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In a NutshellIf you default on your student loans, you risk having your wages, taxes, and Social Security benefits garnished. Your credit score will also suffer. To avoid a student loan wage garnishment, or to reduce the amount that will be garnished, you need to take action. You can do this even after you’ve defaulted on your student loan. In this article, we’ll help you learn how to manage student loan wage garnishments, so you can avoid adding to your financial troubles.
Written by the Upsolve Team. Legally reviewed by Attorney Andrea Wimmer
Updated August 16, 2023
A student loan wage garnishment adds to financial hardships. Are you behind on your student loan payments? Chances are you’re already having a difficult time managing your finances. It may be tempting to ignore your student loan debt. But if you ignore it, you’ll default and the problem will get worse.
If you default on your student loans, you risk having your wages, taxes, and Social Security benefits garnished. Your credit score will also suffer. To avoid a student loan wage garnishment, or to reduce the amount that will be garnished, you need to take action. You can do this even after you’ve defaulted on your student loan. In this article, we’ll help you learn how to manage student loan wage garnishments, so you can avoid adding to your financial troubles.
Student loan garnishment starts after you default on your student loan. The timeline is different for federal student loans versus private loans. For federal student loans, you can miss nine months of payments before your student loan goes into default. Once you hit 270 days (about nine months) of missed payments, your loan will drastically change and enter default mode. For private student loans, you could be in default status after only a couple of months. The timing of your default status for private student loans will depend on the terms of your loan.
If you’ve defaulted on your federal loan, it may be sent to a collection agency. If this happens, you could end up paying collection costs of nearly 18%. This interest is in addition to the principal balance and interest that you already owe. The U.S. Department of Education is entitled to go through an administrative wage garnishment procedure. This allows them to take up to 15% of your wages from your paycheck. Unlike some other forms of debt collection, federal student loan debt does not have to go through the courts for collection. But private student loan servicers must follow the traditional court process.
Once the administrative wage garnishment process has started, you’ll get a notice of intent to garnish your wages. If you respond, a hearing will be held. After a decision is made, an order of garnishment will be sent to your employer.
If you default on federal student loan debt, the government also has the ability to garnish your taxes. If this happens, any Earned Income Tax Credit you may have otherwise received from your refund can be garnished.
If the U.S. Department of Education sends you a notice of intent to garnish your wages, you may be able to stop the garnishment. You can stop it by proving that it would cause financial hardship. To do so, you must pay attention to your garnishment notice. Before a collection agency or the U.S. Department of Education starts the garnishment process, it must send you a notice of intent to garnish. The notice must be sent at least 30 days before the garnishment begins.
At this time, you have a right to request a hearing with the Department of Education to object to the garnishment amount. The typical amount is 15% of your wages after deductions are taken out. You can contest this on the grounds that a 15% garnishment will cause you financial hardship. But you’ll need to support your hardship claim with financial records. At a minimum, you’ll want proof of your family size, current income, housing and utility expenses, childcare expenses, medical expenses, and other necessary expenses. Be sure to include court-ordered payments like child support or alimony.
An easy way to get organized is by making a list with two columns: one for your income and one for your expenses. This will help you and the hearing officer. The easier it is for the hearing officer to understand your financial situation, the easier it will be for you. Put the total at the bottom of each column. Make sure you have a copy of your pay stubs, housing receipts and agreements, and utility bills. If you have any legal documents, such as a power of attorney or court order, make sure to bring them with you to the hearing.
Your wages won’t be garnished until after the hearing. At the hearing, you’ll be able to explain your financial circumstances and why a 15% garnishment would cause a hardship. The hearing officer will consider certain formulas and laws, such as the Consumer Credit Protection Act (CCPA), before making their decision. If you make minimum wage and have a large family, it’s possible your wages won’t be garnished. After the hearing decision is made, a garnishment order is sent to your employer.
Even if you don’t have a hardship, you can challenge the wage garnishment if the amount of debt is wrong or if you're not the borrower of the student loan.