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Advice on How to Stop Garnishment on Student Loans
Tuesday, Oct 14, 2008
Question: I am being garnished for student loans, which has caused me to become behind on my house payments. Now I am about to lose my house. Is there a deferral plan for paying off these loans so I will not become homeless?
Answer: The options available to you to help stop or reduce the wage garnishment you are currently experiencing will depend on whether your delinquent student loans are federally insured loans, such as Perkins, Stafford, PLUS loans, or private student loans.Federal student loans
Although both federally insured and private student loans are issued by banks, the key difference between the two is that with federally insured loans, the U.S. Department of Education guarantees that if you, the student, default on your loan, the federal government will reimburse the banks for their losses. In turn, the federal government will collect the money which it was forced to pay to your lender from you.
The federal guarantee of these loans allows lenders to provide loans without rigorous credit checks and to offer much lower interest rates than would be offered on many conventional loans. However, banks must abide by a long list of federal regulations in order to participate in the federal student loan programs.
For federally insured loans, the Department of Education can garnish 15% of your after tax income, as long as the garnishment does not bring your weekly pay below 30 times the Federal minimum wage. As I write these words, this means you are guaranteed at least $196.50 per week exempt from garnishment. If you make less than that amount each week, then your wages are exempt from garnishment altogether. Unlike other creditors, the federal government has the right to garnish wages, levy bank accounts, and seize property without first obtaining a court judgment against the debtor.
If you can prove to the Department of Education that its garnishment of your wages is causing your family an undue financial hardship, it may be willing to stop the garnishment and work with you in establishing alternate repayment terms. I would think that facing foreclosure of your home as a result of garnishment certainly qualifies as an undue hardship, so the DOE will hopefully suspend the garnishment and allow you to pay back your defaulted loans at an affordable rate.
To try to stop the garnishment, you should contact the Department
of Education's resource Facing Loan Default . The DOE provides a list of resources available for consumers who have defaulted on their loans. Another good resource to explore is the Student Loan Borrower Assistance Project's (SLBAP) Administrative Wage Garnishments .
If your federal student loan payments are causing financial distress, review the Income-Based Repayment (IBR) program, and see the Dept. of Education's IBR calculator .
Private student loans
Private student loans, on the other hand, are basically the same as any other unsecured personal loan; the only major difference between private student loans and regular personal loans is that the former are generally non-dischargeable in bankruptcy.
Private lenders must file a lawsuit against you and obtain a judgment before they can garnish your wages, so it takes private lenders longer to begin a garnishment. If the loans for which you are being garnished were private loans, the lender has almost certainly obtained a judgment against you.
Depending on where you live, private lenders with a judgment against you could garnish as much as 25% of your after-tax wages. However, the amount that can be garnished is specific to your state, so you need to look into your state laws on garnishment to determine how much of your pay can be garnished by private lenders.
Texas and Pennsylvania, for example, do not allow wage garnishment for unsecured debts such as private student loans. To learn more about your state's garnishment laws , I invite you to review that resource.
Keep in mind that no matter where you live, if your loans are federally insured, you can usually be garnished 15% of your disposable wages, regardless of your state laws regarding garnishment for other types of debts.
To try to stop a garnishment resulting from a private loan, you should contact the creditor to discuss your financial situation and try to negotiate an alternate payment plan. Unfortunately, the creditor may not be willing to stop the garnishment voluntarily, forcing you to explore alternative options.
See
If your federal student loan payments are causing financial distress, review the Income-Based Repayment (IBR) program, and see the Dept. of Education's IBR calculator .
Private student loans
Private student loans, on the other hand, are basically the same as any other unsecured personal loan; the only major difference between private student loans and regular personal loans is that the former are generally non-dischargeable in bankruptcy.
Private lenders must file a lawsuit against you and obtain a judgment before they can garnish your wages, so it takes private lenders longer to begin a garnishment. If the loans for which you are being garnished were private loans, the lender has almost certainly obtained a judgment against you.
Depending on where you live, private lenders with a judgment against you could garnish as much as 25% of your after-tax wages. However, the amount that can be garnished is specific to your state, so you need to look into your state laws on garnishment to determine how much of your pay can be garnished by private lenders.
Texas and Pennsylvania, for example, do not allow wage garnishment for unsecured debts such as private student loans. To learn more about your state's garnishment laws , I invite you to review that resource.
Keep in mind that no matter where you live, if your loans are federally insured, you can usually be garnished 15% of your disposable wages, regardless of your state laws regarding garnishment for other types of debts.
To try to stop a garnishment resulting from a private loan, you should contact the creditor to discuss your financial situation and try to negotiate an alternate payment plan. Unfortunately, the creditor may not be willing to stop the garnishment voluntarily, forcing you to explore alternative options.
See
SLBAP's private loan collections page to learn more.
Bankruptcy and student loans
The last option most people consider to prevent garnishment for student loans is filing for bankruptcy protection. Since student loans generally cannot be discharged in a Chapter 7 filing, you would probably need to file a Chapter 13 bankruptcy, which is a court supervised repayment plan in which your student loans, as well as other debts, would be repaid through monthly payments made to the court.
Chapter 13 can be an expensive and long-term commitment (5 years, typically), but if you feel that it may be an option to stop your wage garnishment, you should contact a bankruptcy attorney in your area to find out if bankruptcy will help improve your financial outlook. Surprisingly, many people find that their monthly payments under a Chapter 13 are more than the amount they would have been garnished had they done nothing, so if you are considering bankruptcy, please make sure to discuss it in detail with an attorney to determine if it is the right choice for you.
Another thing to consider is that filing a Chapter 13 bankruptcy may help you by bringing your mortgage current, stopping the foreclosure action and allowing you to pay off the delinquent payments over the course of your bankruptcy plan. To learn more about bankruptcy, I encourage you to visit the Bills.com bankruptcy information & resources page.
I wish you the best of luck in resolving your student loan debt. To read more about student loans, and the options available to consumers struggling to repay them, I invite you to visit the Bills.com student loan information page. While I believe that you should be able to resolve your student loan troubles by working with your lenders, keep in mind that other options are available if needed. You should explore all of your options to determine which solution works best for you and your family.
I hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com
Bankruptcy and student loans
The last option most people consider to prevent garnishment for student loans is filing for bankruptcy protection. Since student loans generally cannot be discharged in a Chapter 7 filing, you would probably need to file a Chapter 13 bankruptcy, which is a court supervised repayment plan in which your student loans, as well as other debts, would be repaid through monthly payments made to the court.
Chapter 13 can be an expensive and long-term commitment (5 years, typically), but if you feel that it may be an option to stop your wage garnishment, you should contact a bankruptcy attorney in your area to find out if bankruptcy will help improve your financial outlook. Surprisingly, many people find that their monthly payments under a Chapter 13 are more than the amount they would have been garnished had they done nothing, so if you are considering bankruptcy, please make sure to discuss it in detail with an attorney to determine if it is the right choice for you.
Another thing to consider is that filing a Chapter 13 bankruptcy may help you by bringing your mortgage current, stopping the foreclosure action and allowing you to pay off the delinquent payments over the course of your bankruptcy plan. To learn more about bankruptcy, I encourage you to visit the Bills.com bankruptcy information & resources page.
I wish you the best of luck in resolving your student loan debt. To read more about student loans, and the options available to consumers struggling to repay them, I invite you to visit the Bills.com student loan information page. While I believe that you should be able to resolve your student loan troubles by working with your lenders, keep in mind that other options are available if needed. You should explore all of your options to determine which solution works best for you and your family.
I hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com
Also, make sure to get a free financial health check-up with Bills IQ!
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1. Posted by Ruby Mikaele on Tuesday 18th November 2008 13:08
Hi, My question is I went to this vocational school for only 2-3 months. I don't feel that I should have to pay the full amount since I didn't finish the course. What can I do?
2. Posted by Nithin on Tuesday 18th November 2008 17:21
You should have checked for a refund policy before you signed up. You will have to work with the school to maybe get a prorated refund. If thats not a possibility why not just finish the course.
3. Posted by Kristen Brewer on Thursday 8th January 2009 06:10
Hey I have students loans that are in default. They gave me a 260 payment plan I can not afford it. I tried to set it up where i would only pay 150 but they are saying no to me. I wanna make the payments but i can not afford it. And I know that there has got to another way. if i make those payment im not going to be able to pay something else or i wont be able to eat. if i had that kind off money i would have been payed it off.
4. Posted by Bill on Thursday 8th January 2009 08:35
The only thing I can suggest is to continue to argue your case with the lender. Provide them with as much as information as you can (paychecks, budget etc.). Once you make a compelling case, they might agree for the amount you can afford. This is a difficult situation as student loans are different from other forms of debt, as they are backed by the Government in case of default, and one cannot include them in a bankruptcy even. That's why you will find that the lenders are not flexible.
5. Posted by Cherie on Thursday 18th June 2009 03:06
If your wages are garnished for student loans, are they required to provide for you any statements informing you of what has been paid and what is left outstanding. I had my wages garnished approx 3 years ago and have yet to get even ONE statement as to what has been paid to date and what is outstanding, what fees I have paid, interest, who the payments have been made to etc. They have also never reported to the credit agencies that even one penny has been paid to date and this has been hurting my credit. What rights do I have to force them to provide me this information and to report to the credit companies that payments have been made? I actually am over being mad about them garnishing my check because I figure this will only get it paid off sooner, however the student loan company actually contacted me about getting payments, so now I am wondering WHO is actually getting the payments. Thanks
6. Posted by Mark Cappel on Thursday 18th June 2009 09:06
Cherie, the attorney representing the creditor who is receiving your wage garnishment will have the information regarding your account. To learn more about wage garnishments in student loans, see this Bills.com blog entry: http://www.bills.com/blog/garnishments-due-to-defaulted-student-loans/
7. Posted by SHEILA A OLIVE on Thursday 24th September 2009 14:00
stsudent laon is garnishing 15% of my pay (203.50) per pay period which willc ause a financial hardhsip. is there anythign I cna do?
8. Posted by Bill on Thursday 24th September 2009 14:58
If the debt is federal, then the government has the right to garnish wages or withhold your tax return without a hearing. See Repaying Student Loans Held by the U.S. Department of Education and Common Disputes Involving Defaulted Student Loans to learn more about the rules surrounding collections on federal student loans. According to the second URL I mentioned, "A debtor who claims that he or she cannot afford to repay a particular installment amount bears the burden of proving that the amount exceeds what he or she can afford based on his or her total financial circumstances, and that some lesser installment amount can be repaid. To do so, the debtor must provide a complete statement showing the income and expenses of the debtor and his or her household members."
9. Posted by Frank on Wednesday 9th December 2009 13:25
My wages are currentlt being garnished at $257 on a bi weekly basis. I contacted the lender ( federal student Loan)prior to the garnishment. I submitted the requested paper work, but the worker never contacted me, still to tghis day I have had no contact. I called and spoke to another representative who tells me that I have to make $325 monthly payments for 9 months on top of the garnishment in order to bring dowm my payments. If not the garnishment goes on forever, is there anything I can do at this point?, I was told to submitt all the paperwork again but If I did it before with no response what will be the point? is there any other legal resouce that I can do, thanks.
10. Posted by Bill on Wednesday 9th December 2009 18:04
If you want your garnishment modified you should resubmit the paperwork as many times as it takes. See my answer to Sheila above dated 9/24/2009 for more details.
11. Posted by Matthew Wright on Monday 21st December 2009 07:38
I am more than happy to pay 15% of my disposable income but have seen recently that it is more than that amount why would that be? Also for taxes should I be getting something to show how much has been paid for in interest?
12. Posted by Bill on Monday 21st December 2009 09:35
I think your first question is rhetorical: I cannot explain Congress' reasoning behind the garnishment rules for collecting on delinquent student loans. Regarding your second question, I surmise you are asking if the creditor is required to send the debtor periodic statements regarding the account status. I am not aware of any such requirement. I suggest you contact the creditor and ask for a statement of your account.
13. Posted by Lissa Almaguer on Wednesday 23rd December 2009 04:29
If my wages are getting garnished to pay for my loans. Will they still take my federal tax return?
14. Posted by Bill on Wednesday 23rd December 2009 10:06
It is possible that the your tax return can be garnished to pay your student loans. I cannot say for certain whether they will garnish your taxes. I recommend you contact your student lender or the Department of Education's resource Facing loan default Web page to learn more.
15. Posted by Lissa Almaguer on Thursday 31st December 2009 15:07
Thanks. I just owe a little over 6 thousand and I want to pay them off as soon as possible. Even if that means paying with my taxes.