Can Student Loans Garnish Your Wages ? [Explained]

When you default on your student loans you can get your wages garnished. Learn more about wage garnishment, how to avoid wage garnishment, how to stop it and much more.

Updated by Jason Joy Manoj on 24th August 2020

The government or lender can garnish your wages after some time since you haven’t made payments towards your loans. This period can vary depending on the type of loans, whether its federal student loan and private loan. And the kind of payment you are choosing, if it’s a monthly payment, then after 270 days the loan will go into default. If the payment is made in less than months (bimonthly), then after 330 days, the loan will default.

The government or lenders can do student loan wage garnishment on your bank account to recover student loan debt, and they can do it in different ways depending on whether your student loans are federal or private. The loan provider can garnish up to 15 percent of your disposable pay.

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What is wage garnishment?

Once you graduate, your student loans don’t disappear; once you stop making payments on your federal loans, the Government doesn’t forget. As soon as you miss a repayment, you are reported as delinquent. After missing payments, even after 270 days, your loans will have defaulted. The defaulted loans will show up on your credit report, and this will harm your credit report.

Once defaulted the loans, the entire balance of the loan plus any interest is due immediately. Even with a high loan balance, you’ll owe that amount right away. On top of this, you will have loans sent to a collection agency. There will be a collection charge applied depending on the type of loan you have. There are times when you can have a collection charge, which is close to 40%.

If you haven’t taken any action to get your loans out of default, then the federal government can contact your employer for student loan wage garnishment. They can legally take out 15% of your income from your paycheck, which will be used to pay back your loans.

How to stop student loan wage garnishment?

The ideal time to take action is when you begin missing student loan payments. At that point, your loan servicer can help you explore other repayment options, including income-based plans that cap your monthly payment, and deferment or forbearance, which pause repayment altogether.

1) Pay your debt in full

Paying off your debt is the fastest and best way to get out of default, leaving no room for student loan wage garnishment. Once you default your credit is wrecked, this can harm your credibility as a potential borrower. Digging deep into your savings if you can, or reach out to a relative or loved one to assist you with covering the debt. It is advised to keep an emergency fund with you.

2) Rehabilitate your student loans

A way to avoid wage garnishment is to rehabilitate your student loans. This a great way to avoid student loan default, by rehabilitating your student loans you sign an agreement where you promise to make nine monthly payments during a 10 month period. It should be noted that the months have to be consecutive. Your servicer will set the payments to be made at 15% of your annual discretionary income divided by 12.

3) Consolidate your student loans

Federal student loans come with a number of benefits, it is advised to exhaust yourself with your federal student loan options. Once you do, you might end up with one or two federal loans to help cover your tuition costs. If you have several federal student loans, then you have the option to combine or consolidate them into a single loan.  Upon consolidating your loans you have the option to extend your repayment term, which in term can reduce the monthly payments to be made. But you will end up paying more interest during the entire life of the loan.

4) Make use of deferment and forbearance options available

It is important to make consistent and on-time payments, but if you can’t afford to make these payments, then it is advised to postpone these payments to be made.

You might face difficulty in making these payments due to several reasons like a medical emergency or economic hardship, then making a payment towards your student loans will be your last priority.

Instead of missing your payments and defaulting on your loans, contact your lender and postpone the payments to be made. This postponement of payments to be made is done by utilizing the deferment and forbearance options available. Upon doing this, you can avoid falling into default; you can use this period to get your finances in order.

5) Make consistent and timely payments

With the rise in college tuition, you will need several loans to try and cover up the costs incurred. When it comes to repayment, keeping track of the due dates can be confusing. 

It is advised to set up automatic payments or reminders to help you keep track of your debts. There are even automatic payment discounts offered which a borrower can use to help lower the interest rates. 

6) Sign up for an income-driven repayment plan

If you cannot make your payments, then make use of income-driven repayment (IDR) plan, under these plans, you can get your repayment plan extended, and the amount to be made will be capped as a percentage of your discretionary income. These plans not only reduce the monthly payment to be made but also helps in making your debt more manageable. Student loan repayment is a crucial phase for a borrower. Student loan repayment is an important phase for a borrower it is advised to be well aware of all the student loan repayment options available.

Notification Letter

If the Department of Education has decided to take the extreme step of student loan wage garnishment, then before the garnishment begins, you will receive a letter. This letter will notify the intent to garnish your wages. You should send this notification letter at least 30 days in advance with the critical details. 

Given the situation that you do receive this letter, then you should act immediately to prevent the student loan wage garnishment. 

Consequences of Student Loans Garnishment

After you have defaulted, the government can collect the money you owe in from the three following ways:

  1. Wage garnishment - The government can take 15 percent of every paycheck until your payments are brought to current.

  2. Tax refund intercept (AKA treasury offset ) - The government can withhold your entire federal income tax refund up to the amount you owe.

  3. Federal salary offset - Employees of any federal agency can have 15 percent of their disposable income diverted to paying off your defaulted loans.

Student loan wage garnishment can be well avoided; a creditor will consider wage garnishment as a last resort. Once you start missing your payments, you will be informed by the creditor, which will be followed by warnings before your loan defaults.

You need to be responsible and make payments towards your debt, once you miss these payments you can expect your servicer to start taking aggressive action to get their money back.