Student loan wage garnishment can cause a host of challenges if collectors seize your tax refund or garnish your wages, making it impossible for you to pay your bills. Luckily, you have options for stopping it and setting yourself up for higher levels of overall financial success — regardless of whether you had to default due to the economic impacts of the coronavirus or other financial challenges made it difficult for you to keep up with your payments. Here’s what you should know about student loan garnishment.
What is Student Loan Wage Garnishment?
Student loan wage garnishment occurs after lenders have made multiple efforts to get you to pay your debts, but you have remained in default — that is, not making minimum payments on your loans or an effort to make arrangements to pay off your debts. Here are some facts you should keep in mind:
- You can face garnishment on your federal or private student loans, which involves the collection agency using your income to collect directly on your debts rather than usual repayment strategies.
- Before a lender can garnish your wages, you, as the borrower, must default on your loans and fail to pay them for at least 180 days.
- You will receive plenty of communication from your lender before you face garnished wages, including, in most cases, numerous mail and electronic contacts.
- You, the debtor, will be sued and receive a notice of hearing.
- During your hearing, you will have a chance to present your side, including any evidence that you do not owe the debt.
- If you do not appear or you lose, the lender can then begin garnishing your wages.
Wage garnishment usually begins between five and 30 days after your hearing. Debt collectors can garnish as much as 25% of your disposable income — the net amount you receive after you pay taxes — from your paycheck. The process lasts until you have paid off your debt, including accrued interest. You can sometimes negotiate lower garnishment during your hearing.
5 Ways to Stop Garnishment (and Return to Good Standing)
Ideally, you want to prevent student loan wage garnishment before it begins. You may, for example, show financial hardship during your hearing, or negotiate a repayment plan with the U.S. Department of Education that it considers satisfactory and will still allow you to meet your other financial obligations. If you do need to put an end to student loan wage garnishment, try some of these strategies.
1. Go through loan rehabilitation.
You will keep your existing loans, but consolidate them to get caught up and make payments on time. During loan rehabilitation, you will take a look at your budget and the payments you can reasonably make on your debts, then work to meet those goals.
2. Take the right evidence to the hearing.
If you need to go to a hearing for defaulting on your student loans, you can still prevent wage garnishment by winning it. You may need to show that garnishing your wages will create extreme financial hardship or that you do not actually owe the debt the lender claims you own. You may also check on your current deferment status and any other information that could impact repayment. Talk to a tax attorney to learn more about how to win your hearing.
3. Repay the loan in full.
Repayment of your student loans is the easiest way to stop wage garnishment in its tracks. Student loan borrowers who pay off their loans no longer have to experience wage garnishment.
4. Try loan consolidation.
Prior to your hearing, consolidate your loans — including your student loan debt — into a single loan with one monthly payment. Making those payments on time can eliminate garnishment. Check interest rates and determine how much more you will end up paying if you opt for loan consolidation.
5. Change your payment agreement.
Talk to your lender before you go into student loan default. Discuss the financial hardship that have led to your inability to pay and make a new payment agreement. COVID-19 has caused a high degree of job loss that could lead to defaulted student loans, for example.
Changing your payment agreement will allow you to avoid default. You may also have the option to temporarily defer your student loans. While they will continue to collect interest, you may be able to avoid wage garnishment or costly monthly payments while you get back on your feet.
How to Avoid Student Loan Wage Garnishment
Are you worried about the possibility of student loan wage garnishment? If you have student loans, take these steps to ensure that you can avoid student loan default.
1. Set a budget and stick to it.
You know when your student loans will come due and what you will need to pay each month. Set a budget that includes your student loan payments as well as your other monthly expenses. Stick to that budget to avoid missing payments and, ultimately, a hit to your credit score.
2. Make your payments on time each month.
When you set up your monthly payments, you can arrange for them to come out at a time that is convenient for you. Make your payments on time every month to stay in good standing with your lender.
3. Discuss repayment terms if you have a change in your financial status.
Whether you’re dealing with a private collection agency or the federal government, get in touch with your lender as soon as possible if you know you’re unable to stick to your current payment plan. Your lender does not know your financial status. During the pandemic, many people have faced job loss or seen fewer hours and greater expenses.
Let your lender know what financial hardship you have faced and how much you can afford to repay. Often, you can create a new payment agreement that will include your current financial needs. You may even be able to opt for temporary deferment of your loans, though this could lead to higher interest rates over time.
Need Help With Wage Garnishment?
Dealing with wage garnishment can cause a great deal of frustration. Silver Tax Group can help. Contact us today to speak with an expert about any student loan wage garnishment questions you might have.