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If you have loans in default, your loan servicer may take aggressive action to get its money back, even by garnishing your wages or withholding your tax return. One way to stave off wage garnishment is by paying the balance in full, which may not be an option if you cannot make your payments. Alternatively, you can stop student loan garnishment by getting a consolidation loan or rehabilitating your loan. Here's how.
What Is Student Loan Garnishment?
Student loan garnishment is when the federal government requires your employer to withhold a portion of your pay to satisfy outstanding student loan debt. The garnished funds are then sent to your loan servicer to pay your student loans in default. Up to 15% of your pay can be withheld until your defaulted loans are repaid or removed from default status.
Generally, wage garnishment occurs only after your student loans are in default, which can happen if it's been at least 270 days since your last payment. With federal loans, your loan servicer can report your account as delinquent to the credit bureaus after 90 days of nonpayment, which can harm your credit.
Once your federal or private loans default, the entire loan balance is due immediately. With federal loans, you can pay the loan amount in full, rehabilitate or consolidate your loans. If you don't address the problem immediately, the government can garnish your wages or withhold your tax refunds.
By contrast, private loans can be in default after just one missed payment. Private student loan lenders can also garnish your wages, but they first must sue you and win a court judgment.
3 Steps to Stop Student Loan Garnishment
If you're behind on your payments but not yet in default, contact your loan servicer right away to explore your repayment options. Act quickly, as you have no more than 30 days from the date the notice of intent to garnish is sent to you to negotiate repayment terms and submit your required documentation and first payment to the U.S. Department of Education (ED).
Once your loans default, your options for getting out of default and stopping student loan garnishment are limited. In the meantime, here are three options to stop wage garnishment.
1. Rehabilitate Your Student Loans
One option is to enter into a voluntary student loan rehabilitation agreement with your federal student loan servicer. Under the agreement, you may be able to return your loans to good standing by making nine consecutive on-time monthly payments, each amounting to 15% of your monthly discretionary income. You must make sure to submit your first payment and any requested information to ED within 30 days from the date of the garnishment notice.
If your loans are through a private lender, you may not have many rehabilitation options. Still, it's wise to contact your lender or the assigned collection agency to negotiate a repayment plan or a lower debt payoff amount.
2. Consolidate Your Student Loans
Another way to move your federal loans out of default is to combine them into a direct loan consolidation, which comes with two options:
- Make three on-time monthly payments on the loan before consolidating. Your loan servicer will then calculate a reasonable payment amount.
- Forego the three payments and instead enroll in an income-driven repayment (IDR) plan to make the direct loan consolidation payments. Under an IDR plan, your servicer limits your monthly percentage paid to a specific percentage of your income.
Remember, a rehabilitation plan can remove a default from your credit report, but a student loan consolidation does not.
3. Request a Hearing
You also have a right to dispute the wage garnishment if it would cause you "extreme financial hardship." You can also file a dispute if you've been employed for less than a year after an involuntary unemployment period.
Once you receive a wage garnishment notification, you have 30 days to submit a written request for a hearing on the matter. You should receive a decision on the garnishment within 60 days of your request. With a favorable ruling, you may receive a lower withholding percentage or avoid garnishment altogether. Conversely, you'll have to face the 15% wage garnishment if a hearing decision rejects your dispute.
4. Pay Off Your Entire Student Loan Balance
Paying off your student loans in full all at once can be difficult, depending on your outstanding loan balance, but it's a good option for a positive financial future. Dipping into emergency savings, if available, might be one option, or you may be able to get assistance from a trusted friend or relative.
Asking for money from a loved one can be awkward, Still, it's better than defaulting on a student loan and risking garnishment of your wages. If you choose this route, agree on repayment terms, including interest, ahead of time to help avoid conflict later on.
How to Avoid Student Loan Garnishment
The average monthly student loan payment is $393 among borrowers currently making payments on their education loans, according to the Federal Reserve. Making student loan payments for this or any amount can be challenging, but missing payments on your student loan can lead to loan default and eventually garnishment.
If you're struggling to make your monthly student loan payment on time, exploring your options may make sense before the problem worsens. Here are some ways to get ahead of payment problems:
- Automate your payments. Keeping track of multiple payments and due dates can be challenging. Simplify your finances and reduce the likelihood of missing payments by setting up automatic payments or reminders.
- Request an income-driven repayment plan. An IDR plan provides a way to extend your repayment term and limits your monthly payment amount to a percentage of your income. You'll probably pay more interest with an IDR plan, but it's better than defaulting on your student loan.
If you have private student loans, ask your lender if they allow income-based repayment plans. While these plans are not universally available, some private lenders offer this option.
- Consolidate your student loans. If you have more than one student loan, you may be able to consolidate it into a loan with a lower interest rate and monthly payment. The interest rate on your new consolidation loan will be the average of the interest rates on the combined loans.
- Apply for a deferment or forbearance. If you're facing temporary financial hardship, you may be eligible for a deferment or forbearance. While both processes allow you to postpone payments, you may still accrue interest if your loans are in forbearance, but you won't receive interest charges in deferment.
The Bottom Line
Rehabilitating or consolidating your student loans are effective ways to stop wage garnishment and work towards getting your loans out of default. Once your loans are back on firm footing, practice good financial habits—like making consistent on-time payments—to keep your student loans and credit in good shape.
Remember, your payment history accounts for a whopping 35% of your FICO® Score☉ , which is the credit score used by 90% of top lenders. Building a solid history of on-time payments can reduce the impact of previous late or missing payments on your credit score.
Restoring your student loans is a significant achievement. Keep the momentum going with wise financial behavior throughout your student loan term and into the future.