Q: What is administrative wage garnishment (AWG) for student loans?

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Administrative Wage Garnishment (AWG) is a debt collection process that allows the federal government to garnish up to 15% of a non-federal employee's wages to pay a debt owed to the agency. The U.S. Department of Education and student loan guaranty agencies use the AWG process when you default on federal student loan debt. Here's what you need to know about the AWG process.

What does AWG mean for student loans?

An administrative wage garnishment (AWG) refers to the debt collection process the Department of Education and guaranty agencies can use to take money from your paycheck without a court order. Before 1996, the Department of Education was the only federal agency with AWG authority. However, the federal government extended the authority to other federal agencies when it passed the Debt Collection Improvement Act (DCIA) of 1996.

The Code of Federal Regulations (34 CFR Part 34) outlines the AWG process that must be followed before your wages can be garnished for defaulted student loan debt.

State laws do not apply to stop an AWG.

FFEL Program Loans: When a guaranty agency garnishes wages for loans made under the Federal Family Education Loan Program, its power to garnish comes from the Higher Education Act of 1996. When the Department of Education uses its AWG authority to collect on FFELP and Direct Loans, its power comes from the DCIA.

Non-tax debts: The Department of the Treasury, through the Bureau of Fiscal Service, can issue an administrative wage garnishment to collect a delinquent non-tax debt owed to the federal government.

Account is in AWG

When your account is administrative wage garnishment status (AWG), the federal agency you owe a debt to can send a withholding order to your employer. The order of withholding directs your employer to withhold 15% of your disposable income without changing their normal pay and disbursement cycles. (15 U.S.C. 1673)

The AWG Order directs your employer to keep garnishing your earnings until:

  • the defaulted loan has been repaid in full or
  • until notified to discontinue withholding

Federal law prohibits your employer from discharging (firing) you or taking disciplinary against you just because your wages are subject to the AWG process. However, defaulting on your student loans could jeopardize your security clearance.

What happens if an employer fails to comply with an AWG order? If your employer fails to comply with the AWG order, they can be sued by the guaranty agency or the Department of Education. They'll be liable to pay any amount the employer fails to properly withhold from your wages plus punitive damages and attorney's fees.

Limits on Administrative Wage Garnishments

Typically, most student loan borrowers will have 15% of their disposable pay taken. (31 U.S.C. § 3720D) But if you have multiple loans in default with different companies or have an existing child support order, the maximum amount of your disposable pay that can be garnished increases to 25%.

If you have a wage withholding for child support, the child-support order takes precedence over the withholding for your student loans.

Protected wages: Federal law also protects a debtor's disposable pay equal to 30 excludes from garnishment the amount of your disposable pay equal to 30 times the federal minimum hourly wage. The federal minimum wage is $7.25 per hour, so you will not have any money taken if your after-tax pay is less than or equal to $217.50 per week.

AWG Process for Student Loans

Before your wage garnishment order can be sent, the Department of Education must notify you of the pending garnishment. The notice must be sent by mail to the last known address at least 30 days before the garnishment starts.

The notice must inform you of the:

  • nature and amount of the debt
  • agency's intention to initiate garnishment
  • rights you have under the law.

Failure to follow these notice requirements or misrepresentations about the process may violate the Fair Debt Collection Practices Act (FDCPA) as long as a third-party collector is involved.

Employer: How to Comply With AWG

Along with the AWG, your employer will get a package from the Department of Education or guaranty agency that includes:

  • a Letter to Employer & Important Notice to Employer
  • Order of Withholding From Earnings,
  • Wage Garnishment Worksheet
  • Employer Acknowledgment of Wage Withholding

This package provides detailed instructions on how to calculate withholdings — 15% of your paycheck after deduction of any amounts for items like health insurance — the employer must take during the first pay period after it's in receipt of the order. It also tells the employer how to ensure the minimum earnings are met so that an employee is not left with too little.

The Consumer Credit Protection Act protects a level of an employee's disposable pay per workweek in an amount equal to 30 times the federal minimum hourly wage.

Compliance Process

Upon receipt of an AWG order, your employer should:

  • Verify your employment.
  • Complete and return the Employer Acknowledgment of Wage Withholding.
  • Deduct the wage garnishment amount from your wages beginning with the first pay period after receipt of the order.
  • Continue to deduct wages and send checks representing the withheld amounts to the address listed in the wage garnishment order until a Release from the Order of Withholding is received, or the employee stops working for the employer.
  • If the employee is subject to multiple wage garnishments during a pay period, federal law may limit the ability to withhold the full amount.

Borrower's Rights

Before being garnished via an AWG order, the borrower (debtor) must receive written notice that tells them their rights to:

  • inspect and copy records
  • enter into a repayment agreement (e.g., loan rehabilitation agreement)
  • request a hearing about the existence, amount, or current enforceability of the debt, the rate of withholding, and whether the borrower has been continuously employed less than twelve months after an involuntary separation from employment.

How to request an AWG Hearing: Follow the instructions in the notice to request an AWG Hearing. You have 15 business days from the date the AWG notice was mailed to you to timely request the hearing. From there, the federal agency will choose a hearing official to review and decide your case. That official will determine if an oral hearing is warranted.

Borrower's Defenses

Federal law allows borrowers to raise objections to garnishment. Borrowers can object to:

  • the existence, amount, or current enforceability of the debt
  • the rate of garnishment, and
  • whether the borrower has been continuously employed less than twelve months after an involuntary separation from employment.

You can also inform the Department of Education that you're eligible for statutory discharges, such as closed school or total and permanent disability discharge.

How to stop AWG

There are five ways to stop an AWG order:

  • Negotiate a student loan settlement: contact the private collection agency (PCA) to learn your settlement options. Typically, a settlement that saves you collection fees and 10-15% of the balance is agreeable.
  • Enter into the loan rehabilitation program: you would enter into a written agreement to make 9 monthly payments to bring your loans back into good standing.
  • Apply for loan consolidation: you can apply for consolidation until your employer receives the AWG order. You lose the option to consolidate if your employer is in receipt of the order.
  • Enter into a voluntary repayment agreement: although you can stop the garnishment by entering into a repayment agreement, the agreement does not get you out of default.
  • Object that the garnishment would cause you an extreme financial hardship: you can reduce or stop the AWG if you can show that the garnishment will cause you an extreme financial hardship.
  • File bankruptcy: the automatic stay in bankruptcy will stop the garnishment but it won't get your out of default.

Need help stopping an administrative wage garnishment order? Let's talk

Ultimately, borrowers need to not only stop the AWG but also they need to get out of default.

Getting out of default stops offsets of federal income tax refund and Social Security Benefits. It also brings your loans back into good standing, making you eligible for deferment and forbearance, income-driven repayment plan options, and loan forgiveness.

Schedule a free 10-minute callwith me today. We’ll go over your options to stop the AWG order fast.

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