The Hand in Your Pocket: Student Loan Garnishment

Having your wages garnished can be one of the most stressful things to happen in your life. Time magazine says that more than 25 percent of students who are graduating with student debt are leaving school with way too much, with the average debt standing at $35,000. And that’s just average debt; 50 percent of graduates are carrying much more than that. Since 1965 the larger part of the cost of postsecondary education have been shifted from state and federal governments to students and their families. The result is graduates taking on massive debt to obtain a degree that may not actually help them financially. Onerous repayment requirements, underemployment, and a decade and a half of stagnated wages often means that students fall into default.

Unpaid Student Loans

Falling into default means that your credit is negatively impacted, collection fees accrue and it is more difficult to catch up with your payments.  One way to get out of default is a process called rehabilitation.  Student loan rehabilitation will put your loan back in good standing, open up eligibility for consolidation and other repayment plans, in addition to loans and other financial aid.  However, if you do rehab your student loans in time, the collection companies may garnish your wages which will take away big chunk of your disposable income – even if in your opinion you do not have any – and direct it towards the loan payment.  This is one of the most powerful collection tools the federal government can use in order to get you to pay, as well as seizing tax refunds, while charging you fees to do it.  Private lenders may retain collection agencies, but under the Fair Debt Collection Practices Act they are limited in the number of tactics that they can use in order to exact your compliance.

Nor will any of this happen out of the blue, as student loan garnishment is a legal process.  In the first place you must already be in default, which is defined as missing nine months of payments, for garnishment to even be considered. And let’s face it, being in default can take work. This is not something that is going to happen over one or two missed payments, but once you are in default the full amount of that loan becomes immediately due. There are some limits to garnishment.

• The government can take no more than 15 percent of your disposable income.
• The government can garnish Social Security disability and retirement benefits to 15 percent of the total benefit

If you are currently delinquent on your loans, you have a chance to rehabilitate your loan and begin getting on top of your student debt. You may wish to consider consolidating your loans, which is to say that you would obtain one loan to pay off all your student loans, and then go forward simply paying down the amount of the consolidation loan. There are other options you may wish to consider, such as forbearance and deferment, or an income-based repayment plan. Please give us a call, and let us help you figure out what your options are – your consultation is free.