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.
What is the Student Loan Default?
Wage and non-wage garnishments on student loans happen because borrowers are unable to repay. Hence, borrowers should be aware of what happens if they face repayment challenges.
Under the student loan conditions, if a borrower faces trouble for repayment, he/she should contact the loan servicer and ask for the solutions. Loan servicers are the organizations dealing with billing and other loan-related issues for Direct or FFEL loans. For Perkins loans, you would be better off contacting your school.
Once the borrower stops making payments, the loan enters into a delinquency state. Delinquency starts as soon as the borrower misses a due date and lasts around 270 days. After 90 days of non-repayment, the loan servicer contacts three major credit rating agencies to inform them about the situation.
If you do not take action, you will face the risk of going into a student loan default. Depending on the loan taken, the time required for default changes. Usually, Direct or FFEL loan borrowers are considered to default if they do not make a payment 270 days after the due date. However, Perkins loan borrowers will face a much shorter time. Keep in mind that if you contact the loan servicers or the school (in case of Perkins loan) immediately, you can solve the default status fast. Otherwise, you will face harsh consequences.
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:
- Treasury Offset- happens when the tax refunds and other federal benefits of the borrower are taken as a repayment for the owed debt.
- Wage Garnishment- occurs when the employer keeps some portion of the wage and transfers it to the loan holder as a repayment.
This guide will explain both the Treasury Offset and Wage Garnishments. At the end of the guide, the borrower will have some idea on stopping student loan garnishment and similar involuntary debt repayment methods.
What is Wage Garnishment?
In general, wage garnishment is a legal process of withholding earnings by an employer due to a court order. Garnishment usually happens due to unpaid student loans or child support fees. Meanwhile, the employer cannot dismiss an employee if he/she faces wage garnishment issues for any reason. Having a wage garnishment issue cannot be a reason for discharge for the first time.
However, for subsequent debts or following wage garnishment obligation, the employer can dismiss the employee. The borrower has the right to start legal action against the employer if the employer does not follow these rules. Keep in mind that wage garnishment applies to different types of earnings, such as the salary, commission, bonus, income from pension, excluding ordinary tips.
Details of Wage Garnishment
Before we discuss stopping student loan garnishment, borrowers must be aware of the entire process.
Wage Garnishment is an involuntary way of student loan repayment. During this process, the loan holder gets 15% of the borrower’s disposable income until the whole debt is paid or the borrower no longer defaults. For further information, disposable income is the net amount of income you receive after deductions. Before the garnishment starts, the borrower should get a notice from ED which indicates:
- That garnishment will start in 30 days
- That the borrower can inspect the documents regarding the debt
- Information about debt- nature and amount
- That the borrower can object to the garnishment
- That the borrower can eliminate garnishment through voluntary debt repayment
Once the borrower receives the notice, he/she can request a hearing. For example, if you believe that the debt should not be entitled to student loan wage garnishment, you can have an opportunity for a hearing. Hearing can also help when the borrower believes that he/she cannot afford to pay 15% of the disposable income for the repayment.
Besides, the borrower can enter a voluntary agreement with the Education Department to repay the debt.
Stopping Student Loan Garnishment
If you wonder how to stop wage garnishment for student loans, this section will provide you with the answers. You can stop student loan garnishment by eliminating default status, delaying garnishment action, or voluntarily repaying the debt.
Requesting a Hearing
One of the ways to avoid wage garnishment is requesting a hearing, as explained before. If you want to utilize this option, you have a maximum of 30 days after receiving the notice of garnishment to request the hearing in writing. Once requested, the loan holder will arrange the meeting. Hearing can be in person, on the phone, or in the documents provided. The officials will review the case, and within around 60 days, they will inform the borrower about the decision.
Stopping student loan garnishment will be possible if the officials approve your request. Keep in mind that even if the wage garnishment is canceled, the decision is valid only for one year. Besides, approval does not mean total elimination of the problem. Sometimes, rather than stopping student loan garnishment, the officials decide to reduce the amount.
Before you decide to request a hearing for stopping student loan garnishment, it is advisable to check the complete information on the official Student Aid platform or contact a third-party debt specialist like those in Student Loans Resolved. The legal consequences and requirements can be hard to understand. Hence, getting expert help ensures you take the proper steps if you wonder how to stop student loan garnishment.
Keep in mind that you can request a hearing even if you are waiting for the debt records. Requesting these documents would not delay the wage garnishment process. Hence, request the hearing in any case.
During this process, you need to submit any proof to support your claims on stopping student loan garnishment. For example, documents objecting to the wage garnishment due to financial hardship can be provided. Additionally, the borrowers are required to undertake the hearing costs, such as attendance and getting legal help. As it can be a costly process, consulting with a debt expert can be necessary before taking any action.
How to Stop Student Loan Tax Garnishment?
An alternative way of involuntary debt collection is through Treasury Offset. During this process, the Education Department requests the Treasury Department to keep money from tax refunds or other benefits like Social Security Payments. Similar to wage garnishment, before involuntary collection starts, the borrower will receive a notice. Differently, the notice period is 65 days rather than 30. The officials will collect the repayment involuntarily until the debt is fully paid or the default status is eliminated.
If you wonder how to stop student loan tax garnishment, it can be done through requesting a review, similar to wage garnishment. The borrower has the right to request a review of the decision. If the request is successful, the offset can be stopped, or the amount of offset can be reduced. If not successful, the borrower’s tax refunds and other benefits will be withheld.
Eliminating Default Status
Another option for stopping student loan garnishment is eliminating default status. Default is the root cause of the wage garnishment and treasury offset issues. If your loan does not default, there is no need to worry about involuntary debt collection.
There exist three ways to get rid of student loan default. First, the borrower can pay the debt entirely. Sure, this option is mostly not feasible because if the borrower had money, he/she would not have defaulted. The other alternatives are loan rehabilitation and loan consolidation. Keep reading about these options to find out which can help stop student loan garnishment.
If you have Direct or FFEL loans, you can rehabilitate the loan by agreeing to a voluntary repayment period. The borrowers should make nine payments within 20 days of the due date. Payments are discussed beforehand, so they are usually affordable. The rate of monthly payments is around 15% of the annual discretionary income, divided by 12. Discretionary income is what is left after deducting taxes and necessary spendings from the gross income. It is mostly adjusted based on the family size and earning amounts.
Keep in mind that nine payments should be made within ten consecutive months. This requirement is nine consecutive payments in nine months for Perkins loan borrowers. The exact amount of monthly payments is determined by the loan holder.
How to Apply for Loan Rehabilitation?
Borrowers need to submit their tax returns to the Education Department to start the loan rehabilitation process. Next, they will sign loan rehabilitation agreements and start making nine required payments. Borrowers can utilize this solution for stopping student loan garnishment only once.
Besides, they can still be subject to involuntary payments (through wage garnishment of treasury offset) while making nine required payments. However, involuntary charges are not counted for this requirement. Once the default status is eliminated or some progress on loan rehabilitation is made, it will be possible to stop student loan garnishment.
Consequences of Loan Rehabilitation
Besides stopping student loan garnishment, loan rehabilitation will bring additional benefits. For example, the default status is eliminated, which means the borrowers will continue qualifying for other debt resolution strategies like forbearance. Moreover, their credit performance will improve as records on default are removed.
Getting rid of default status is also possible through loan consolidation. Consolidation is like paying off one debt and generating a new one. As you pay off the existing debt, the default status is removed. It is possible to consolidate by agreeing on repayment under an Income-based plan or making three consecutive payments. The loan holder determines the required amount for successive payments.
Keep in mind that consolidation cannot be used until non-voluntary repayment is stopped in case of wage garnishment. For example, first, the court should order stopping student loan garnishment, and then the borrower can consolidate to eliminate default status.
We have already discussed how to stop student loan garnishment after it starts. However, the best strategy is avoiding wage garnishment or Treasury offset in the first place. Make sure you track your loans, specifically if you have multiple loans. You need to be careful with the repayment and understand that debt obligations are serious. Hence, check the status of your payments and ensure the loan is in good standing to avoid non-repayment before it happens.
In case you cannot afford the payment, immediately contact the loan servicer and ask for help. You can change the repayment plans or use forbearance benefits when you face economic challenges. By informing the loan servicer, you can be informed about your solutions. Otherwise, it can be too late to avoid wage garnishments, and you will need to stop student loan garnishments.
Flexibilities regarding COVID-19
As the COVID-19 pandemic negatively impacts the economy, borrowers are struggling to repay their student loans. The good news is that the government recognizes this challenge and provides flexibility for borrowers.
Back in March 2020, the government introduced the suspension of loan payments, including involuntary payments through wage garnishment and treasury offset. Besides, the interest rates were decreased to 0%. Luckily, these measures were extended several times. In January, when Joe Biden started his presidency, he requested extending these measures till the end of September. It means the borrowers’ wages, tax refunds, or other benefits would not be collected involuntarily for the next four months.
This debt collection suspension period is a great opportunity for borrowers. Besides stopping student loan garnishment, this benefit period allows borrowers to take time and develop sound debt resolution strategies. Before the collection period resumes, the borrowers should decide how they will deal with the debt once it is time to make a payment.
Involuntary debt collection, through wage garnishment or Treasury offset, is not desirable. However, it is expected if the borrower defaults. Therefore, there emerge two scenarios. Either the borrower should avoid defaulting the student loan or object to wage garnishment (or treasury offset) for stopping student loan garnishment. Sure, it is always advisable to keep track of payments and ensure that the borrower does not default. There is no need to worry about involuntary debt collection or how to stop student loan garnishment in such a case. Additionally, keep in mind that default is a serious matter, and its negative consequences can be long-lasting. Hence, before you take any action or decide to ignore it, it is advisable to consult with a debt specialist. Like those in Student Loans Resolved, debt experts can analyze your challenges and develop the best resolution strategy.