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3 Ways to Challenge a Student Loan Wage Garnishment

3 Ways to Challenge a Student Loan Wage Garnishment

It can be financially devastating to have your paychecks garnished when you are already struggling to make ends meet. This can happen, though, if you stop making payments on your student loans.

The federal government can garnish 15 percent of your wages administratively – meaning they do not have to successfully take you to court like private lenders must to collect your pay. Even parents who took out loans for their children or cosigners are at risk of having wages garnished if the loan goes into default.

What is Default?

Your student loan becomes delinquent the first day after you miss a payment. Your account will remain delinquent until you repay the past due amount or make other arrangements, like deferment or forbearance or changing your repayment plan.

Once you are more than 30 days delinquent, your loan provider will report it to the three major national credit bureaus – lowering your credit score and hurting your ability to obtain credit and good interest rates. A poor credit score can make it difficult for you to:

  • Apply and obtain car or home loans, 
  • Get approval to rent an apartment, 
  • Sign up for cell phone or utility service.

If your loan continues to be delinquent after 270 days, it will go into default.

Consequences of Default

Defaulting on your loans has serious consequences, including:

  • Potential legal action, 
  • Loss of eligibility for deferment, forbearance or additional federal student aid, 
  • Tax refunds may be withheld and applied toward repayment, 
  • Wage garnishment. 

You will receive e-mails or letters at least 30 days before the lenders step in and take your paycheck. It is best to stay in communication with loan providers – even if you cannot send money – so you will know what to expect.

If you would like to prevent or stop garnishment, there are a few ways of doing so.

Consolidate into a New Loan

Consolidation is the strategy of combining multiple loans into a single loan. This allows you to make one monthly payment until the debt is gone. This does not reduce the amount you owe, unless that was agreed to during negotiations with your lender – it just reorganizes it.

Like refinancing, consolidating your student loans may allow you to get a lower monthly payment. Your new loan will also be in good standing, unlike your defaulted loans. To consolidate a federal loan(s) in default, the Department of Education requires you to use an income-driven repayment option, such as:

  • Income-Based Repayment Plan (IBR) – Monthly payments are 10 to 15 percent of your discretionary income.
  • Income-Contingent Repayment Plan (ICR) – Monthly payments are either 20 percent of your discretionary income or the amount you would pay on a fixed payment plan over 12 years, as dictated by your income.
  • Pay As You Earn Repayment Plan (PAYE) – Monthly payments are 10 percent of your discretionary income but never more than you would have paid under the 10-year Standard Repayment Plan.
  • Revised Pay As You Earn Repayment Plan (REPAYE) – Monthly payments are 10 percent of your discretionary income.

Consolidating your loans can make payments easier to manage. With each on-time payment, you will gradually rebuild your credit score.

Before you decide to consolidate, consider your options. If you have federal loans, you may not want to switch to private loans because federal loans have certain benefits that you will lose if you leave the federal system. However, some private lenders may offer lower interest rates and other perks that may make it worthwhile to choose a private loan.

Loan Rehabilitation

With loan rehabilitation, you will keep your existing loans, but they will no longer be in default once you begin making regular payments. In general, you must make 10 consecutive monthly payments to remove the default status.  Depending on your income, the rehabilitation payment may be relatively low.

If your wages are being garnished when you enter a loan rehabilitation, the garnishment will stop after the 10th payment. This option can be difficult if money is tight because you will be making two payments – the garnishment and the payment required under your rehabilitation program.  Again, the rehabilitation payment may be low.

Talk with your loan provider to start rehabilitation and ask about your options once you complete the program.

Win a Hearing

You can request a hearing with the Department of Education to postpone the start date of your garnishment if you do so within 30 days after the Notice of Intent to Garnish is issued. A judge may decide to stop wage garnishment based on several factors, including:

  • Bankruptcy – You recently filed for bankruptcy. All collection activity must stop while a bankruptcy case is pending.
  • Employment – You have been in your current job for less than 12 months and you were fired or laid off from your previous job.
  • Hardship – The proposed garnishment would create a financial hardship for you or your dependents. You must provide documentation to prove this.
  • ID theft – Someone else used your name and Social Security Number fraudulently to take out a loan in your name.
  • No default – You repaid the loan, you are current on the loan or you are already in a repayment program and are current on those payments. You may also qualify for loan forgiveness, cancellation or discharge.

Student Loan Counseling

Having your wages garnished can be frustrating but being informed about your options can significantly improve your peace of mind. Knowing that it’s possible to get back on track with loan payments and having a plan can go a long way toward improving your financial outlook.

You don’t have to navigate this tricky situation on your own. The certified student loan counselors at American Financial Solutions will work with you and your loan servicer to ensure the best outcome for your goals. Call (888) 864-8548 to speak with a counselor or contact us online to start conquering your student loans.

Published Aug 10, 2018.