When you graduate from college or while you are still in college, you are faced with the dilemma of paying for your education. Sometimes the cost of education can prevent you from continuing your education and you are left with the stress of paying off any student loan debt that you have accumulated while in school.
This debt can turn into collection attempts which can eventually lead to the garnishing of your wages. There are ways that you can prevent and stop student loan wage garnishments.
This article will discuss 4 ways that you can prevent and stop employers from garnishing your wages, and what can be done before it gets to that stage.
Understanding the collection process
If you have federal student loans and you have been in the situation where you have defaulted on these loans, it can be hard to pull yourself out, but it is possible. First, your loan servicer will make numerous attempts to collect on your student loan debt. You will receive letters informing you that your account is past due, once it becomes extremely past due you will receive notice that you are at risk of defaulting on your student loans.
The length of time it takes from your missed payment to a default to be entered is about 9 months. So you have nine months to rectify the situation. These letters should be taken seriously because once you default on your student loans the following can happen:
- The IRS will be notified that you have defaulted on your student loans, which means if you file taxes and are due a refund, your entire refund can be intercepted and applied to your student loans.
- Your state refund, if applicable is subject to offset
- Wrongful reporting of loans to credit bureaus
- Your credit rating will take a beating because the credit bureaus will receive notification that you are falling behind on your student loans.
- Your wages can be garnished. This means your employer is required to withhold 15% of your disposable income or 30 times minimum wage, whichever is less. Keep in mind if your wages are being garnished any tax refunds due to you can be intercepted.
Stop student loan garnishment
The best way to stop student loan garnishments is to address it before it happens. Unfortunately, by law when your employer receives a wage garnishment on student loans for your wages, they are required to oblige. You will also receive a letter notifying you that your wages will be garnished if they haven’t already been garnished before the letter.
If you need to seek the assistance of a professional, we have a network of debt specialists that can help you through any of these processes……
There are four ways that you can stop student loan wage garnishments, get out of default, and move into repayment status.
1. You can consolidate your student loans
This is where you get a new loan to pay off your existing debt. If you need help consolidating your loans, speak with your lender, or you can contact our office to connect with a network of debt specialists to assist you.
To consolidate a defaulted federal student loan, you will be required to repay a new Direct Consolidation Loan under an income-driven repayment plan. Also, you will need to make 3 consecutive on-time full payments on the defaulted loan before you can consolidate the loan.
It is important to note that you cannot consolidate a defaulted loan that is under a wage garnishment or court order unless the garnishment or order is lifted or vacated.
You have 30 days from the time the garnishment notice was sent to request a hearing.
2. Request a hearing with the Department of Education
As mentioned above, you have 30 days from the date the notice was sent to request a hearing. Keep in mind that the request for a hearing does not delay the garnishment from moving forward. You will also need to provide documentation regarding any type of objection that you are making regarding the wage garnishment(i.e, financial hardship).
Hearing requests may be handled in 1 of 3 ways:
- Over the phone
- Using documentation that has been submitted related to your case
In most cases, the loan provider will make arrangements for the hearing. The decision regarding the garnishment of your wages is made within 60 days of the request for the hearing is made. In-person hearings are held in one of the three regional offices, Atlanta, Chicago, and San Francisco. All expenses that you incur related to attending an in-person hearing, including the hiring of legal representation are your responsibility. If you need help with this process, we have a network of debt specialists that can guide you in the right direction or you can contact the holder of your loan.
The outcome of the court hearing can halt your garnishment for a period of 12 months, reduce your garnishment, or require that your wages be garnished at the 15 percent rate according to the law.
3. Loan rehabilitation
If you choose the loan rehabilitation option, be aware that this option will take longer than consolidating your loans. The first thing that you will need to do is to contact your loan provider, expressing your interest in loan rehabilitation.
You will need to make a written agreement to complete 9 on-time monthly payments in 10 months. Once you have made the 9 on-time payments, you will be able to enter into a rehabilitation agreement. This agreement will require monthly payments that will be equal to 15% of your monthly discretionary income(this is calculated by the difference between your annual income and 150% of the poverty guideline, based on your family size and state of residence). If you are unable to keep up with the monthly payments, contact your loan provider immediately to work out a payment adjustment.
If you decide to go this route, it will take 9 months to get out of default and stop any offsets, however, the default will be removed from your credit report. You will be required to document your income and monthly expenses with your loan provider.
4. You can pay off the debt
Of course, you always have the option to just pay off your debt. However, this may not be realistic if you are struggling to make the monthly payments and your wages are being garnished. The option is mentioned, because some people may receive a settlement, inheritance, or begin making more money.
Handling private student loans
The above information is designed for those individuals that have federally-funded student loans. If you have private student loans the procedures are different. Unlike federal student loans where the garnishment is legal in all 50 states, some states make it illegal to garnish wages for a private student loan.
First of all, to be able to garnish your wages, a private lender will need to take you to court. If you fail to show up for the court hearing the judge will rule in favor of the private student loan collector. The garnishment will move forward with your wages being garnished at 15% of your disposable income.
If you show up to court, you have a leg up on the hearing going in your favor. However, that doesn’t mean the garnishment will be lifted. You still need to make your case, provide proof, and if you can afford to, hire legal representation. If you need help through the process, contact our office to speak with a debt specialist to see what your options are.
Prevent student loan garnishment
As previously mentioned, prevention is the best way to stop a loan garnishment. When you receive notification that your wages will be garnished due to defaulting on student loans, you should do the following:
- Verify the legitimacy of the debt and the amount of the debt
- Contact your lender to discuss your options
- Consider all your options before making your decision
Income-driven repayment options
Income-driven repayment options are the most common ways to handle student loans and to prevent wage garnishments. Here are the options that you can consider:
- PAYE (Pay as you earn repayment plan)
- IBR (Income-Based repayment plan)
- ICR (Income-Contingent repayment plan)
These repayment options are adjusted according to your income. In some instances, your payments can be as little as $0 per month. You would just need to speak with your loan provider to determine the best option for you.
In The End
When it comes to your student loans, you should take the matter seriously and not ignore any notices or letters that you receive. Doing so will automatically put you in a situation where a wage garnishment against you is a possibility. Not only are you jeopardizing your credit and income, if you have a cosigner on your loan, or your parents took the loan out for you, their wages can be garnished and their credit can be tarnished.
Federal student loan providers do not need a judgment to place a wage garnishment on student loans. Private student loan lenders need to go through the legal process and have a judgment entered to garnish your wages.
If you feel that you are going to default, or you received a letter that you are in danger of defaulting on your loans, contact our office to speak with a debt specialist about your options, before it’s too late to stop the student loan wage garnishment.