After you default on your student loans, you have 5 options to stop an administrative wage garnishment (AWG) from ECMC:
- Pay in full
- Negotiate a settlement
- Enter into the loan rehabilitation program
- Submit a consolidation application
- Set up a voluntary payment agreement
Let's go over each one.
#1 PAY IN FULL
Look, even if you can afford to pay your student loans in full, you shouldn’t do so. You’ll save more money by negotiating a settlement.
#2 NEGOTIATE A SETTLEMENT
Being in default is the one-time you can settle federal student loan debt.
While a settlement sounds great, the reality is that many borrowers are unable to take advantage of a settlement offer.
Federal student loans do not settle for pennies on the dollar. Just the opposite.
With federal student loan settlements, you’ll need to have about 85% of the current balance less collection fees ready to pay in 30 to 90 days.
Does the government ever accept less than this for settlements? Occasionally.
But those types of settlements have happened less frequently under the Department of Education Secretary Betsy DeVos.
#3 LOAN REHABILITATION
The loan rehabilitation program is a one-time program that lets you stop a wage garnishment from starting by agreeing to make 9 monthly payments based on either your income or expenses.
The program also lets you stop a wage garnishment after it starts by agreeing to make 9 monthly payments.
Under the terms of the program, the garnishment will stop after your 5th monthly payment. You’ll still need to make the 4 remaining payments before your loans are out of default.
Because the rehabilitation program is a one-time program, if you default a second time on the same loan, you will need to choose another option to get out default.
One benefit of the loan rehabilitation program versus loan consolidation is that with the former, the government will waive the collection fees after your 9th payment.
Consolidating defaulted student loans causes the collection fees and unpaid interest to be capitalized.
Confirm Your Rehabilitation Program Paperwork is Approved
If you choose the loan rehabilitation program, make sure you sign the loan rehabilitation agreement letter and that you send it back to ECMC with your proof of income (if they ask for it).
After you submit it, call to confirm they have received it. And then call again, to make sure you have been successfully approved for the rehabilitation program.
I’ve had clients who told me they thought they were in the program and made several payments, only to find out they were never approved because their paperwork was missing or had been denied.
A Direct Consolidation Loan allows you to combine your defaulted federal student loan with at least one other student loan.
You’re eligible for consolidation if you have eligible federal student loans (eg. a Direct Loan, Perkins Loan, Stafford Loan, etc.) and you’re not under an active wage garnishment for your defaulted loans.
If ECMC has sent the garnishment notice to your employer but your wages have yet to be garnished, you may still be considered to be under an active wage garnishment.
Click here to read Should You Consolidate Defaulted Federal Student Loans?
Having said that, I’ve helped borrowers who move quickly submit their consolidation application and have it successfully processed before the wage garnishment can start.
#5 VOLUNTARY REPAYMENT
Entering into a voluntary repayment plan before a garnishment starts will stop a garnishment from starting.
That voluntary student loan repayment plan, however, will not get your loans out of default.
It simply stops a wage garnishment from starting.
Because this plan does not get your loans out of default, choose this option only if (a) you need more time to come up with money to settle; or (b) you’ve already rehabilitated your loans once before and you cannot consolidate out of default.
Can ECMC garnish wages?
ECMC can garnish your wages using an administrative wage garnishment order once you default. This type of order is a unique collection power reserved for federal student loans that are in default. Using this power, ECMC can start garnishing your wages immediately without ever suing you.
Is ECMC a federal student loan?
ECMC is a guaranty agency for federal student loans made through the Federal Family Education Loan Program (FFELP).
They also handle collection for some student loans that default and other loans owed to the federal government that borrowers try to discharge in bankruptcy.
No Public Service Loan Forgiveness for ECMC Loans
If your loans are with ECMC, then the loans aren't eligible for loan forgiveness under the PSLF program. You can make them eligible by consolidating them into a Direct Consolidation Loan. After you consolidate you'll need to make 120 monthly student loan payments before your loans can be forgiven.
Can ECMC take my tax refund?
ECMC can take your tax refund only if you’re in default on a federal student loan. Before they take your tax refund, they’re supposed to send notice to the last known address they have on file for you.
Click here to learn How to Get Your Tax Refund Back For Financial Hardship
Is ECMC a collection agency?
ECMC is, among other things, a debt collection agency. They handle some collection activities themselves. They also outsource their collection activities to private debt collection agencies like Performant Recovery.
How to contact ECMC
Educational Credit Management Corporation (ECMC)
PO Box 16408
St Paul MN 55116-0408
Contact information accurate as of March 7, 2020.