How to Stop Student Loan Wage Garnishment

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By Mark Kantrowitz

July 6, 2020

The U.S. Department of Education can garnish up to 15% of the disposable pay of borrowers who have defaulted on their federal student loans, without requiring a court order. The wage garnishment continues until the debt is repaid. Wage garnishment makes it more difficult for you to pay your bills. But, there are several ways you can stop wage garnishment. 

These are the most common methods of stopping administrative wage garnishment. Note that the garnishment rules for federal student loans are different than the rules for other types of debt.

  • Lender didn’t follow proper procedure. If the lender who holds the loan did not follow proper procedure, the wage garnishment order can be terminated. This includes a failure to provide you with 30 days’ notice of the garnishment or sending the wage garnishment notice to the wrong address. (Borrowers are required to keep their address up-to-date with the lender. If you did not do this, delays in receipt of the wage garnishment notice are your fault.)
  • Not your loans. Ask for a hearing when you receive the wage garnishment order and ask for proof that the debt is your debt. If you can prove that you’re a victim of identity theft and did not borrow or benefit from the loans, the wage garnishment will not go into effect. 
  • Negotiate repayment terms. Borrowers can negotiate repayment terms with the collection agency or the U.S. Department of Education. If the borrower sends the first payment under this agreement to the U.S. Department of Education within 30 days of the date the garnishment notice was sent, the administrative wage garnishment order will not go into effect. 
  • You got fired. If you were involuntarily terminated from your previous job, wage garnishment will be suspended for the first 12 months of your new job. 
  • Work a minimum-wage job. Federal rules limit administrative wage garnishment for defaulted federal student loans to 15% of the borrower’s disposable pay. In addition, the borrower must be left with at least 30 times the federal minimum wage. If you are working a minimum-wage job, the wage garnishment amount may be significantly reduced or even eliminated. Waiters and waitresses often earn less than the minimum wage. 
  • Become self-employed. If you are self-employed, you aren’t an employee and don’t have wages that can be garnished. Examples include freelancers, general contractors, handyman, plumbers, commissioned real estate agents and truck drivers. However, as an independent contractor your income may still be subject to wage garnishment if you operate your own business and your business pays you wages. But, you might be able to limit your wages to the federal minimum wage to avoid wage garnishment. 
  • File for bankruptcy. Even though it is almost impossible to discharge student loans in bankruptcy, administrative wage garnishment will be suspended for the duration of the bankruptcy case. 
  • Discharge your debt. Wage garnishment ends after the student loan debt is discharged. This includes the total and permanent disability discharge, unpaid refund discharge, closed school discharge and false certification discharge. 
  • Appeal based on financial hardship. Borrowers can ask for a review based on financial hardship. If approved, this will typically suspend administrative wage garnishment for 12 months.
  • Rehabilitate the debt. If the borrower rehabilitates the debt by making 9 out of 10 consecutive, full, voluntary, reasonable and affordable monthly loan payments as part of a loan rehabilitation agreement, the loans will no longer be in default and the wage garnishment will end. Borrowers can also rehabilitate the loans by consolidating them and agreeing to repay the consolidation loan through an income-driven repayment plan. The monthly loan payments under income-driven repayment are usually less than the wage garnishment amount. 
  • Pay off the loans in full. You could use your savings to pay off the debt or ask friends and family to pay off the debt. Sometimes, the borrower’s parents will use their savings or a home equity loan to pay off the student loans.
  • Refinance your debt. If you refinance your federal student loans into a private student loan, the new loans pay off your old loans, ending the wage garnishment. But, it will be difficult for a borrower who has defaulted on their federal student loans to qualify for a refinance. Plus, refinancing federal loans means a loss in benefits, including income-driven repayment plans, potential for loan forgiveness, and options for deferment.
  • Seek a settlement. Borrowers may be able to settle their defaulted federal student loans for less than what they owe. The three standard settlement offers include waiving the collection charges, waiving half of the interest that has accrued since the loan went into default and reducing the loan balance by 10%. As soon as the borrower pays the amount agreed to in the signed settlement offer, the wage garnishment will end.

If you are serving on active duty in the U.S. Armed Forces, tell the judge. The Servicemembers Civil Relief Act (SCRA) provides protections against certain proceedings for servicemembers. In particular, the judge or hearing officer must appoint a lawyer to represent the servicemember and must grant a delay of at least 90 days in certain circumstances. 

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Considering a deferment? Use our Cost of Deferment Calculator to evaluates the impact of interest capitalization at the end of a deferment or forbearance on the monthly loan payment and the cost of the loan, assuming that the loan payments are re-amortized after the deferment or forbearance.

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