Wage garnishment is a distressing prospect for anyone. You’ve already defaulted on your loans, been sent to collections, and now this new hurdle has appeared in front of you.
If you have received a letter that wage garnishment will start on your federal loans, or if you’ve received notice of court proceedings on your private loans, you may be wondering if there’s any way to prevent it.
Or worse, you may have found out about your garnishment only after it’s begun. Luckily you have rights, even in your precarious situation, and it may be possible to stave off or prevent garnishment altogether. But there are no guarantees.
Note: As of March 13, the Department of Education has suspended garnishments and collection activity related to student loans for the duration of the State of Emergency - a period of at least 60 days. See our full guide to Coronavirus student loan help.
Federal Student Loans
In general, the Department of Education or the guaranty agency that holds your loans will not begin wage garnishment until all other options have failed. They, or a collection agency contracted to collect on your loan, will try to contact you repeatedly before garnishment occurs.
If you take no action on your loan, garnishment will occur. You should receive a letter that garnishment is about to begin, but the government requires no court approval to proceed. However, if your contact information is not correct, you may never receive notice, so it’s important to verify they have the right address on file.
Other than notification, you have several rights in regard to garnishment, including to a hearing before or during garnishment that may prevent or delay it.
Ways To Prevent Federal Loan Garnishment
Garnishment of wages for federal student loans is possible in all 50 states. If you’ve gone into default and you do not establish a new payment plan, or you don’t rehabilitate, consolidate, or settle your loan, garnishment might occur.
However, if you request a hearing within 30 days of being notified, the government is not allowed to proceed with taking money out of your paycheck. If you request a hearing after garnishment begins, it might continue but there is a chance of stopping it.
At a hearing, you must present your case against garnishment. There are certain conditions that make garnishment illegal. Consider the following:
So let’s do the math. Say, after taxes, you take home $500 a week. The federal minimum wage is $7.25.
15% of $500 (or .15 x 500) is $75.
$500 minus ($7.25 x 30) is $282.50.
The lesser of these two numbers is $75, so if wage garnishment goes into effect, they cannot garnish more than $75 a week.
Regardless of the details of your case, you can request a delay in garnishment until the hearing is complete and the decision doled out.
Private Student Loans
Private student loans come with a different set of rules regarding wage garnishment. First of all, there are some states where garnishment on private loans is illegal: Pennsylvania, North Carolina, South Carolina, and Texas. I
f you live in one of these states, you can breathe a sigh of relief that garnishment isn’t possible; though you still may face litigation regarding your defaulted private student loan.
Private student loan collectors must go to court to garnish your wages and obtain a judgment and order from that court to begin. Unless you show up and challenge them, they will likely be handed an easy victory.
You should receive summons by mail if you are being taken to court so you have reasonable time to prepare. Again, make sure your correct address is on file so you receive your notice.
Ways To Prevent Private Student Loan Garnishment
Just showing up in court boosts your chances for the suit to be dropped. Collectors or lenders are betting that you do not show up so the judge rules in their favor without opposition. But this is by no means a guarantee that you will stop them just by being there.
Hiring a lawyer to present your case and advise you might be wise; if you feel absolutely confident that you can present your own case, you can forego the attorney fees. However, there might be hidden quirks of your state’s wage garnishment laws that you are unaware of.
Wage garnishment laws differ from state to state, so make sure to do your research. This is one resource, but laws do change, and it’s important to know what the most recent laws in your state are.
You can argue during your court hearing that garnishment would create undue financial hardship by presenting evidence of a limited income. If you cannot feed yourself or your family or keep a roof over your head, you have a chance to be exempt from garnishment. You can prove this by bringing pay stubs to the court to prove the hardship.
Like federal student loans, private student loans also have legal limits on what is permitted to be garnished. Private garnishment rules work somewhat like federal rules, but the numbers are a little different. In general, collectors must garnish the lesser of either of these amounts:
Using the same scenario as above, 25% of $500 (or .25 x 500) is $125.
Again, $500 minus ($7.25 x 30) is $282.50.
The lesser of these two numbers is $125, so if wage garnishment goes into effect, they can garnish a maximum of $125 a week.
If garnishment has already begun, and the amount being taken from your paycheck is outside the legal limits or your state forbids any garnishment, there are ways you can try to fix the situation. If possible, you could contact a lawyer to advise you.
If the lender or agency does not stand down after you contact them to stop, you might go further and file a complaint in court against them. Less arduous than a formal legal complaint is the option to report improper garnishment to the Consumer Financial Protection Bureau, which requires responses from the companies in question. You can also file complaints with Better Business Bureau or similar organizations. Your method of resisting improper garnishment will be unique to your resources and situation.
Stopping Wage Garnishment By Getting Out Of Default
All this being said, your best bet to stop garnishment before it begins is to get out of default on your loans.
You have way more options if you’re a borrower of federal loans. This is because default happens after many missed payments and there are several options to get out of default, like rehabilitation, consolidation, or repayment.
Private loans are more difficult because you can default after only one missed payment. While it’s unlikely garnishment would be pursued after only one missed payment, this does limit the time frame you have to get yourself out of default. However, negotiating with your lender or collector about a new repayment plan, or a settlement, is an option if you are in default.
While getting out of default is the best option, if you can’t, you have protections and rights available to you if you face wage garnishment. You might even put the brakes on your wage garnishment before it even happens.
If you’re in default on your federal student loans — or are trying to stop it before it happens — you may want to get professional help. If you're not quite sure where to start or what to do, consider hiring a CFA to help you with your student loans. We recommend The Student Loan Planner to help you put together a solid financial plan for your student loan debt. Check out The Student Loan Planner here.
For some, your monthly loan obligation could be as low as zero and you would still be in good standing with your loan.
Have you ever had trouble making your monthly student loan payments before?
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.