If your student loans have gone into default, the U.S. Department of Education can garnish your wages until the debt is paid in full. But you can fix the situation.
The Debt Collection Improvement Act (DCIA) of 1996, which went into effect in 2003, gives the U.S. Department of Education the right to garnish the wages of borrowers whose student loans are in default.
However, through loan rehabilitation or signing up for a new repayment program, you can get back on track. This may help you avoid wage garnishment completely, or stop your wages from being garnished for good.
What is Wage Garnishment?
Wage garnishment involves the collection of a debt through an employer, where a certain amount of a paycheck can be withheld in order to pay a debt. When it comes to wage garnishment for defaulted student loans, there are two types you should know about.
- Standard Wage Garnishment is when a court issues an order to your employer that requires them to pay back an employee’s debt by withholding a certain amount from their paycheck.
- Administrative Wage Garnishment has the same impact on an employee’s paycheck, except it doesn’t require a court order. This type of wage garnishment comes directly from the U.S. Department of Education and its guaranty agencies.
The DCIA Act of 1996 gives the Department of Education the right to garnish up to 15 percent of an employee’s disposable pay until the defaulted student loan or loans are paid in full.
However, wage garnishment usually only happens when a borrower refuses to pay their debts voluntarily or is unable to make payments for a long period of time. It’s often viewed as a last resort to collect on delinquent debts by lenders.
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How to Fix or Repair Wage Garnishment
Wage garnishment can be avoided, even if you’re currently in default and creditors are contacting you for repayment. Here are a few ways to avoid wage garnishment and get your loans back in good standing.
Change Your Repayment Plan
Even if you’re behind on your student loans, you may be able to sign up for other income-driven repayment plans that could make your monthly payments more affordable by having your payments based on your current income. These plans include:
- Income-Based Repayment (IBR) Plan
- Income-Contingent Repayment (ICR) Plan
- Pay As You Earn (PAYE) Plan
- Revised Pay As You Earn (REPAYE) Plan
If your loans are already in default or you’re having trouble making your payments, it’s important to look at your options as soon as possible to avoid wage garnishment. If your wages are already being garnished, these plans can also help.
Consolidate Multiple Loans
If you have more than one student loan in trouble, you can also consolidate your student loans to avoid wage garnishment or put a stop to your wages being garnished.
Consolidation is often a good idea for people with more than one student loan, as it converts multiple monthly payments into a single monthly payment, and simplifies the repayment process.
For more info on repayment plans and consolidation, speak with an expert by phone at 800-771-6358.
Use Loan Rehabilitation
To take advantage of student loan rehabilitation, you’ll need to have loans that qualify. If you do, you can potentially sign a new agreement with your lender to fix your student loans by making nine voluntary, on-time payments within a 10-month period.
While your monthly payments will ultimately be based on your discretionary income, it is possible to have payments as low as $5 in some cases.
Keep Up Your Payments
The best way to avoid wage garnishment is by making regular, on-time payments to your lender.
If you’re having trouble keeping track of your payment schedules and amounts, setting up automatic payments through your bank can help.
Request a Deferment or Forbearance
Both a deferment and a forbearance offer short-term relief to those who qualify and get approved.
Depending on your loan type, deferment can give you up to three years to begin repaying your student loans again. If your loans are subsidized, there’s also a chance you won’t be held financially responsible for any interest that builds up on your loans during this period.
A forbearance, on the other hand, enables you to postpone your student loan payments – or in some cases, lower your payments – for up to one year. In either case, it’s important to speak with a student loan expert about your options.
For more details on student loan discharge options, speak with an student loan specialist by phone at 800-771-6358.