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.
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:
If your loan continues to be delinquent after 270 days, it will go into default.
Defaulting on your loans has serious consequences, including:
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.
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:
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.
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.
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:
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