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Advice on How to Stop Garnishment on Student Loans - The Bills.com Blog
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Advice on How to Stop Garnishment on Student Loans
Question: I am being garnished for 300.00 per pay period for student loans. I now am behind 4,000.00 in my house payment because of this loss of income. Now I am about to lose my house. Is there a defferal plan for paying off these loans so I will not become homeless?
Answer: Thank you for your question, Elle. The options available to you to help stop or reducethe wage garnishment you are currently experiencing will depend on whether your delinquent student loans are federally insured loans, such as Perkins, Stafford, or PLUS loans, or private student loans. While 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 come after you to collect the money which it was forced to pay to your lender. 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. 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.
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. Currently, 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.
In order to try to stop the garnishment, you should contact the Department of Education ; the DoE provides a list of resources available for consumers who have defaulted on their loans, available online. Another good resource to explore is www.studentloanborrowerassistance.org .
Unlike Department of Education, 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 visit our website. 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. In order 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.
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
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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.