If you fall behind on your student loan payments, the lender may garnish your wages. This means that a portion of your paycheck will be withheld by your employer and sent directly to your loan servicer to repay your debt. Wage garnishment can have a significant impact on your finances and make it difficult to meet your basic living expenses. However, you have options available to avoid default and wage garnishment, such as loan consolidation, income-driven repayment plans, and loan rehabilitation. It's important to understand your rights and options when it comes to repaying your student loans to avoid wage garnishment and other negative consequences.
Defaulting on your student loan can result in several consequences, but one of the most difficult is wage garnishment. With wage garnishment, a lender or collection agency can take money directly from your paycheck to repay a loan you’ve defaulted on.
The timeline and process for wage garnishment look different depending on what type of loan you have.
If you fall behind on a federal student loan, you’ll typically have more options to change your repayment plan and avoid garnishment and many months to remedy the default before garnishment happens.
If you have private student loans, you often have less time between defaulting on your loan and consequences like wage garnishment. But in this case, the lender must get a court order to garnish your wages.
Let’s dig into what you need to know about wage garnishment, how to stop it before it starts, and your options for addressing it if you’re already experiencing or at risk of garnishment.
What Is Wage Garnishment?
Wage garnishment is a debt-collection technique. It allows a lender to have money withdrawn directly from your paycheck. That money is then used to repay a debt you’ve defaulted on. Wage garnishment is one of several possible consequences of defaulting on your student loans. Defaulting on a debt simply means you did not repay the debt according to the terms you agreed on with the lender.
Having your wages garnished is one of the most painful consequences of defaulting on a debt because it impacts your take-home pay and can make it more difficult for you to pay your other living expenses.
Luckily, a lender can’t just garnish your wages after one missed payment. Both federal student loan servicers and private loan lenders must follow a legal process before garnishing your wages. This process looks quite different for each type of loan.
What You Need To Know About Wage Garnishment and Federal Student Loans
The vast majority of student loans are federal student loans. Only about 8% of student loans come from private lenders. There are many upsides to federal student loans:
You can usually miss 270 days (about nine months) of federal student loans payments before your loan goes into default.
You have several repayment plan options, many of which are based on your income.
You can apply for a forbearance or deferment to get temporary relief from making your monthly payments.
You may qualify for a forgiveness program that eliminates your student loan debt entirely.
While 270 days is a generous time period to address any issues repaying your student loans, once you have gone into default, the consequences can be stressful.
Federal Student Loan Garnishment Doesn’t Involve the Courts
Unlike private lenders, the U.S. Department of Education (DOE) has a direct path to garnish wages from your paycheck or money from your annual tax refund. That’s because instead of going through the courts to get an order for wage garnishment like most lenders have to, the DOE can use an administrative wage garnishment procedure. This allows them to take up to 15% of your wages from your paycheck.
But you won’t be blindsided by this. The DOE must send you a notice of intent to garnish your wages at least 30 days before the garnishment is set to begin. If you get such a notice, your instinct might be to panic, but don’t worry, you can handle this. The important thing is to not ignore this notice! If you don’t respond to the notice or attend the hearing to contest it, an order of garnishment will be sent to your employer.
The good news is that you can show up to the hearing and present your case for why the garnishment will cause you hardship. This means you may be able to stop the garnishment from happening before it starts. We’ll cover this process in just a bit.
What You Need To Know About Wage Garnishment and Private Student Loans
Private student loan lenders tend to be less generous with loan terms and less flexible than the federal government. Though you may be able to refinance your private student loan, you won’t usually have any other flexible repayment plan options, like the federal government’s income-driven plans, if you’re struggling to make your monthly payments.
Private student loan lenders also tend to put unpaid student loans into default status much quicker than the federal government. That said, the exact timing of your default status for private student loans will depend on the terms of your loan. If you aren’t sure what your loan’s terms are, contact the lender to ask how delinquency and default status work with your loan(s).
Private Student Loan Lenders Have To Get a Court Order To Garnish Your Wages
Private student loan lenders also have the option to garnish your wages for unpaid loans. But these lenders have to go through a court process to get an order (called a judgment) before they can start garnishing your wages. This means they have to sue you to win the right to garnish your wages.
Getting notice that you’re being sued can be scary and stressful. But there is a silver lining here: You can respond to the court summons and fight the garnishment. You may be thinking but I’m not a lawyer! How can I fight this? Upsolve has resources to help. Start by reading these two articles: You Can Win That Debt Collection Lawsuit and How To Stop Wage Garnishment Now.
Finally, remember that private lenders are also subject to federal and state laws that limit the amount of money they can take from your paycheck through garnishment.
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How To Avoid Student Loan Wage Garnishment
With the student loan payment pause coming to an end and student loan payments resuming October 2023, many borrowers may be worried about their student loan debt and whether they're at risk for a garnishment.
It’s good to be prepared. So let’s look at ways to avoid garnishment altogether.
Avoiding Wage Garnishment on Federal Student Loans
Whether you have a federal or private student loan, if you start down a path of missing payments, it’s wise to act sooner than later. The good news is, you have some decent options if you’re a federal student loan borrower.
If you’re on the standard repayment plan, look into switching to an income-driven repayment (IDR) plan. There’s evidence that students are less likely to default if they participate in an income-driven repayment plan. This is likely because your monthly payments under an IDR plan are lower than they are under the standard repayment plan.
If you’re experiencing a temporary hardship, look into deferment or forbearance. These allow you to temporarily suspend your monthly payments.
If you’ve already received a notice of garnishment, 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.
You can also consolidate federal student loans into a new Direct Consolidation Loan. If you go with this option, you’ll have two choices:
Enter into an income-driven plan or
Make three full, on-time student loan 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.
Avoiding Wage Garnishment on Private Student Loans
Private loan lenders don’t offer as many options as federal lenders, but it’s still wise to call your loan servicer and ask about your choices if you’re falling behind on your monthly payments. You could also consider refinancing or consolidating your private student loan if you can qualify for a lower interest rate. Again, the sooner you act, the better.
How To Stop Student Loan Wage Garnishment on Federal Loans
Let’s say you got behind on your loan payments, missed the garnishment notice, and are now trying to figure out how to deal with reduced take-home pay. All hope is not lost!
Loan Rehabilitation Can Help Stop Wage Garnishment
If you have the means to resume making payments on your loan, look into loan rehabilitation. Rehabilitating your loan will get your default status dropped and open up more repayment options. It will also stop the garnishment, but only after you’ve made a few of the required payments. To learn more about this option, check out our article on Student Loan Rehabilitation.
Proving Financial Hardship Can Help Stop Wage Garnishment
If the U.S. Department of Education sends you a garnishment notice, you can try to stop the garnishment by proving that it will cause you financial hardship. Here’s what that looks like:
Receive the garnishment notice at least 30 days before the garnishment begins
Request a hearing with the Department of Education to object to the garnishment
Prepare for the hearing by gathering financial records to support your hardship claim, including:
Proof of housing, utilities, childcare, and medical expenses
Proof of family size
Proof of any court-ordered payments like child support or alimony
Attend the hearing, explain your circumstances, and provide your financial records as evidence
TIP: To prepare for the hearing, make a list with two columns: one for your income and one for your expenses. Put the total at the bottom of each column. Make sure you have financial documents to support the numbers in each column. Bring this with you to the hearing and present it to the hearing officer. This will make it easier for the officer to understand your situation.
Attending the hearing doesn’t guarantee you’ll be able to stop the garnishment, but if you don’t attend with some evidence of hardship, the garnishment order will move forward.
Filing Bankruptcy Can Help Stop Wage Garnishment
If you’re drowning in student loans and other debt — like credit card or medical debt — it’s worth exploring bankruptcy to get relief from debt collectors and get a fresh financial start. One perk of bankruptcy is that you get immediate relief once you file your case due to the automatic stay. This stops all collection efforts, including wage garnishment orders.
At the end of 2022, the federal government made changes to the bankruptcy guidelines that have made it easier for people to get their student loans discharged through bankruptcy. If you want to see if you’re eligible to get rid of your student loans through bankruptcy, you can use our free screener to get started. If you want to learn more, read this article: Yes, You Can File Bankruptcy on Student Loans. Here’s How.