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Updated on Monday, November 26, 2018
The student loan debt burden is heavier than ever, with Americans owing nearly $1.5 trillion in education debt. What’s more, almost 1 million student loan borrowers go into default every year, with 40% of borrowers expected to default by 2023, according to the Brookings Institution.
While it might be tempting to walk away from your federal student loans, your debt never goes away. And the government has far-reaching powers of collection, including garnishment of your wages, tax refund and even Social Security benefits.
Let’s take a closer look at the consequences of default before discussing four ways to stop a student loan wage garnishment.
Defaulting on your student loans could cost you
Default is what happens when you stop paying your student loans. After you miss a payment, your loan will enter a status known as delinquency.
If it remains delinquent for 90 days, your loan servicer will report your missed payments to the credit bureau. Having a delinquent account on your credit report could drag down your credit score for years.
After 270 days of nonpayment — about nine months — your loan goes into default. At this point, the Department of Education will demand that you pay back your loan immediately and in full.
Collections agencies could start calling multiple times a day, even contacting your friends and family to find a way to get in contact with you. Your loan holder can even bring you to court.
Finally, the government can resort to garnishment of your wages, tax refund and Social Security benefits as a form of repayment. Note that you will receive a letter of intent to garnish your wages at least 30 days before it begins.
When garnishing your wages, the Department of Education could contact your employer and demand that your company send it 15% of your paycheck. If you’re already struggling to keep up with bills, student loan wage garnishment would only make a tough financial circumstance worse.
Private lenders don’t have the same powers to collect as the federal government. For example, a private lender could take you to court over a defaulted loan, but it must do so within a certain number of years. After that statute of limitations is up, your private lender (or the private debt collector that now holds your loans) can no longer take legal action against you, although your credit score will still suffer for years.
How to stop student loan wage garnishment
If you’ve reached the point of student loan wage garnishment, here are four steps you can take to protect yourself and your bank account.
1. Consolidate your student loans
Perhaps the easiest way to get your federal student loans out of default and back into active repayment status is through consolidation. Consolidating loans involves applying for a direct consolidation loan through Federal Student Aid. If you have multiple loans, consolidating will combine them into one.
You can qualify for consolidation in one of two ways. The first is by agreeing to put your loans on an income-driven repayment plan.
Income-driven plans such as Pay As You Earn and Income-Based Repayment adjust your monthly payment in accordance with your income. You might get a monthly payment as low as $0, which could seriously help you avoid defaulting again in the future.
Your other option is to make three, full, one-time payments on your defaulted student loan. After these three payments, you’ll be eligible to consolidate. At that point, you can choose any repayment plan, whether an income-driven plan, graduated or extended repayment, or the standard plan.
Your payments will likely be lowest on an income-driven or extended plan, both of which extend your term to 20 or 25 years. If you’re having trouble paying your bills, these plans might be the best option for your budget.
The only real downside of consolidating is that your default won’t be removed from your credit report. It could remain on your record for seven years and potentially be a red flag to lenders in the future if you ever try to take out another loan or mortgage.
Once you successfully consolidate, your loans will return to good standing and will be eligible for federal protections once again, such as forbearance and debt forgiveness. And just as importantly, your student loan wage garnishment will cease.
2. Apply for student loan rehabilitation
Your second option for stopping wage garnishment and getting your loans out of default is student loan rehabilitation. To rehabilitate your loan, you must contact your loan holder and agree in writing to make nine on-time monthly payments within a period of 10 months.
After these nine payments, you could enter a loan rehabilitation agreement where you agree to a monthly payment that equals 15% of your discretionary monthly income. If this payment feels too burdensome, you can speak with your loan servicer about adjusting it.
One benefit of rehabilitation is that it removes the default from your credit report. But the downside is it can take nine months before your loan gets out of default and your wage garnishment stops.
3. Plead your case at an official hearing
If you have exceptional circumstances, you might be able to stop wage garnishment through an official hearing. If you can prove that student loan wage garnishment will cause undue financial hardship on yourself or your family, you might be able to stop it or get it postponed until you can sort out your loan situation.
You might also challenge wage garnishment through a hearing if you believe there’s been an error. If the Department of Education mistakenly put your loan into default, for instance, you can prove that you’ve been keeping up with payments.
4. Pay off your debt in full
Your final option for stopping student loan wage garnishment is paying off your debt in full. Of course, this option probably isn’t realistic for most borrowers, especially if financial hardship is what put you in default in the first place.
But it’s worth mentioning in case you do receive a windfall of cash or suddenly start making extra income. Paying off your loan with a big lump-sum payment would get you out of debt and stop the student loan wage garnishment once and for all.
Your best option is avoiding student loan default before it occurs
If you’ve gone into default, chances are you’re struggling to pay your bills. So when you’re already having money troubles, getting your wages garnished only makes things all the more difficult.
Since federal student loans never go away, simply walking away from them isn’t really an option. Instead of dealing with all the stress and paperwork that comes with default, your best bet is to take steps to avoid defaulting in the first place.
If you can’t make payments, speak with your loan servicer about your options. You might be able to pause your bills through forbearance or deferment. You could also consider working toward student loan forgiveness in a program such as Public Service Loan Forgiveness or Teacher Loan Forgiveness.
Another useful strategy is putting your loans on income-driven repayment or extended repayment. Lengthening your terms will lower your monthly bills. Since income-driven plans adjust your bills with your income, they could become much more affordable.
Finally, continue searching for ways to boost your income or reduce your spending. With more room in your budget, you’ll have an easier time paying back your student loans. Once you have a steady income and strong credit score (or can apply with a cosigner who does), you could refinance your student loans for new terms and potentially qualify for a lower interest rate.
On-time payments are the only way to avoid default and make sure 100% of your hard-earned paycheck goes to your bank account, where it belongs.