What does it mean to have your student loans garnished? Student loan wage garnishment is when an entity (the DOE, collection agency, or a private loan holder) can take money straight from your paychecks to pay off student loans.
This process sounds intimidating, but you have ways to stop it. Student loan garnishment for defaulted federal loans allows the Department of Education and its collection agencies to take 15% of your discretionary income from your paychecks.
Yes, the federal government can garnish your wages without a court order using an administrative wage garnishment order, as long as your federal loan is in default (at least 9 months past due).
Private student loan holders must get a court order before they can garnish your wages or take money out of your bank account. Private lenders cannot garnish your wages simply because you missed student loan payments. They have to sue you first.
Before you panic: you can protect your paycheck from student loan wage garnishment.
How do you stop student loan garnishment? You can stop a student loan wage garnishment in six ways:
- Loan rehabilitation
- File bankruptcy
- Voluntary payments
- Hardship hearing
Disclaimer: Although I am a student loan lawyer, this article contains general information and should not be taken as legal advice. If you want legal advice that pertains to your specific situation, you should schedule a free consultation with me.
Option 1: Settlement
A student loan settlement is when you satisfy your remaining student loan debt with a lump sum payment. A student loan settlement can stop garnishment before or after it starts.
Federal student loan settlements typically eliminate the collection fees, but will not settle for less than 85% of the loan balance. Private student loan settlements will usually settle for between 30-70% of the current loan balance.
Contact the debt collector handling your loans to determine your settlement options and if they’re willing to take your lump sum or settlement offer. In most cases, you’re only eligible to settle if your loan is in default.
Private student loans are more likely to negotiate a settlement with you as it’s much harder for them to recoup their money without a lawsuit.
Benefits of settlement: If you’re able to reach a settlement on your defaulted loan, it can potentially save you money and help you move toward rebuilding your credit.
Option 2: Consolidation
Consolidation means combining multiple federal loans into one Direct Consolidation Loan with one interest rate and one monthly payment. (This is different than a refinance, which can combine federal and private loans into one payment.)
Before the wage garnishment starts, you can consolidate defaulted federal loans into a Direct Consolidation Loan. After the garnishment starts, most defaulted student loans are ineligible for consolidation.
In certain instances, borrowers may be able to consolidate Federal Family Education Loans and Federal Perkins Loans even after a garnishment has started.
You can consolidate your federal loans for free at the Federal Student Aid website, studentaid.gov. For private loans, you have to consult your individual lender’s website to see if they offer consolidation options.
Anyone with multiple student loans should be eligible to consolidate. However, you can’t consolidate a private student loan into a federal loan.
Benefits of consolidation: When choosing between loan consolidation vs. rehabilitation, the main benefit of consolidation is that it quickly returns your defaulted loans to good standing. Typically, the consolidation process takes about 2-3 months.
Option 3: Loan rehabilitation
Loan rehabilitation is a program student loans borrowers can enter one time only to pull a federal loan out of default. To rehabilitate a defaulted loan, you have to make 9 voluntary payments in full.
The student loan rehabilitation program can stop wage garnishment before it starts or after it starts. However, you'll need to make 5 monthly payments on top of the wage garnishment before the garnishment stops.
Contact your loan service provider to see if you’re eligible. If you’ve already gone through loan rehabilitation, you’re not likely to be eligible for another chance to rehabilitate the same defaulted loan.
You can start the loan rehabilitation program by contacting the debt collector that has your defaulted loans.
Benefits of the loan rehabilitation program: You may be able to waive the collection fees added to your loan balance and get your loan back into good standing. For the past few years, the US Department of Education has agreed to waive collection fees for the loans it owns.
Option 4: File bankruptcy
Bankruptcy is a legal process that helps you get relief from some or all your debt. This does not always include student debt, so you have to strategically declare bankruptcy if you’re trying to eliminate your student loans and stop wage garnishment.
Filing a chapter 7 or chapter 13 bankruptcy stops wage garnishment the day your bankruptcy case is filed. However, bankruptcy does not get your loans out of default. Nor does filing bankruptcy, by itself, allow you to discharge your student loan debt.
Almost anyone can file bankruptcy, but it will ruin your credit report for 7 years. Don’t take this path lightly. However, it may prove to be your best option in some cases.
To get rid of your student loan debt in bankruptcy, you’ll need to file a student loan adversary proceeding and prove undue hardship. If that sounds complicated, don’t panic. Talk to a student loan lawyer.
Benefits of filing bankruptcy: This can help alleviate student loan debt for people who cannot afford a settlement, those with a disability that prevents them from working full-time, or individuals who can’t get their professional license due to student loan debt.
Option 5: Voluntary payments
This option entails entering a voluntary repayment agreement with your loan holder. In this agreement, you will — you’ll never guess — submit voluntary payments to stop garnishment before it starts.
If your defaulted federal loan is placed with a private collection agency, that agency often offers you a voluntary repayment agreement to enter into. If you don’t agree to the terms or don’t make payments you agreed to, the agency will begin wage garnishment.
You can stop wage garnishment before it starts by entering into that voluntary repayment plan and making your first payment within the prescribed deadline.
While the agreement will stop the garnishment, it will not get your federal loans out of default. You'll have to keep making monthly payments under that payment plan until your loan balance is paid in full.
Benefits of a voluntary repayment agreement: It stops your current or impending garnishment and re-starts your payments on a new plan. However, voluntary payments will not get your loan out of default.
Option 6: Hardship hearing
If federal student loan garnishment is causing you extreme financial hardship, you can request a hearing to have the garnishment amount reduced or eliminated.
You can object to a proposed garnishment at any time if it would cause you financial hardship simply by completing the Department of Education's Request for Hearing.
The request should include a Financial Disclosure Statement, which asks you for proof of income and basic living expenses. The expenses you list may include:
- Lease and/or mortgage
- Monthly bills for all expenses
- Income tax returns
- Income from your spouse
Although you can submit a hardship objection at any time, if you're under an active wage garnishment, the DOE won't process your request until the garnishment has been outstanding for at least 6 months.
In extraordinary circumstances, though, the DOE may provide an earlier hearing if you can show your financial circumstances have substantially changed after the proposed garnishment notice. A substantial change includes injury, catastrophic illness (e.g., cancer), or divorce.
Benefits of a hardship hearing: This avenue can reduce or stop a wage garnishment that’s already started, but only after 6 months. Usually, this should be the last option for borrowers because it takes a long time to get a decision and there’s no guarantee it will stop or reduce the garnishment.
How garnishment happens
Garnishment happens differently depending on the type of financial aid you received: Federal and private loan servicers must go through different routes to garnish your wages.
Private lenders have to sue you to garnish wages. They must get a court order before any wages are garnished.
Private student loan borrowers may be able to stop a wage garnishment by contacting the judgment creditor and asking if they're open to a settlement. If the creditor refuses to settle, your only choice to stop the wage garnishment may be bankruptcy.
Federal lenders can use garnishment once you've defaulted (missed payments for 270 days). Your employer will receive an administrative wage garnishment order. They also can use the Treasury Offset Program to withhold your tax returns in the case of defaulted loans.
Who is garnishing my wages for student loans? If you're being garnished via a court order, check the garnishment order for the name of the law firm and judgment creditor who is garnishing your wages. If you’re not being sued, call the Default Resolution Group (800-621-3115) to find out which private collection agency is garnishing your wages.
2022 Update: In 2021, the Department of Education announced that all federal loan delinquencies for the loans it controls would be managed by the Default Resolution Group (DRG) instead of by various collection agencies.
Ask to be transferred to the National Student Loan Data System to ensure you don't have any other federal loans in default.
Check out my comprehensive guide if you want a more complete picture of how student loan garnishment works.
COVID-19 and garnishments
Student loan wage garnishment was stopped as a part of the 2020 CARES Act. Yes, federal wage garnishment is on hold.
The federal government has paused wage garnishment and other collection activities (offset of Social Security Benefits and tax refunds, for instance) for most federal student loans. This affects loans in default status since the coronavirus/COVID-19 pandemic started in March 2020.
The government later extended those protections to commercial-held FFEL Loans.
Many borrowers are also inquiring about widespread student loan forgiveness. No official plan on this subject has been announced by the current administration.
Facing a garnishment? I can help.
If you’re worried about wage garnishment, it’s time to take action now. You likely want to stop wage garnishment quickly, get out of student loan default, fix your credit score, and explore your student loan repayment options once your student loans are back in good standing.
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Schedule a free 10-minute call with me today. We'll go over all of your options to prevent or end your student loan wage garnishment.
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