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 unless you take a few important steps to fix your financial 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 your wages if your student loans are in default. But as a borrower, you do have options for getting your loans back on track.
What is Wage Garnishment?
Wage garnishment involves collecting on a debt through your employer, where a certain amount of a paycheck can be withheld in order to pay down your owed balance. When it comes to defaulted student loans, there are two types of wage garnishment you should know about.
- Standard Wage Garnishment is when a court issues an order to your employer that requires them to pay back your debt by withholding a certain amount from your paycheck.
- Administrative Wage Garnishment also holds back part of your income for repayment of your debt, 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 your disposable pay until the defaulted student loan(s) 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.
Are your wages being garnished to pay for your student loans? Get free expert guidance on stopping wage garnishment for good.
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 designed to make your monthly payments more affordable. 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
These plans work by allowing you to extend your repayment term and capping your monthly payment at a portion of your discretionary income. This not only gives you more time to pay your loan balance(s), it can lower your monthly payment substantially compared to your current repayment plan.
An added benefit of income-driven repayment plans is they may help qualify you for certain loan forgiveness programs like Public Service Loan Forgiveness (PSLF).
If your loans are already in default or you’re having trouble making payments, it’s important to look at these options as soon as possible to avoid wage garnishment. If your wages are already being garnished, these plans can also help.
Consolidate Your Loans
If you have more than one student loan in trouble, consolidating your student loans can help you avoid having your wages garnished ahead of time, or stop wage garnishment for good.
Consolidation is often a good idea for people with more than one student loan because it lets you turn multiple loans and monthly payments into a single loan and one monthly payment, thereby simplifying the repayment process.
Getting approved for a federal loan consolidation is easier than you might think. Working with your loan servicer, you’ll usually be offered two ways to start the consolidation process. According to the DOE website, this includes:
- Agreeing to repay the new Direct Consolidation Loan under an income-driven repayment plan
- Making three consecutive, voluntary, on-time, full monthly payments on the defaulted loan before you consolidate it
Your payments will be determined by your loan servicer, who will look at your financial situation to see what you can afford during this 3-month period.
Consolidating your student loans into a new repayment plan can be extremely helpful when your loans are in default, even if your wages aren’t being garnished. Benefits of consolidating your loans include getting your loans and credit back in good standing, plus the opportunity to become eligible for some student loan forgiveness programs.
Get more info on income-driven repayment plans and consolidation from our experts at (800) 771-6358.
Rehabilitate Your Loans
If loan consolidation isn’t right for you, loan rehabilitation may be the next logical choice for getting back into good financial shape. To take advantage of student loan rehabilitation, you’ll need to have loans that qualify and sign a new agreement with your lender to fix your student loans by making nine voluntary, on-time payments within a 10-month period.
The amount you pay during this period is determined by your loan servicer, but is usually 15 percent of your discretionary income – or the amount you have left over after paying for necessary living expenses. The size of your family and state you live in is also factored into this amount.
If these payments are unaffordable, even after working with your loan servicer, you may be able to reduce them by asking for an alternative monthly payment more suitable for your situation. An added bonus is that you may also become eligible for certain student loan forgiveness programs after your loans are fully rehabilitated.
Keep Up Your Payments
The best way to end wage garnishment – or avoid it completely – is by making regular, on-time payments to your lender. If possible, you can also put together the funds to pay off your entire balance, using your savings or through financial assistance from your family or loved ones.
Setting up automatic payments through your bank can also help you keep track of your payment schedules and the amount you owe each month. Sometimes it’s just a matter of getting your finances organized to ensure your payments are getting made on time.
Request a Deferment or Forbearance
Your financial situation can change a lot after attending college. From losing a job to experiencing a financial hardship, it’s easy to get behind when your income changes overnight.
Both a deferment and a forbearance offer short-term relief to those who qualify and may be the answer to stopping your wages from being garnished.
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.
Get more information on your options by getting in touch with our student loan experts at (800) 771-6358.