and the average will be assigned to your loan. If you qualify for this option, it’s important to accept it before a wage garnishment order is entered in the courts, so keep that in mind when you review your notice of garnishment. 

You always have the option to pay off your loan in full if you have the money to make the payment. (Wouldn’t that be nice?)

Let’s Summarize...

Regular monthly payments on your student loan will keep your wages from being garnished, but your federal loan won’t go into default until you’ve missed payments for nine months. If you have a private loan, your loan will go into default sooner. If you have a federal student loan, it may not be too late for you to start a repayment plan, even if you’ve defaulted on your loan and even if your wages are being garnished. Act quickly, and don’t be afraid to ask for a second chance.

Written By:

The Upsolve Team

Upsolve is fortunate to have a remarkable team of bankruptcy attorneys, as well as finance and consumer rights professionals, as contributing writers to help us keep our content up to date, informative, and helpful to everyone.

Attorney Andrea Wimmer


Andrea practiced exclusively as a bankruptcy attorney in consumer Chapter 7 and Chapter 13 cases for more than 10 years before joining Upsolve, first as a contributing writer and editor and ultimately joining the team as Managing Editor. While in private practice, Andrea handled... read more about Attorney Andrea Wimmer

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