Federal Student Loan Garnishment
How do I stop the federal government from garnishing my wages and seizing my income tax return?
My paycheck is being garnished $25o/mo for my student loans, as well as having my income tax refund taken away. How can I stop this from happening and how can I get my return?
By
Mark Cappel
Published: Mar 31, 2010
- Learn more about the rules on collections of federal student loans.
- Learn how to stop garnishment on student loans.
Federal education loan programs define a default as occurring after 270 days of non-payment. To stop garnishment of wages and seizure of income tax refunds, contact the U.S. Dept. of Education, work out a payment plan, and then stick to it.
Student Loans & Default
Under Stafford or Perkins loans, the Dept. of Education guarantees that if the student defaults on the loan, the federal government will reimburse the school or bank that loaned you the money, to cover the school’s or bank’s losses. In turn, the federal government will take steps to collect the money from you that it was forced to pay to the 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 and schools must abide by a long list of federal regulations to participate in federal student loan programs. If too many alumni of a certain school default on their loans, the school can lose the eligibility to accept students with federal student loans.
Student Loans & Garnishment
Private student loans must follow the 25% rule that limits the amount that judgment-creditors may garnish. Garnishments for federal student loans, however, follow different rules. Congress granted the Dept. of Education the ability to garnish 15% of the wages of a federal student loan debtor administratively. What does administratively mean? The Dept. of Education may garnish the wages of delinquent debtor without holding a hearing and does not need to follow local state or federal exemption limits. See the Dept. of Education document Administrative Wage Garnishment to learn more.
If the garnishment causes a hardship for you and your family, you can request a hearing to change or remove the garnishment. See the Dept. of Education document Request for Hearing (PDF) to learn more.
For federally insured loans, the Dept. of Education can take various actions against debtors to enforce defaulted obligations. Unlike other creditors, the federal government has the ability to garnish wages, levy bank accounts, and seize property without first obtaining a court judgment against the debtor. As long as you are on default on your federal student loan, you are not going to receive your tax refund. It will be diverted to pay your student loan debt. You can try adjusting the amount you have withheld on your paycheck, so you don’t end up with a large refund that you won’t get. You might be curious to know how long this can go on. There is no statute of limitations on federal student loan debt that stops the Dept. of Education from collecting a delinquent student loan.
Where to Learn More
See the following to learn more about the rules surrounding collections on federal student loans and wage garnishment. (Editor’s Note: Since this article was written, big changes have taken place regarding federal student loans. Since 2010, private lenders no longer issue federal student loans, which are now issued by the Dept. of Education through the Direct Loan Program.)
- Dept. of Education Administrative Wage Garnishment page
- Bills.com Wage Garnishment page
- Repaying Student Loans Held by the U.S. Department of Education
- Common Disputes Involving Defaulted Student Loans
- Loan Rehabilitation
- Collections Guide to Defaulted Student Loans: FAQ
See the Bills.com resource Advice on How to Stop Garnishment on Student Loans to learn more. See the Bills.com resource Student Loan Payment for a more detailed discussion of these issues. If you are disabled and are paying a federal student loan, see the Bills.com resources Student Loan Disability and Federal Student Loan Tuition Waiver. If you work in public service and have federal student loans, read Public Service Loan Forgiveness to learn how to have your student loans waived.
I hope this information helps you Find. Learn & Save.
Best,
Bill
If the student loan is federal, your Social Security benefits are subject to wage garnishment, which the Dept. of Education and other federal agencies call offset. You have little to lose by applying for a Administrative Wage Garnishment Hearing where you can outline your living expenses and argue in favor of no offset or a reduced offset amount.
If your loan is private, see the Bills.com Sallie Mae Forbearance & Deferment page. Consult with a lawyer in your state to learn more about your state's limits on wage garnishment. If you cannot afford a lawyer, call your county bar association and ask for the names of the organizations that provide no-cost legal services to people with low or no income in your area. Make an appointment with one of the organizations, and bring all of the documents and letters you have regarding the debt to your meeting. The lawyer you meet will advise you accordingly.
I recommend that you contact the lender and clarify the type of loan they claim you have cosigned. Demand to receive a notification by mail, and not by telephone. Read the Bills.com article about debt validation If you have any legal questions, including ones regarding identity theft, then consult with a lawyer who has civil litigation experience.