Note: As of March 13, the Department of Education has suspended garnishments and collection activity related to student loans for the duration of the State of Emergency – a period of at least 60 days. See our full guide to Coronavirus student loan help.
Federal Student Loans In general, the Department of Education or the guaranty agency that holds your loans will not begin wage garnishment until all other options have failed. They, or a collection agency contracted to collect on your loan, will try to contact you repeatedly before garnishment occurs.If you take no action on your loan, garnishment will occur. You should receive a letter that garnishment is about to begin, but the government requires no court approval to proceed. However, if your contact information is not correct, you may never receive notice, so it’s important to verify they have the right address on file.Other than notification, you have several rights in regard to garnishment, including to a hearingorgarnishment that may prevent or delay it.Garnishment of wages for federal student loans is possible in all 50 states. If you’ve gone into default and you do not establish a new payment plan, or you don’t rehabilitate, consolidate, or settle your loan, garnishment might occur.However, if you request a hearing within 30 days of being notified, the government is not allowed to proceed with taking money out of your paycheck. If you request a hearing after garnishment begins, it might continue but there is a chance of stopping it. At a hearing, you must present your case against garnishment. There are certain conditions that make garnishment illegal. Consider the following:
Using the same scenario as above, 25% of $500 (or .25 x 500) is $125.Again, $500 minus ($7.25 x 30) is $282.50.The lesser of these two numbers is $125, so if wage garnishment goes into effect, they can garnish a maximum of $125 a week.If garnishment has already begun, and the amount being taken from your paycheck is outside the legal limits or your state forbids any garnishment, there are ways you can try to fix the situation. If possible, you could contact a lawyer to advise you.If the lender or agency does not stand down after you contact them to stop, you might go further and file a complaint in court against them. Less arduous than a formal legal complaint is the option to report improper garnishment to the Consumer Financial Protection Bureau, which requires responses from the companies in question. You can also file complaints with Better Business Bureau or similar organizations. Your method of resisting improper garnishment will be unique to your resources and situation.All this being said, your best bet to stop garnishment before it begins is to get out of default on your loans.You have way more options if you’re a borrower of federal loans. This is because default happens after many missed payments and there are several options to get out of default, like rehabilitation, consolidation, or repayment.Private loans are more difficult because you can default after only one missed payment. While it’s unlikely garnishment would be pursued after only one missed payment, this does limit the time frame you have to get yourself out of default. However, negotiating with your lender or collector about a new repayment plan, or a settlement, is an option if you are in default.While getting out of default is the best option, if you can’t, you have protections and rights available to you if you face wage garnishment. You might even put the brakes on your wage garnishment before it even happens.If you’re in default on your federal student loans — or are trying to stop it before it happens — you may want to get professional help. If you’re not quite sure where to start or what to do, consider hiring a CFA to help you with your student loans. We recommend The Student Loan Planner to help you put together a solid financial plan for your student loan debt. Check out here.For some, your monthly loan obligation could be as low as zero and you would still be in good standing with your loan.