Student lenders can garnish wages when a borrower falls behind on payments and defaults on their student loans. Depending on the type of loan, the loan holder can withold up to 25% of a borrower’s paycheck once forebearance starts. Borrowers can stop a garnishment by getting out of default, negotiating a settlement, or filing for bankruptcy.
Can student loans garnish wages? Absolutely. And they can do it without a court order — but only if you default on your federal student loans. In order to take money out of your bank account to repay private student loans, banks and other lenders must sue you and get a judgement first.
Ahead, learn when student loans can garnish your wages and how to stop garnishment before — or after — it starts.
Resources for defaulted student loan debt:
- How student loan default affects your credit score
- Where to find help for student loans in default
- When can student loans take your house?
- Can private student loans garnish wages?
When can student loans garnish your wages?
Your wages can be garnished for student loans but only after you fall behind on monthly payments and default by missing nine student loan payments. Upon default, your loans will be moved from a student loan servicer to a collection agency.. The US Department of Education sends its debts to the Default Resolution Group for collection. Once there, federal law allows the DRG to garnish your wages without a court order using its administrative wage garnishment powers.
Private lenders either keep defaulted student loan debt in-house or send it to a debt collector. They can’t touch your paycheck until they sue you and get a judgment. A private student loan lawsuit normally takes a few years after you default. Read more about options for private student loans in collections.
You can avoid defaulting by requesting a deferment or forbearance, switching to an income-driven repayment plan, applying for a consolidation loan, or refinancing with a private lender.
Once a student loan garnishment starts, it will continue until the loan balance is paid in full. Depending on the interest rate and how much you owe, this can take years.
Are student loan garnishments on hold?
Due to the Covid-19 forbearance, student loan garnishments are on hold for federal loans until Sept. 1, 2022. Contact the Default Resolution Group at 800-621-3115 or Federal Student Aid at 800-433-2433 to learn your options to get out of default. Private student loans have continued to garnish wages throughout the coronavirus pandemic because the payment freeze doesn't apply to these debts.
Learn More: Defaulted Student Loan Forgiveness
How to stop student loan wage garnishment before it starts
You can stop a student loan wage garnishment before it starts by making payment arrangements with the creditor. Most federal student loan borrowers can prevent the garnishment by:
- Negotiating a payoff
- Applying for loan consolidation
- Entering the loan rehabilitation program
- Signing up for a monthly repayment agreement
Federal student loan settlements are expensive: you'll typically save 50% of the outstanding interest and 10% of the principal loan balance. You'll have to pay that amount in 90 days. Learn more about the federal student loan settlement process.
Consolidation gets you out of default fast, but you'll have to apply before a wage garnishment order is sent to your employer. You can't consolidate a loan that's subject to garnishment. Read more about how to consolidate defaulted student loans.
Loan rehabilitation is a one-time program that stops wage garnishment and the offset of tax refunds and Social Security payments. To enroll, you’ll agree to make nine monthly payments that will either be 15% of your discretionary income or your monthly income with accepted living expenses deducted. Rehabilitation is popular because it's the only option that removes the default status from a credit report. But that benefit typically doesn't significantly raise a credit score. Learn how student loan rehabilitation works.
A repayment plan won't get you out of default, but it can keep your paycheck safe from garnishment if you move quickly. You have 30 days from the date you get the notice of intent to garnish to establish a payment plan and make the first payment. More on the notice of intent below.
Learn More: Collection Costs on Defaulted Student Loans
How to stop student loan garnishment after it starts
You can stop a student loan garnishment that has already started by negotiating a settlement, filing bankruptcy, or entering into the loan rehabilitation program for federal student loans. The first two options stop a garnishment immediately, but you'll need a lump sum payment to negotiate a payoff, and you'll have to further ruin your credit to file bankruptcy.
Keep in mind that filing bankruptcy doesn't get rid of student debt — you'll need to prove undue hardship for that to happen — but it does prevent creditors from garnishing your wages while your case is open.
The loan rehabilitation program can stop a wage garnishment for federal student loans. But it doesn't stop the garnishment right away. You have to make five monthly payments on top of the garnishment amount before the withholding ends.
One other option federal student loan borrowers have to stop a garnishment is to ask that it be removed due to "extreme financial hardship." Getting approved for this type of relief is a long shot. But it can work — especially if you earn near minimum wage or have significant health issues.
How does student loan wage garnishment work?
Before it can garnish your wages, the Education Department must send a garnishment notice to the last address it has on file for you. You have 30 days to make payments arrangements — otherwise, a garnishment order will be sent to your job.
The federal government is allowed to garnish 15% of your disposable pay — the amount remaining after payroll deductions. But if you have defaulted student loans owed to the both the Department of Education and guaranty agencies for FFEL loans, they can take more — up to 25%.
Private student loans have to get a court order before they can garnish your wages. Many lenders don't sue immediately after your account turns past due. Instead, they typically wait until the statute of limitations is close to running out before they file a lawsuit against you or your cosigner. You can fight the lawsuit or try and negotiate a settlement for a reduced amount payable in a lump sum, monthly payments, or a combination of the two.
Learn More: Student Loan Cosigner Rights
Facing a student loan garnishment? I can help.
If you're worried about wage garnishment, it’s critical to take action now. I've helped hundreds of borrowers like you explore their repayment options and choose the best option to dig out of student loan default and return to good standing.
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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