Reduced Paychecks Are Coming for Defaulted Student Borrowers

Defaulted on your federal student loan obligations? Your next paycheck could feel a tad lighter. One of the tools in the collection arsenal for the federal government is the imposition of wage garnishment for defaulted loan borrowers. This tool is formally known as the administrative wage garnishment. Unlike other seizures that require a court order, the Department of Education can conduct this operation without the permission of a court.

Unlike other loans, federal student loans do not require judicial proceedings. Typically, private loans require a lender to contest their case and secure a win in court. The Department of Education can garnish wages without a court’s approval, although there are guidelines the Department of Education must follow before seizing a defaulted loan person’s paycheck.

Default on federal student loans occurs after 270 days of nonpayment. That’s equivalent to nine months of nonpayment. After exiting the delinquency stage and entering the default stage, the federal government will mail a notice of intent to garnish, within thirty days before garnishment commences. The notice will include details of the debt owed, the expected garnishment amount per paycheck, and your rights.

Failure to resolve this issue can result in the federal government sending a garnishment order to your employer. Under federal law, employers must obey the garnishment instructions. The Department of Education has permission to garnish up to 15% of a person’s disposable pay. Disposable pay is pay remaining after mandatory deductions like taxes and Social Security. To protect low-income earners, the federal government cannot garnish wages if it leaves the person with less than thirty times the federal minimum wage per week. This amount is approximately $218.

Garnishment will continue on a defaulted student loan until the loan borrower repays the loan in full or reaches a satisfactory outcome with the loan servicer to remove the default status. Private loan servicers can also garnish wages, up to 25% in some jurisdictions. However, as stated above, private loan servicers must first take the defaulted person to court and secure a court win before garnishment can occur.

If you’re worried about facing this unfortunate outcome, there’s still time to act. One reassuring step is consolidating your federal student loans into one payment. This can provide relief by reducing the burden of remembering to make multiple loan repayments during a month. It may also make your repayment terms more manageable under the income-driven repayment plan option.

Contact your federal student loan servicer as soon as possible to discuss rehabilitation options. Rehabilitating a loan requires time and patience and may not result in the immediate restoration of a positive loan status. It puts you on the right path and may be a more manageable solution than the others in this article.

Loan borrowers facing garnishment can also dispute the garnishment by requesting a hearing within 30 days of receiving notice of intent to garnish. During the hearing, respondents must provide information about their extreme financial hardships, detail any incorrect debt amounts listed on the notice, and explain involuntary unemployment over the last 12 months that made repayment difficult.

Ignoring the garnishment notice will only lead to more pain. Taking quick and immediate action can help mitigate the adverse effects of the situation. Remember, an employer cannot legally fire you due to wage garnishment. Also, it’s crucial to visit www.studentaid.gov to review and update any contact information that is out-of-date or incorrect. Maintaining accurate contact information with the loan servicer is your responsibility and can prevent loan repayment miscommunication.