How to Stop Student Loans Wage Garnishment
Wage garnishment is the final measure a lender takes to ensure that they are paid. It is a harsh way to collect debts and can have a significant impact on the borrower’s lifestyle.
Besides, the lender (Government) doesn’t need a court order for wage garnishment in a federal student loan. However, in terms of private student loans, lenders have to first win in court.
What is Wage Garnishment?
Simply put, wage garnishment is the final measure that any lender can take to assure repayment.
They basically go for your paycheck to collect the debt.
The rules are different for private and federal student loans. For instance, the US Department of Education has the authority to garnish a debtor’s wage without approval from the court.
By comparison, private lenders have to sue the debtor first, then win the court’s judgment.
Wage garnishment for all federal student loans is 15% of your total disposable income.
On the other hand, these rates go as high as 25% for private student loans.
In this context, disposable income means the amount you receive in-hand after the deduction of taxes. You are entitled to keep 30 times the minimum wage.
| For instance, Sam has a disposable income of $300/week (estimated minimum wage - $7.50/hr). This means, no matter what, Sam gets to keep $225 every week |
How to Stop Student Loan Wage Garnishment?
As mentioned, wage garnishment is likely the final measure any lender would take. You will receive a lot of messages and emails notifying you about the pending dues. Compared to federal loans, private student loans offer less protection for debtors.
You have more options to stop wage garnishment if you have a federal student loan. This is mainly because the government gives you 270 days to pay before marking a loan in default.
In private loans, it is hardly 3 months. That doesn’t mean that private lenders will sue you immediately. They will try sending demand letters and collection agents to recover the debt.
The best way to steer clear of wage garnishment is by making timely payments. It can be difficult at times, but a temporary hardship is better than attempting to fight a lawsuit and losing.
There are various ways to stop this. You can try and stop student loan wage garnishment for free, or by hiring a lawyer. Here are some of the most common methods used to handle these situations:
Consolidate the Loan
Consolidating your student loan is a good way to stop wage garnishment. If timed correctly, it can even help you to prevent this process in the first place. Consolidation means getting a new loan to clear off all existing debts. It can increase the repayment term and lower your monthly installments, but it will increase the total interest over the term of the new loan.
Nonetheless, consolidating your loans is way better than a wage garnishment. The Department of Education requires borrowers to use this option alongside an income-driven repayment option. Some of the private lenders offer attractive terms on consolidation.
Apply for a Loan Rehabilitation
When you miss payments for 270 days at a stretch, your account gets marked as default. This means you will no longer be eligible to apply for deferment or forbearance. In this case, you can apply for loan rehabilitation.
Unlike consolidation, you keep the same loan. If approved, you need to make at least nine out of ten monthly payments to get the status rolled back from default.
However, you are eligible to request a stop on wage garnishment after making five successful payments.
This is a great option but can be difficult if you have a limited income as you will need to afford two payments (the garnishment amount and rehabilitation installment).
Choose a Repayment Plan
If you are struggling with a temporary financial crunch, and have a federal student loan, you can apply for a repayment plan. An IDR plan (Income-Driven Repayment Plan) is a federal government policy where borrowers can request an extension on the repayment term.
If approved, the lender will fix a monthly payment based on a percentage of your disposable income. You will pay more interest over the new term, but a repayment plan will help you get back on track.
Getting Out of Default
Defaulting on a student loan can land you in serious predicaments, both financially and legally. If you are facing a financial crunch and trailing on your monthly payments, make sure to contact the lender.
Hiding away will only lead to consequences.
Speak clearly and discuss the available options.
Negotiate the best way to stop wage garnishment on your hard-earned salary.
There are a lot of options like forbearance, deferment, and more. Above all, stay informed on the rights and protections that are available to borrowers.
Filing Bankruptcy
Filing bankruptcy doesn’t mean that your student loan will be wiped off. The only time it happens is when a borrower can prove that repaying the loan will cause undue hardships on himself/herself and the people depending on them. The chances of getting approved for bankruptcy are meager because of the strict parameters.
Yet, when you file for bankruptcy, the lenders can’t send you notices, sue you, levy restrictions on your accounts, or garnish your wages till the time the case is pending. You will need to consult a professional and submit a lot of documents to get started.
Fighting the Lawsuit
Irrespective of a federal or private loan, you have the right to take up your petition in the court. You can fight the lawsuit if you request a hearing within 30 days of the initial notice or after the wage garnishment has already begun.
When the date arrives, you (or your lawyer) needs to present your arguments against the garnishment. With the help of a lawyer, you may claim that the creditor increased/miscalculated the amount due, added extra collection fees, charged fees not permitted by law, or tried to collect more than you negotiated.
Try explaining your side of the story with substantial arguments, and you might win the lawsuit.
The Bottom Line
Wage garnishment isn’t something that happens all of a sudden. Irrespective of the financial problems that a borrower might have faced, 270 days is an extensive period to get back on track. In any case, if you still failed to make payments and have received a wage garnishment notice, do not panic as it can be handled.
If you think your financial health is derailing, we recommend that you consult a credit counselor to better understand the different available options.
