Defaulted student loans and wage garnishment

As the number of people around the country defaulting on their student loans escalates, so does the number of people around the country getting hit with wage garnishments.

Too many people assume that if they have a defaulted student loan, that the government will sell their loan to a collection agency. That’s actually the government’s last resort. Its first choice, particularly for people in certain professions, is to garnish your wages.

How does wage garnishment work? One month you get your normal paycheck, and the next month your paycheck is smaller and it stays smaller until the loan is repaid. That’s all there is to it. The Federal government isn’t obligated to provide any advance warning or to notify you in writing; it simply takes what it wants. But your wages aren’t the only money on the table. The government may also withhold all or part of your annual income tax refund, and even your social security benefits.

How is the garnished amount calculated? Take the current hourly minimum wage standard and multiply it by 30. That gives you around $217. If you’re making less than that a week, your wages can’t be garnished. If you’re making more than that per week, that’s the amount the government can take from your paycheck every month. For many people and their families, that $217 is not disposable income. It is money that is needed to pay rent, buy food, and cover the utilities and thanks to wage garnishment, it’s gone, baby, gone.

Obviously, the first and best line of defense for preventing wage garnishment is to simply not let your student loan(s) slide into default. For too many people, however, that’s easier said than done. If you find that you cannot meet the terms of your repayment agreement, don’t wait: Contact a Federal loan officer immediately, before your loan goes into default. By acting quickly, you may be able to negotiate a new agreement or temporarily lower your payments. You may also be able to request a payment deferment program or a loan forbearance program.

If you have already defaulted student loans, you can still avoid or end wage garnishment. How? Enter the Federal loan rehabilitation program. For a 10-month period, you’ll have to make the (often high) payments dictated by a Federal loan officer and you’ll have to make them in full and on time, no exceptions. If you successfully navigate this repayment period, your loan will no longer be in default and you’ll once again be able to request a deferment or forbearance, if needed.

If the loan rehabilitation program is too rigid for you, or the monthly payments just too high, you have another option: A private loan servicing and consolidation organization that specializes in student loans. With one of these companies, you can stop wage garnishment and lower your monthly student loan payments. You’ll regain your financial security, honor your debt, and even repair your credit rating.