Wage Garnishment on Student Loans
How to Prevent & Stop Employers from Taking your Pay
Student loans can fund your education, but things don’t always work out when it’s time to repay those loans. So what happens if you stop making payments – do lenders give you extra time to pay, or do they garnish your wages to collect on student loans?
The federal government (and private lenders) can and will garnish wages. For federal student loans like Stafford and PLUS loans, there’s no need a legal judgment against you – garnishment is allowed “administratively,” (but private lenders need to successfully take you to court). It’s not just students who are at risk: parents who have taken out loans for their children – and anybody who has cosigned a student loan for somebody – might also see wages garnished.
Unfortunately, most loan servicers (the company that you send payments to) do not give you enough information on how to stop wage garnishment due to student loans. They might not know what all of your options are, and they generally have no incentive to spend time helping you figure everything out.
Beyond taking your earnings, the Department of Education has additional ways to collect on student debt, including withholding tax refunds, reducing benefits such as Social Security, and taking assets from your bank accounts.
How to Stop Garnishment for Student Loans
Lenders generally only garnish wages after they’ve tried to collect using other approaches. You’ll get plenty of mail (electronic and old-fashioned) informing you that you need to make payments. It’s always best to stay in communication with lenders, even if you can’t send money. At least you’ll know what to expect and what your options are.
This page primarily covers federal student loans. If you’ve got private loans, your options may be different.
We’ll cover the specifics below, but for a quick overview, there are at least four ways to prevent or stop garnishment:
- Win a hearing
- Consolidate your student loans into a new loan
- Loan rehabilitation
- Pay off the debt (or at least get into a repayment agreement)
If you do nothing, the federal government can simply start taking 15% of your pay each pay period until the loan is paid off using Administrative Wage Garnishment (AWG).
Before garnishment actually starts, the Department of Education must notify you of the intent to garnish your wages. You’ll get a letter at least 30 days ahead of time which provides important details. If you get a notice of intent:
- Read the letter as soon as possible – you need to act quickly to prevent garnishment from starting
- Read the information carefully – it explains your rights
- Verify that the debt is legitimate and that the amount is correct
- Contact your lender to discuss any alternatives available to you
- Evaluate your options (including consolidation into a new loan, but be careful about moving from federal student loans to a private lender)
- Get help if you need it – contact a local credit counselor or attorney
Your letter will explain exactly when garnishment starts, any deadlines for making appeals, and how you can find out more about your debt. If you don’t respond before the deadline (generally 30 days), garnishment will proceed. However, you can always appeal later, after garnishment has begun – if you win your hearing then garnishment will stop.
Plead your Case
To prevent your wages from being garnished, request a hearing with the Department of Education. This gives you a chance to explain your side of things and postpones the start date of your garnishment. There are several ways to get out of garnishment (the list below contains some of your options, and there may be others).
Hardship: the proposed garnishment would create an “extreme financial hardship” for you or your dependents. You’ll need to provide documentation, with details about your finances, in order to prove that you’re facing a hardship.
Employment: you’ve been in your current job for less than 12 months, and you were involuntarily terminated from your previous job (fired or laid off, for example).
Bankruptcy: you recently filed for bankruptcy, or the loan was addressed by bankruptcy already.
No default: you repaid the loan, you’re current on the loan, or you’re already in a repayment program with your loan servicer (and you’re current on those payments). Your loan might also be eligible for forgiveness if you’ve worked in public service for over 10 years. In some cases, you’ve been confused with somebody else due to an error.
ID theft: you did not take out the loan – somebody else used your name and Social Security Number fraudulently.
If you can’t win a hearing, consolidating your student debt is another way to stop wage garnishment (or prevent it from happening in the first place). Consolidation happens when you get one big loan to pay off multiple smaller loans. Then, you just make one monthly payment until the debt is gone. Of course, you don’t actually reduce the amount of debt – you just shift it around.
How does consolidation help? You might be able to get a lower (more affordable) monthly payment – surprisingly low in some cases. What’s more, you’ll have a brand new loan in good standing instead of your old defaulted loans. In order to consolidate a loan that is already in default, the Department of Education requires that you use a consolidation loan with an income-driven repayment option (or get agreement from your current lender), such as:
- Pay As You Earn Repayment Plan (PAYE)
- Income-Based Repayment Plan (IBR)
- Income-Contingent Repayment Plan (ICR)
Getting a loan with an affordable payment helps you get out of garnishment, and it also puts you on the road to better credit scores. Your credit improves with each successful payment, so you’ll gradually rebuild your credit. Just be sure to make all of your payments on time, and communicate with your lender if you have trouble making payments. They might be able to adjust your payments, or you might qualify for deferment or forbearance.
If you decide to consolidate, be careful about switching out of federal student loans and into private loans. Federal loans have certain benefits that will be gone for good if you get out of the federal system – and it’s rarely a good idea to give up those benefits. However, some private lenders offer attractive terms, so you’ll have to evaluate the risks and benefits of both types of loans.
With loan rehabilitation, you’ll keep your existing loans – but you’ll get them out of default after getting back on track with payments. Your loan goes into default after you go 270 days without making a payment, and you lose eligibility for certain benefits (like deferment, forbearance, and forgiveness) while in default.
Generally you have to make 10 successful monthly payments to remove the default status. However, you can stop having wages garnished after five successful payments (the loan will still be in default until you complete the rehabilitation program, but at least your employer will stop taking money out of your paycheck).
This option can be difficult when money is tight. You’ll essentially make two monthly payments on your student loan: the garnishment amount taken from your pay, and the payment required from you under the rehabilitation program – the garnishment is counted separately. On the bright side, it’s possible that your rehabilitation payment will be relatively small (as low as $5, depending on your income).
Talk with your loan servicer to start rehabilitation. As you do so, discuss what happens after rehabilitation – how much are your payments, and are any alternative payment plans available?
Pay off the Debt
A final option is to simply pay off the loan – or at least get into a repayment program that satisfies your lender, loan servicer, or collection agency. Of course, if you had that kind of money available, you wouldn’t be in default, but it’s always possible that your circumstances have changed or your lender is willing to work with you.
Things can be a little awkward at work (briefly), but it really shouldn't be a big deal.
If your employer gets an order from the Department of Education to garnish your wages and pay off your student loans, your employer simply needs to comply. However, your employer cannot fire you for having a single garnishment from your paycheck (if you owe on multiple debts or obligations, it’s possible that you could be terminated, but laws vary from state to state).
Garnishing your wages creates a bit of extra work for employers, but the work is not way outside the scope of their normal duties. Employers might be allowed to charge a small fee for each payment, but they cannot discriminate, and they cannot share information about your garnishment with other staff (this is a private matter, and employers face stiff consequences for breaking the law).
Given all of that, don’t expect your employer to be happy about garnishing your wages or to be especially helpful when you have questions. Don’t take it personally – there’s a good chance that your payroll contacts do not have the answers you’re looking for (because they simply don’t know), and your employer is anxious about saying the wrong thing and getting into legal trouble.