Wage Garnishment: What it is and how to resolve it?

A Lender is able to purse garnishment of your wages after six months of missed payments. With the number of defaulted student loans growing each day this hardship will only increase your debt amount if not addressed with urgency. The lender will endlessly attempt to contact you to request payment. Your failure to make good on your repayment will cause a drop to your credit rating, wage garnishment, off set on your Federal Tax Return, and a much  greater financial hardship than what began.  At this point the lender has reported your delinquency to credit agencies, and and order has been issued to you employer for your taxable income to be garnished. Rarely does the garnishment result in settlement of your loans; but rather, just payments towards interest, penalties and other fees.

Wage Garnishment is the legal pursuit of a percentage of your income from taxable employment. The process starts toward a garnishment as soon as an account defaults. The status of the loan can be listed as defaulted as early as 270 days of non payment. Generally, many attempts to contact the borrower for payment or other options.

The time frame by which a loan status reaches default will vary depending on the type of loan it is and the attention that the loan servicer places on the loan. Direct Loans and FFEL Loans will generally not default until nine months without payment. Missing any payments to a Federal Perkins Loan can result in a defaulted loan. Most servicers will issue notice of delinquency to your account after 180 days of non payment, then defaulted after 270 days. The only options in recovering this situation are to pay the loan balance current, or request a brief forbearance (hold) on the monthly payments.

Legal Hearing to Recover Loan Balance

After attempting to contact the borrower to settle the balance of the loan, the lender or collections agency will legally sue the borrower. The courts will issue a notice of the hearing and the borrower is required to respond. Garnishment will not began in this case until after the completion of the hearing.

Failure to request a hearing or waiting until 30 days after the notice is issued will result in the order for garnishment being enforced. The borrower is also allowed an appeal if the ruling was not in their favor or they missed the deadline to request hearing.

How Much Will Be Garnished?

For Federal Student Loans, the lender is able to garnish up to 25 of the borrowers taxable income. After some time in default or inability to collect on a loan by wage garnishment, the government may collect on the loan with an offset of the borrowers Federal Income Taxes. A wage garnishment will continue until  you and the collections agency of lender come to an agreement for repayment on the loans or until you pay the balance of the loan off.

How to Prevent A Wage Garnishment

  1. Budget your expenses wisely. Have a plan for staying current on all of your bills.
  2. Stay on track with payments agreed upon with the collector. Submit payments on time .
  3. Set payments for auto-pay. This will eliminate the missed payments due to forgetting the payment date or inability to physically get around to pay bills.

Tips On Ending A Wage Garnishment

If your wages are being garnished or your employer has notified you that garnishment of your wages has been requested, there are a few ways you can combat or stop the process.

  1. Request A Hearing

            The Department of Education will allow a hearing to address your concerns and provide information on the borrowers particular situation. The borrower will request this hearing in an attempt to end or delay an impending wage garnishment. Some circumstances that may prevent or postpone the garnishment are:

  • Economic Hardship: the wage garnishment would place undue hardship on you and your household
  • Bankruptcy: you filed for bankruptcy in the past 90 days or the loan status is still showing an active bankruptcy
  • Loss of employment or household income: Being laid off from a place of employment or having worked less than 1 year before a layoff
  • Identity theft: the loan(s) was taken out by someone using your information illegally
  • Loan rehabilitation or restructuring: you have initiated the process of rehabilitating your loan to good standing or you have started making payments in a new repayment plan. You may have also chosen to Direct Consolidate your loans through The Department of Education
  • Mistake/ error: your account was mistakenly identified as defaulted or confused with information from another account.

If you need to request a hearing, you can complete this form, then mail it to:

US Department of Education

ATTN: AWG Hearings Branch

PO Box 5227

Greenville, TX, 75403

          2.Take necessary steps to win your hearing

  • Verify the accuracy of any outstanding debt
  • Read all documentation in full. Have a clear and complete understanding for all information and requirements you are provided
  • Seek assistance gaining options in non traditional repayment plans
  • Stay in communication with anyone you work with to recover your loan status

            3. Direct Loan Consolidation:

            The Department of Education does offer consolidation of other loans into Direct Loans. This can be a huge benefit to the borrower if forgiveness/relief programs are the intention. Wage garnishment will hinder the start of most opportunities to assist in repayment. An active wage garnishment will result in denial of a William D. Ford Direct Loan Consolidation. Consolidating your loans into Direct Loans can take anywhere from 60-90 days. In most cases, a hold can be placed on expected payments until this process is completed and your new payment date and amount are issued.

There is no clear definition of which loans under wage garnishment will be allowed through consolidation and back into good standing. Many will receive a denial letter as notice that the garnishment will continue and the borrower must find another solution to recovering their loans.

A Direct Loan Consolidation will provide a reduction in monthly payment amount (sometime by 50 or more), the average of previous interest rates, and the ease of working with only one servicer. Many in repayment will have loans with two or more servicers. The consolidation will also help you by reducing your monthly payments on IDR’s and Forgiveness Programs. This is in most cases the best path back to current repayment status, but without the burden of the high payments of the past. A borrower will have the opportunity to recover their loans and credit score, as well as the simplicity of working with less interest and only one servicer.

            4. Loan Rehabilitation

            To rehabilitate your loans is to go through a nine month process of minimal voluntary payments to show good faith in recovering your loans back to good standing. This is not a consolidation. A borrower will rehabilitate their existing loans or consolidate them into a new loan. The nine months of consecutive voluntary payments can be as low as $5/month and most be accomplished within no longer than a 10 month period. Wage garnishment will in some case cease after only five consecutive months of your rehabilitation period.

            5. Paying Off Student Loan Debt

            It is in some cases best for the loans to just be paid in full and have the monthly burden on your finances and credit eliminated. It is not possible in most situations to just pay a loan in full that had previously been neglected to the point of default, but if you can, it may be better to just get it out of the way.

State Laws On Wage Garnishment

The Federal Government can claim up to 25 of your income from employment to apply toward your Federal Student Loans. Depending on the state you live in, you may have exemption to being garnished above a certain amount. If the laws in your state are very different from the federal law, this difference will been viewed as an exemption and the borrower is able to argue that their state’s law should take precedence over the federal law.

Wage Garnishment and Your Rights

  1. An attempt must be made to legally notify the borrower of an impending wage garnishment.
  2. The borrower has the right to appeal the garnishment. This will require proof of a false claim of default or that the loan has already been paid in full or recovered.
  3. Only taxable income can be garnished to satisfy Federal Student Loans.
  4. Multiple garnishments can cost the borrower their job, but having only one garnishment will not risk employment.
  5. Providing evidence that the garnishment will cause undue financial hardship to you and your dependents, may put a stop to the process or at least postpone it.

Consequences of Wage Garnishment

Many of these consequences will have occurred before the garnishment begins.

  1. Lowered credit score. This is even worse with a wage garnishment because they are able to remain on your credit report for up to 7yrs.
  2. Objections to financing. A defaulted loan and or garnished wages will cause difficulty in getting new lines of credit.
  3. Federal Tax Return Offset
  4. Penalties and fees added to your balance for collections and court cost
  5. Withholding of transcripts until the loan is recovered or paid in full.