What Happens When You Dispute Federal Student Loan Wage Garnishment
Once you file a dispute, you may end up with the garnishment suspended until the hearing is complete and a decision is issued. Your employer cannot fire you or refuse to hire you due to the garnishment.
It doesnt hurt to file a request, and there are virtually no expenses if the result of your case can be decided by phone or just by providing documents that support the reason you are requesting to stop the default. A more complicated hearing in one of three U.S. Department of Education regional offices in Atlanta, Chicago, or San Francisco may involve travel and legal representation costs.
Private Student Loan Wage Garnishment
For wages to be garnished to repay private student loans, you typically have to be sued first, says Madison Block, spokesperson for American Consumer Credit Counseling, a nonprofit credit counseling agency. If you are currently behind on your private student loan payments, its best to contact your lender as soon as possible to make arrangements to avoid a lawsuit.
A lawsuit could result in extra fees. If you cant afford a lawyer, call your local bar association to find local legal clinics that may be able to help you on a sliding scale.
To make sure you dont lose track of your private student loans, check your credit report on AnnualCreditReport.com and make sure you recognize all loans listed. Also, check to see if any are shown as delinquent. If the reporting was done in error, you can dispute the error with the credit bureaus.
Stop An Administrative Wage Garnishment For Student Loans Because You Were Fired
In the last year before the garnishment started, were you fired or laid off from a job?
If so, you can stop the garnishment.
What you have to do is this:
Request a hearing using the hearing request form. Check the box that says youve been involuntarily terminated from your last job and have been employed in your current job for less than 12 months.
You have the burden to prove that you were involuntarily terminated and that youve been at your new job for less than 12 months. So make sure you attach proof. An example of proof would be a letter from your former employer showing you were involuntarily terminated and letter from your new employer showing your start date.
You May Like: Aer Loan Requirements
Just How Education Loan Income Garnishment Runs
Before your salaries could be garnished, you really need to have missed about nine weeks of national student loan payments, not just responded to connections about defaulted financing thereafter not made arrangements if directed a letter about wage garnishment.
At that time, the U.S. team of knowledge can give a note towards boss to subtract doing 15% of the paycheck, after write-offs just like taxation, Social protection and Medicare efforts. The office make use of this funds to cover out the loans until simply entirely paid back, youre ready to already been removed from default, another settlement is to settle the borrowed funds or perhaps the section chooses to prevent the garnishment for other people motives.
Stopping Student Loan Garnishment: What You Should Know
A wage garnishment or Treasury offset are two ways of involuntary debt collection. If the borrower stops voluntary payments and defaults, those consequences are almost unavoidable. However, borrowers can still take action to ensure their wages or other federal benefits are not garnished. If you wonder how to stop wage garnishment, you have several solutions. You can avoid the cause-default status on loan, object to the involuntary collection decision or utilize different techniques for stopping student loan garnishment.
This guide explains the default and the following consequences, as well as solutions to undesirable outcomes. If you have further questions, you can contact our student debt specialists for a FREE consultation.
Also Check: How Much Do Mortgage Officers Make
Ask The Garnishment Be Lifted
Heres the thing:
Yes, asking the collection agency to lift your garnishment is an option.
Its just usually not a viable option.
Ive never seen it done.
But that doesnt mean it wont work for you.
So ask. The worst they can do is say no.
And if they do say no, ask if theyre willing to subtract your payment from your garnishment amount. That way you wont pay more than whats being taken by the garnishment.
What Happens As A Result Of Default
Student loan default is not desirable under any conditions. It is a significant cause for student loan wage garnishment. Hence, if you wonder how to stop student loan garnishment, you need to get out of default.
In general, once defaulted, acceleration happens. Acceleration is the process that makes any remaining debt payable immediately instead of overtime. The borrower loses access to debt resolution strategies like deferment or forbearance. For further information, loan forbearance allows short-term debt non-collection.
In case of default, borrowers cannot utilize forbearance benefits. Besides, the borrowers lose eligibility for extra student aid programs, like some forgiveness programs.
Additionally, loan servicers notify the credit bureaus that you defaulted. Hence, they lower your credit score, which means you can face challenges in the future, even for simple actions like buying a car or getting a line of credit.
Returning to wage garnishment, debtors in default face two types of mandatory collection process:
Also Check: Genisys Loan Calculator
Student Loan Refinancing Vs Consolidation
If student loan wage garnishment is the nightmare that comes true, here are two options that may be able to stop it: consolidating or refinancing your student loans. First, know the difference between the two :
When you refinance student loans, youre actually paying off your existing loans with a new loan from a private lender. In this process, you can possibly reduce your payments and make them more affordable. Or you may be able to lower your interest rate. However, you also will lose out on certain benefits that come with federal student loans, like deferment and forbearance, and lose your eligibility for all other federal student loan programs.
When you refinance student loans, youre actually paying off your existing loans with a new loan.
When you consolidate your federal student loans with the federal government, you essentially bind them all together into one, big loan. Sounds like a plan, but there can be a few downsides this could result in you paying more in interest over the life of your new, consolidated loan because the interest rate on your consolidated federal loan will be the weighted average of all your loans, rounded to the nearest eighth of 1%. You can also only consolidate your federal loans under a Direct Consolidation Loan , which has its own requirements if youre already in default , and isnt available for private student loans.
How To Avoid A Student Loan Wage Garnishment
As soon as you become aware that youve got a garnishment on the way, the first thing you should do is contact whoever is trying to put that in place to ask them if you can instead set up a payment plan and prevent it from happening at all.
This is when negotiations will begin, and your servicer will probably ask you for some kind of lump sum payments to show good faith , but theyre also going to want you to sign a new contract that says exactly how much youll pay them each month.
The key thing to think about here is that you need to prove to them that youre serious about paying them back, because unless you can convince them that you really will pay them what they want, theyre just going to ignore you and pursue that garnishment instead
At this point, your options are probably going to be doing some form of Student Loan Consolidation, which will almost certainly include enrolling in one of the Income-Based Student Loan Repayment Plans, or pursuing a Student Loan Rehabilitation to officially Get Your Loan Out of Delinquency or Default and back into repayment status.
Heres a short list of things you can do to prevent anyone from garnishing your wages:
Recommended Reading: How To Transfer A Car Loan
Reasons To Dispute A Wage Garnishment
If you want to dispute your wage garnishment, you can arrange a hearing with your student loan servicer. The reasons you may qualify is if the wage garnishment would create an extreme financial hardship, you were previously involuntarily unemployed and have been at your new job for fewer than 12 months or you object to the validity of the debt.
What Student Loan Wage Garnishment Means
If you stop making payments on your federal student loans, they dont disappear: After 90 days of nonpayment, they will be reported as delinquent to the major credit bureaus. If you still havent made payments after 270 days, the government will designate your loans as defaulted, which will go on your credit report, too. Having your loans in default will have an adverse effect on your credit score, making it difficult to get approved for an apartment or a new credit card.
Don’t Miss: What Is The Commitment Fee On Mortgage Loan
What Happens When Your Wages Are Garnished Due To Student Loan Default
Your federal student loan starts defaulting after 270 days have passed without payment on your loan balance. According to the Congressional Budget Office, about 20% of students default within three years. If youâve only missed a couple of payments, you still have time to get back on track. Two hundred and seventy days is about nine months.
Once you hit the nine-month mark of nonpayment, your entire federal student loan debt will be due immediately. It then enters the acceleration phase. Acceleration severely limits your options for payment alternatives on your student loan. At this stage, the government can use an administrative process to garnish your income.
The government doesnât follow the traditional court process when they start student loan wage garnishment, they use an administrative wage garnishment process. Through the administrative wage garnishment process, the federal government can garnish 15% of your wages. They can also garnish your tax refund and your social security benefits until the student loan money is paid back.
Your student loan will likely be sent to a collection agency. Once your loan is in default and collections, youâll have an additional interest rate of 17.92% to cover the costs of collection. This is in addition to your principal, original student loan interest rate, and fees. Youâll owe more, and the debt will keep growing. Your credit score will suffer.
Reasons Why You Should Question A Salary Garnishment
Should you wish to argue the income garnishment, you can arrange a reading with your student loan servicer. The explanations you are likely to meet the requirements is when the wage garnishment would write a high monetaray hardship, you were earlier involuntarily unemployed and will remain popular in your newer task for fewer than one year or else you target to your legitimacy of this debts.
Read Also: How To Find Your Student Loan Number
Read The Level Of Some Finance
If you decide to got several national loans, its very easy to forget about one of those existswhich could indicate inadvertently maybe not paying they. This will additionally result so long as you combined your own financial loans and cant add in one or more. You should check the status of all the your very own debts at least once per coin and be sure theyre in close waiting, meaning theyre being repaid by the due date. Log in to studentaid.gov to view your very own financial loans.
How Does Federal Student Loan Garnishment Work
First, lets discuss how wage student loan garnishment works:
Your loan becomes delinquent the first day after you miss a payment, and it will remain delinquent until you pay that unpaid amount. That means even if you start making monthly payments again, youre not off the hook. Youre still delinquent until that missed payment is paid. If you are more than 90 days delinquent on your payment, your loan servicer reports the lateness to the three national credit bureaus. This can affect your credit score.
They can also take that sweet tax refund youre expecting, by law, and without a court order.
If the situation does not resolve itself, the government may resort to contacting your employer and garnishing your wages. They can also take that sweet tax refund youre expecting, by law, and without a court order. And they can legally garnish up to 15% of your disposable income.
How is disposable income defined ? Disposable income generally is calculated when your tax obligations and other withholdings such as social security, Medicare, state tax, city/local tax, health insurance premiums, involuntary retirement or pension plans are subtracted from your gross pay.
Anyone working in the United States or a U.S. territory can have their earnings garnished for almost any type of obligation that is authorized by federal or state laws.
Read Also: Amortization Schedule For Auto Loan
What To Do If You Have Missed Payment On Federal Student Loan
If youve missed a payment or are having trouble making payments, immediately contact and discuss options with the organization that handles billing and other services for your loan to avoid defaulting on your loan. For the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program, contact your loan servicer.
Reasons To Request A Hearing To Challenge A Student Loan Wage Garnishment
The most common reason to request a hearing is to claim that garnishment of 15% of your disposable earnings will impose a “financial hardship” on you or your dependents. Whether the garnishment would impose a financial hardship is determined according to your family size, income, and expenses.
Other reasons to request a hearing include:
- You don’t owe the money .
- You are currently making payments under a repayment agreement.
- You have filed for bankruptcy. All collection activity must stop while a bankruptcy petition is pending.
- You qualify for forgiveness, cancellation, or discharge of your loan. The Department of Education’s website provides details on many circumstances in which you could qualify for discharge. These include discharge because your school closed before you could finish your program, public service loan forgiveness, and discharge for total and permanent disability.
The Notice of Intent to Garnish should include a complete list of reasons to request a hearing. The hearing may be held in person or on the phone.
Also Check: Bayview Loan Servicing Class Action Lawsuit
Ways To Help Prevent Your Student Loans From Going Into Default
Based on your financial circumstances, there are a few options available that may allow you to make your student loan payments more affordable or even put them on a temporary hold:
Income-Driven Repayment Plans: With these plans, your student loan payments are adjusted based on your discretionary income . Depending on the plan you choose , the government typically extends your repayment terms and readjusts your monthly payment. The downside: You may pay more interest over the life of your loan.
Forbearance or Deferment: If making payments is becoming or has become nearly impossible, you can ask your lender to defer your payments or request forbearance. If they agree and you qualify, you can delay your payments and avoid default.
Learn more about avoiding delinquency and default at the Department of Educations website.
File A Claim Of Exemption
If the garnishment does, in fact, apply to you and youre unable to work something out with your collection agency, you can consider filing a claim of exemption.
This option is open to you if the wage garnishment would result in financial hardship for you.
A claim of exemption is meant to protect all or a certain amount of your income from being garnished so that you can cover your basic cost of living.
While the laws vary from state to state, generally, the following types of income cannot be garnished:
Read Also: How To Get An Aer Loan
What Causes Wages To Get Garnished
Wage garnishments are the inevitable result of Student Loan Delinquencies & Defaults, and do eventually get put in place on both Federal and Private loans when the borrower who defaulted refuses to make things right.
The way they work is that the company you owe the money to starts taking what you should be paying them directly from your paychecks, before you receive any funds yourself.
And what this means is that you end up making far less money and having far less control over your financial life, since you no longer get to decide how much money you want to allocate toward student debt each month.
How do Student Loan Delinquencies and Student Loan Defaults happen? It works differently for Federal and Private loans:
Federal student loans go into Delinquency as soon as you miss a payment, but they dont enter Default until youve missed a payment for 270 days.
Private student loans never go into Delinquency, but instead enter Default as soon as you miss a single payment.
What you should keep in mind is that your best option is to avoid a student loan wage garnishment before its initiated by refusing to allow your loans to default, or by utilizing the Student Loan Rehabilitation Program as soon as you find out that your loan has defaulted.
The key concept to keep in mind here is that its much easier to prevent a wage garnishment than it is to get rid of one after its already been initiated.