You’re doing the best you can with your money situation, but somehow, you’re still barely staying afloat. Besides staying on top of your bills, you might have a mountain of debt to pay off — student loans, credit cards, and car payments. And maybe, because you’ve been struggling for some time, you’ve defaulted on your student loans.
The scary thing is that when it comes to your federal student loans, the government has a lot of clout and special ways to get the money that’s owed to them — like garnishing a portion of your wages without a court order, taking some of your tax refund, and even claiming a percentage of your Social Security benefits.
Yes, it’s scary. If you’ve defaulted on your student loans and are at risk for having your wages garnished, know that your back isn’t up against a wall. There are options to stop it from happening. But first, a quick overview:
What Is Wage Garnishment?
Typically, wage garnishment for your student loans happens when you’ve missed your student loans for nine months, and they go to default. When this occurs, the government has the right to take a percentage of your wages to repay the loan.
“Some people think that a wage garnishment means a lender can take the borrower’s entire paycheck,” says Adam Minsky, a student loan lawyer based in Boston and New York. “In most cases, the lender can only take a portion of the borrower’s pay. The specifics depend on whether the student loan is federal or private, and may also depend on the governing state law.”
For instance, in California the government can take up to 25% of your wages, or half the difference between your take-home pay and the federal minimum wage, whichever is less. In the state of New York, wage garnishment is the lesser of the two: up to 10% of your gross pay, or 25% of your take-home pay.
Here’s what you can do to dispute garnishment:
Request a Hearing
You can request a hearing to state your case as to why you don’t think you need to repay the loan. As Minsky explains, federal student loan borrowers have a right to request a hearing on the garnishment, and they can also try to resolve the default through a rehabilitation plan — which we’ll get into in just a bit.
“For private student lenders, there might be defenses that one can raise in response to the garnishment,” says Minsky. “But it’s fact-specific: Most garnishment actions for private loans will take place via state courts.” To see if it makes sense for you to request a hearing, you’ll want to talk to a legal professional, such as an attorney who specializes in student loans.
Look Into Loan Rehabilitation
With a loan rehabilitation, you’ll need to make nine consecutive on-time payments within 10 months. After you make five payments in a row, the government stops garnishing your payments. The good news is that the payment amount doesn’t have to be the same amount as your monthly payment before you defaulted — you can request lower payments so they’re more affordable.
See If You’re Eligible to Cancel Your Federal Student Loans
Under special circumstances, you might be able to have your federal student loans canceled. For instance, if your school shut down within 120 days of you leaving, your federal loans could be canceled. Or maybe you stopped attending and are owed a refund. You might also be able to cancel your student loans if you didn’t have a GED or high school diploma when you attended the school, and the school didn’t do its due diligence to verify that you had graduated high school.
What’s more, some or all of your federal student loans might be discharged if your school violated a law, or misled you in some way. You might also have your student loans canceled if you become totally and permanently disabled.
To see if you’re eligible for having your federal loans discharged, you’ll need to submit the required paperwork directly to either the Department of Education, the debt collections agency, or the loan servicer. You can also try to make a go of it on your own and file a dispute. The Debt Collective has some useful information and tools to help you file a dispute.
Get Out of Default
To get your loans out of default, you can reach out to the Department of Education or whichever party oversees your debt collections. You can check the Department of Education’s National Student Loan Data System (NSLDS) to gather information about your loans. You might want to consider consolidating your loans, which means lumping all your federal loans into a single one. In turn, you only make one payment. However, if your wages are currently being garnished, you won’t be able to consolidate your debt.
You might also want to consider reaching a settlement to pay off your student debt. It might prove tricky to land on an amount that is a win-win for both parties. What’s more, you’ll most likely need a sizable chunk of money to offer as an initial payment.
Avoid Going Into Default in the First Place
Of course, avoiding defaulting on your student loans at all would be best. Look into your student loan repayment options to see which ones you qualify for, and which ones would be the best fit for your situation. You might also want to look into refinancing and see if you qualify for public service loan forgiveness. By fully exploring your options, you’ll have an easier time making your payments and can steer clear of defaulting altogether.
If you’ve defaulted on your student loans, know that you can take steps to avoid the government claiming a portion of your take-home pay. By knowing your options and doing a bit of homework, you can prevent wage garnishment from happening. If you have specific questions, seek counsel from a student debt specialist or legal professional.