How to Stop Garnishment on Student Loans

Bills.com Team
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Highlights


  • Contact the Dept. of Education to prevent wage garnishment.
  • Consider filing a Chapter 13, which results in a court supervised repayment plan.
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State and Federal Laws May Help You Stop a Student Loan Wage Garnishment.

The options available to stop or reduce a student loan-related wage garnishment depend on what kind of loan and where you live. The rules are different for federal student loans, such as Perkins, Stafford,  and PLUS loans, and for private student loans. 

Federal Student Loan Garnishment

Federal law allows the Department of Education to garnish 15% of a delinquent borrower’s after tax income for federally insured student loans (34 C.F.R. Part 34-Administrative Wage Garnishment). It may do so as long as the garnishment does not bring the borrower’s weekly pay below 30 times the Federal minimum wage. Currently, you are guaranteed that $217.50 ($7.25/hour × 30 hours) per week is exempt from garnishment. (These numbers are current as of early 2014.)

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 (31 USC Chapter 37, Subchapter II). Federal agencies may intercept your tax refund, which is called “offset” (26 U.S.C. § 6402(d) and 31 U.S.C. § 3720A). You also can have your income tax refund taken to pay down your student loan debt.

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.

If you can prove to the Dept. 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. For example, facing foreclosure of your home as a result of garnishment should qualify as an undue hardship.

To try to stop an administrative garnishment, 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. If you do not qualify for IBR, learn if Income Contingent Repayment is right for you.

If you defaulted on your federal loans and want to restart payments, see the Dept. of Education’s Loan Rehabilitation page.

Quick Tip

Check the Dept. of Education’s National Student Loan Data System (NSLDS) to see if the loan is federal. State statutes of limitations do not apply to federal loans, and are subject to collection indefinitely. Student loans not backed by federal grants or guarantees do not appear in the NSLDS, and are therefore private. Private student loans are subject to state statutes of limitations for breach of contract.

Private Student Loan Garnishment

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.

Quick Tip

Need a student loan? See the Bills.com resource Student Loans resource page. Problem with a student loan? Learn more about Student Loan Consolidation.

Private lenders must file a lawsuit against the borrower and obtain a judgment before they can garnish wages, so it takes private lenders longer to begin a garnishment. A judgment will appear in the "Public Records" area of your credit report.

Quick Tip

Concerned about what is appearing on your credit report now? Check your credit report today and get a free credit score instantly.

Depending on where you live, private lenders with a judgment may garnish as much as 25% of the your after-tax wages (15 U.S.C. 1673). However, the amount that can be garnished is specific to each state. See the Bills.com resource Collection Laws & Exemptions by State 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 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.

Quick Tip

Some debt settlement companies are now accepting private student loan debt. Get a free consultation with a Bills.com pre-screened debt relief provider, if you are struggling to pay your private student loans.

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 it may be an option to stop your wage garnishment, consult with a bankruptcy attorney in your area to learn if bankruptcy will help improve your financial outlook. Surprisingly, some find 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.

Filing a chapter 13 bankruptcy may bring your mortgage current, stop a foreclosure, and allow you to pay now-delinquent payments over the course of your bankruptcy plan. To learn more about your bankruptcy options, visit the Bills.com bankruptcy information & resources page.

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  • MM
    May, 2013
    Marcos
    I'm a medically disabled American citizen, living in the Philippines. Federal Student Aid (US Dept of Education's Default Resolutions Group) has started garnishing my SSDI (April & May 2013). Their databases refuses to store my Philippine address. My SSDI income is less than $850/month and they're garnishing $27 each month. When I was still living in the USA (pre-2007), I told their collectors to SUE ME, but they never did. I told them that because a magistrate (in Federal Courthouse) told me if the Student Loan Association sues me and I'm jobless, disabled and on welfare, the federal judge would discharge my debt. One lawyer sent me a letter, threatening to sue me, but never did; when I called that lawyer, he told me that I'm not worth suing (no assets). When I was still in the USA, I told the collectors to SUE ME in a Federal Courthouse to get it over with, and to send me a city bus ticket to travel to the Federal Courthouse, as well as a meal ticket so I don't have to go to the food bank. The NEVER sent me a subpoena! I've kept checking with the Federal Courthouse in my jurisdiction and they kept telling me no cases have been filed against me. My Student Loan debt went from collector to collector, even after I moved to Philippines. The collectors got me USA-based VoIP number and kept calling me, demanding me to start paying back my student loan NOW. The harassing calls kept going and going to the point I had to discontinue my VoIP service. My student loan debt went from $4,000 to over $11,000 by 2010. Garnishment began on my April 2013's SSDI payment. Twice, I called their Resolution Group. The first time, I convinced them to send me the necessary documents and they promised to put a hold on the next garnishment. Three weeks later, I received the documents and called them back. They told me they already did another garnishment. For both calls, I got very, very, very upset. They have now ENTRAPPED me. No doctor in Philippines can legally sign the discharge papers! (They also feel their USA-based relatives will be harassed by US Dept of Education!) Additionally, I can't fill out the "Social Security Offset Hardship Package" without self-incriminating myself. My wife (Philippine citizen) is AFRAID that they will garnish her income, too. I have not filed her US Visa paperwork! Putting her name on the forms may threaten her employment, and omitting her name info is one of the ways I might self-incriminate myself. I'm writting this comment, because I'm hopelessly deadlocked. I got NOBODY to turn to for help. I'm now thinking of dropping my US Citizenship; if Federal Student Aid garnishes EVERYTHING, then I got no other choice than to drop my US Citizenship (that's cheaper than they emotional pain they're causing me).
    0 Votes

    • BA
      May, 2013
      Bill
      You mentioned you qualify for Social Security Disability benefits. The Social Security Administration's definition of disabled is different from the Dept. of Education's definition. It is possible for a person to receive SSD benefits and not meet the requirements to have their federal student loans cancelled. Visit the Dept. of Education's Forgiveness, Cancellation, and Discharge to learn what steps you must take to apply for loan cancellation.

      You mentioned your spouse's liability for your student loan debt. You also mentioned you reside in the Philippines. I have no experience with Philippine law, so I cannot comment whether your spouse has any liability for your student loan or other debts.

      Consult with a Philippine lawyer who has experience with consumer law or civil litigation to learn if your medical condition qualifies you for a discharge of your student loan debt in bankruptcy. Your lawyer will also answer your questions about your spouse's liability for your debts. Finally, he or she will advise you if renouncing US citizenship will make it more difficult for the Dept. of Education to offset your Social Security benefit.
      0 Votes

  • DG
    May, 2013
    denise
    I am being garnished on a $1,200 student loan from 1986. They did not try to collect until 2011. How much interest can they collect before it's considered paid? Can it be settled for less?
    0 Votes

    • BA
      May, 2013
      Bill
      Is the student loan federal or private?
      • Federal: Congress gave the Dept. of Education the ability to, on its own authority, order your employer to garnish up to 15% of your disposable earnings. There is no statute of limitations on a federal student loan, for all intents and purposes.
      • Private: The law treats private student loans as the same as any other unsecured debt, such as delinquent credit card or medical debt. Before a private student lender can garnish your wages, it must file a lawsuit against you, win, and then ask the court to give it a judgment. The judgment allows the private student lender to garnish your wages, levy your bank accounts, and place liens on property titled in your name. Because private student loans are treated like any other unsecured loan by state courts, your loan is subject to your state's statute of limitations rules.
      • I discussed these two points because you mentioned your loan was from 1986. It's unclear when you last made a payment on this loan. Assuming the loan is private, your first action should be to consult with a lawyer in your state who has civil litigation experience. Ask him or her if the lender followed your state's civil procedure rules when it filed the lawsuit against you, and when it started the wage garnishment. Most state courts follow wage garnishment rules narrowly, and if the lender took any short-cuts along the way the court may order the garnishment stopped.

        Assuming the Dept. of Education or the private lender followed the letter of the law, the garnishment will continue until the debt is paid in full. That means the garnishment order covers the entire debt, and not just the interest portion of the debt.

        A settlement for less than the entire amount due is possible in theory. However, in your situation here, what incentive does the lender have to agree to a lump-sum settlement for less than the full balance due when its successful garnishment will result in 100% repayment, plus fees and interest? The only situation I can imagine where a lender might agree to such a settlement is where the borrower has a low income, and the amount garnished each pay period is low. This would result in a long time to repayment. Let's say the borrower then receives a windfall. The borrower could open a negotiation and say something like, "At the rate we are going here with this garnishment, I will not pay the amount due in 5 years (or whatever). Let us settle this once and for all for 40 cents on the dollar today."

      0 Votes

  • OJ
    Apr, 2013
    Otitam
    I'm being garnished by 2 student loans and they're both taking 15% each. That's 30% of my NET WAGES! It's KILLING ME. They said I have to show THEM, not a judge, that I can't live with this much being taken. Why would they allow lower payments if they have guaranteed garnishments? There has to be something I can do. The check I have doesn't even cover rent. 30% is unbearable
    0 Votes

    • BA
      Apr, 2013
      Bill
      Consult with a lawyer who has consumer law experience immediately. You did not mention whether your wage garnishments are for federal or private loans.

      For federal loans, the Dept. of Education is permitted to use administrative wage garnishment to require your employer to withhold up to 15% of your disposable income. If your loans are federal, your employer should withhold a maximum of 15% of your disposable wages from your paycheck, and not 30% as you described.

      For private student loans, the creditors or their collection agents must follow your state's wage garnishment rules. The creditor/collection agent must file a lawsuit against you, win, and then obtain a judgment from the court. With the judgment in hand, it may then ask the court to garnish your wages. The maximum amount that may be garnished under federal law is 25% of your disposable income. Some states have lower limits. Here, if your student loans are private, the court is violating federal law by allowing more than 25% of your disposable income to be garnished.

      If you have a mixture of private and federal loans, the Dept. of Education can garnish 15% of your wages, which allows the private lender to grab 10%. The only instance where the 25% limit can be exceeded is for cases of delinquent child support. See the Bills.com wage garnishment article to learn more.

      Collection agents have one job — collect money. Do not believe the legal advice from collection agents because it may be incorrect, misleading, incomplete, or presented in a manner that does not serve your best interests. Which brings me back to my original point — see a lawyer now. If you cannot afford one, call your county bar association and ask for the names of the organizations that provide no-cost legal services to people in your area with no and low income. Make an appointment with one of these organizations, and bring all of the documents you have regarding the student loans and garnishment to your meeting. The lawyer you meet will help you straighten out this mess.
      0 Votes

  • KA
    Mar, 2013
    Kevin
    Between my garnishment and paying my federal & state taxes & Social Security, they are taking over 35% of my pay.
    0 Votes

    • BA
      Mar, 2013
      Bill
      You may be misinterpreting the rule, if I infer your question correctly. Federal garnishment law refers to a person's disposable income. Neither state or federal income taxes, or FICA are considered garnishments. See the Bills.com wage garnishment page to learn more about the Consumer Credit Protection Act, which sets the general wage garnishment rules. Ask any follow-up questions you may have here or on that page.
      0 Votes

  • DS
    Jan, 2013
    Dave
    I have $100,000 in private student loans from three companies (AES, Chase, and Great Lakes). I have tried to call and work with them but have had no such luck. I can no longer afford their ridiculous monthly requests so I am looking for any and all suggestions moving forward. I can not seem to find if Ohio is one of the states that bans wage garnishment. This has gotten out of hand in this country with private loan company and students. They should be willing to work with you when you are trying to be an honest person and pay them back. I never once said I wasnt going to pay but I have come upon a hardship and am just looking for a way to work through it. They took advantage of me while I was in school not really knowing how much I needed and just signing the papers now they wont help. Sorry for the rant but I know I am not the only one in this situation!
    1 Votes

    • BA
      Jan, 2013
      Bill
      You are 100% correct that you're not the only one in this situation. It is unfortunate that there are so many people suffering from student loan debt and inflexible creditors.

      Ohio allows wage garnishments for private student loans. You can have 25% of your disposable income garnished in Ohio, as well as suffer a bank levy, if your creditors obtain a judgment against you.

      I suggest that you seek a free consultation with a bankruptcy attorney. He or she can advise you whether a payment the court would order in a Chapter 13 bankruptcy would be more or less than the amount that can be garnished from your income.

      I suggest you contact your state and federal elected representatives. If everyone in your situation raised their voices, perhaps the problem would get more attention.
      1 Votes