To stop a garnishment for private student loans, seek legal advice. You can protect your paycheck if you get the judgment reversed, negotiate a settlement, or file bankruptcy.
Can private student loans garnish wages? Yes, if you fall behind on your payments, the lender or debt collection agency can ask a court to order wage garnishment. This means that a part of your wages will be taken each pay period until the defaulted student loans are fully paid.
Many private lenders wait until your loans have been in default for several months or years before filing a student loan lawsuit against you. Before that happens, you might be able to negotiate a repayment plan or refinance your loans with a new lender to avoid wage garnishment.
Keep reading to learn what to do if your wages are garnished for private student loans.
How to stop wage garnishment for private student loans
Once a private student loan wage garnishment starts, you may be able to stop it by:
Asking the judge who signed the garnishment order to stop it. If you move quickly, you may be able to challenge the garnishment by asking the judge to change or lift the judgment because you didn’t receive notice of the lawsuit. Laws vary by state, so speak with a student loan lawyer near you to get advice about your options.
Negotiating a settlement. Judgment holders will often agree to stop the garnishment in exchange for a lump-sum payment. This amount is usually 50% of the current balance. But each student loan settlement negotiation is different, so you’ll need to work with your creditor to find out what it’s willing to accept. You can find the creditor’s contact information on the garnishment order.
Filing bankruptcy. While it won’t eliminate your student loan debt, filing bankruptcy will stop wage garnishment immediately due to the automatic stay. If you want to get rid of your loans, you’ll need to file an adversary proceeding. Read more about how to file student loan bankruptcy.
If you default on your federal student loans, consider enrolling in the loan rehabilitation program or applying for loan consolidation at studentaid.gov. Move quickly because federal law allows the U.S. Department of Education to dip into your paycheck, take your tax refund, and seize your Social Security benefits using an administrative wage garnishment.
Private student loans can garnish your paycheck during the pandemic
Most federal student loan borrowers haven’t had to make monthly payments. Their loans also stopped accruing interest during the coronavirus pandemic. And the federal government gave another seven million borrowers in default a break from collections.
But private lenders and collection agencies with court orders have continued to take money from borrowers’ paychecks and bank accounts over the past two years. The student loan moratorium on student loans doesn’t apply to private loans.
Miss enough student loan payments and your private loans will eventually default. Once that happens, the entire balance becomes due immediately, and your lender can sue you and your cosigner. Other consequences of student loan default include:
Your credit score will drop.
Your loan may be sold to a third-party debt collector.
You’ll have to pay late fees and collection fees, adding up to 25% of your loan balance.
You and your cosigner may also receive phone calls demanding you pay the debt.
Contact the loan servicer: You may be able to enter a repayment agreement that allows you to bring your account current. Check to see if you have any unused deferment or forbearance time or if there are any other repayment options to return your loans to good standing.
Try to refinance: Refinancing your private student debt can be difficult because you usually need good credit and a clean credit report. Yrefy, an online lender, is the only company I’m aware of that refinances delinquent or defaulted private loans. But before you refinance, check your state’s statute of limitations on student loan collections. If the statute of limitations has passed, the threat of a lawsuit and garnishment may be behind you.
Contact a lawyer: If you’ve already been served with a private student loan lawsuit, speaking with a lawyer is your best action. They’ll be able to explain your options and possibly negotiate a payment arrangement with the student loan lender.