Borrowers who do not pay the debt obligations voluntarily can face involuntary debt collection. The payments can be collected through two different ways- Treasury offset and wage garnishment.
The borrowers can avoid these consequences by ensuring on-time payments. However, if you are already subject to involuntary collection, you still have a few strategies to stop this process.
This guide focuses explicitly on wage garnishment, which happens when your debt obligations are directly deducted from your wage. We will explain the process and suggest solutions to stop your payment from being garnished. Yet, you can get more information on other methods- Treasury offset- in our blogs. You can also contact us for a free consultation if you have any questions or concerns.
Student Loan Default-A Way to Wage Garnishment
Wage garnishment does not happen immediately. Instead, this process causes the borrower’s inability to pay student loan obligations. Although understandably, you might lack finances to afford payments, it is your responsibility, and you cannot avoid it.
Once you stop your debt repayment, the loans will be put into delinquency status. Loan delinquency usually starts as soon as you miss a due date and continues for around 270 days. Generally, after only 90 days, the loan servicing companies contact the major credit rating agencies. As a result, your credit score will be decreased.
Yet, delinquency is only the beginning of the challenges. You can still take several actions to stop delinquency before it turns into a default. If you ignore this issue, loans become defaulted after 270 days of non-repayment. This time limit is applicable to the FFEL and Direct loans. For Perkins loans, loan default can happen much faster.
Keep in mind that wage garnishment happens because you default on your loans. Hence, you can avoid Garnishment by contacting the loan servicer immediately to find a solution. In addition, loan servicers can recommend strategies for financially-struggling borrowers. For example, you can enroll in more affordable Income-driven repayment plans.
Consequences of Default
Default is not good for borrowers because it brings many negative consequences. From a wage garnishment perspective, default is the cause that leads to this process. Hence, borrowers who want to avoid student loan wage garnishment should first ensure they do not default or get out of default fast.
When 270 days pass and your loan defaults, the process called acceleration starts. Acceleration means all your debt obligations become immediately payable. Besides, you cannot utilize debt strategies like deferment or loan forbearance. These strategies allow borrowers to stop repayment for the short term. Additionally, defaulted borrowers become ineligible for federal student aid programs, like some loan forgiveness options.
Next, the credit rating agencies become informed about your loan default. Therefore, they lower credit scores even further. It becomes harder to rent an apartment, get an auto loan, or even find an insurance program with bad credit performance.
Lastly, as debtors do not repay the debt voluntarily, debt repayment becomes an involuntary process. The collection agencies collect debt payments in two ways. First, wage garnishment happens when employers keep some of your wages and direct it to the lender as repayment. Next, Treasury offset occurs when your tax refunds or other federal benefits like Social Security benefits are taken in return for debt repayment.
As mentioned before, we focus more on wage garnishment in this guide. However, you can get additional information on Treasury to offset our blogs.
Wage Garnishment: What is It?
Wage garnishment is a way of collecting debt from borrowers involuntarily. When your wage is garnished, your employer will keep some of your income and pay it to the loan holder. Usually, this process happens for student loan obligations or covering child support fees. Although employers have a right to keep your wage, they cannot treat you differently or make you quit for this reason. Yet, if you continue to default on your loans, your employer can finally dismiss you. Keep in mind that you can also sue the employer for any illegal action in case of wage garnishment.
But what is considered a wage? Your salary is not the only income type that can be garnished. Additionally, any commission, bonus, pension income, etc., can be garnished. However, ordinary tips can be exceptional.
How does Garnishment happen?
Usually, you get notice beforehand that your wage will be garnished. The Education Department will send you this notice which includes different types of information. For example, you will find how much you owe and when wage garnishment will start. Besides, there will be an explanation of your rights. For example, you can object to this involuntary debt collection process or check your documents regarding this decision or debt.
You can request a hearing to object to this decision when you get the notice. There should be a cause behind your objection. For example, maybe you believe that your debt should not be involuntarily collected. Alternatively, you might claim that Garnishment will leave you with money that you cannot live with. Generally, this process requires 15% of your disposable income. This type of income is what is left after making necessary deductions.
How to Stop Student Loan Wage Garnishment?
Now that you understand the process, it is time to determine how to stop student loan wage garnishment.
You can stop this process by eliminating the cause- which is student loan default. It means, if you get out of default, involuntary debt collection will be ceased. Besides, you can delay the Garnishment by objecting or simply pay your debt voluntarily.
Requesting a Hearing
As mentioned before, you can request a hearing to object to this decision. You have up to 30 days after getting the notice to request a hearing by writing. Next, the loan holder will arrange this process. The hearing usually happens in different ways. For example, you might be asked to participate in person on the phone. Alternatively, a hearing can occur based on the documents you provide.
After requesting, your hearing request will be reviewed, which generally takes around 60 days. Then, you will be informed about the decision. If the decision is favorable (approved), your wage garnishment order can be stopped. However, keep in mind that this decision is valid only for one year. Therefore, hearing is not a long-term solution for Garnishment.
Besides, you might claim that you cannot afford to pay 15% of your disposable income. In this case, the officials might decide to reduce the amount you should pay through a hearing. It means the student loan wage garnishment does not stop but becomes more affordable.
Think Twice for Hearing
Before you request a hearing, you need to consider several factors. For example, you should request a hearing even if you are waiting for documents like debt records. Requesting debt records will not delay the wage garnishment process. Hence, you will lose time if you do not act fast.
Besides, for your hearing to be successful, you should submit all necessary documents. For example, if you face financial challenges, you can submit proofs that show your hardship. Moreover, you might undertake all costs of this process, and it can be expensive. Hence, you can face more financial challenges if you start this process.
In short, hearing is a complicated legal process, and it requires time and money. Therefore, it is advisable to get expert help. For example, debt specialists can guide you through this process. Alternatively, you can get thoroughly familiar with the process on the official Student Aid website.
What about Treasury Offset?
Another way of collecting debt involuntarily is through Treasury offset. This process involves withholding your federal benefit like tax refunds or Social Security payments to pay your debt. Like wage garnishment, you will get a notice before starting this process. However, unlike Garnishment, the notice period is more extended, up to 65 days. Involuntary debt collection continues till the debt is fully paid, or you get out of default status.
If you face a Treasury offset, you can also stop this process. Again, you can request a hearing to object to the decision. If your request is approved, the offset can stop. Alternatively, the offset amount can be reduced. If not successful, you can lose your federal benefits.
How to Eliminate Default Status?
If you wonder how to stop loan wage garnishment or Treasury offset, this section will present you with the solutions. First, we will discuss eliminating default status. As mentioned, default is the cause of Garnishment. If the cause is removed, Garnishment stops as a result.
Student loan default can be eliminated in three ways. First, you can pay the debt, but, understandably, you might not have this money. Next, you can use strategies like loan consolidation or rehabilitation. We present these solutions in the following sections.
Student Loan Consolidation
You can consolidate your loan to get rid of default status. Consolidation is like paying off one loan and getting a new one. As you pay the loan, your default status is eliminated. However, there exist pre-conditions for consolidation. Before you utilize this strategy, you can agree to repay the debt through an Income-based payment strategy or make three consecutive payments. Usually, the loan holder decides how much you should pay. However, keep in mind that if you choose to consolidate through making three payments, you should first get wage garnishment stopped.
Rehabilitation
Student loan rehabilitation can get you out of student default by making voluntary payments. Direct and FFEL loan borrowers can rehabilitate their loans by making nine payments in ten months. All payments should be made in full and within 20 days of the due date.
Luckily, the amount of payment is also affordable. Usually, 15% of your discretionary income is used for this purpose. Discretionary income is less than disposable income because it involves deducting taxes and other essential spendings.
If you have Perkins loans, you should make nine payments in a nine-month period. It means your payments should be consecutive. The loan holder decides the payment amount.
Application to Rehabilitation
If you want to utilize this strategy to stop default and wage garnishment, you should submit your tax return to the Education Department. Next, you will receive the loan rehabilitation agreement and start your nine-month repayment. Keep in mind that you can only utilize this strategy once.
The negative side of this solution is that involuntary collection can still be applicable when you make nine payments. Your involuntary payments do not count for the rehabilitation process. Once you make enough payments and eliminate default status, you can stop student loan wage garnishment.
The benefit of this solution is that you can improve your credit score. When you rehabilitate your loan, the default record from your credit report will be deleted. However, you can still find late payment information on the reports. This benefit is not available with loan consolidation because a default will not be removed from your report.
Avoid Default in the First Place
We discussed how to stop default, wage garnishment, or Treasury offset. However, the most effective strategy is avoiding these processes in the first place. If you monitor your payments, you can keep better track and not miss the payments. It is essential, especially when you have multiple loans.
If you face a financial challenge, you should not wait months to resolve the issue. Instead, you should immediately contact the loan holder and ask for help. Loan servicers can usually enroll you in a more affordable plan or grant loan forbearance for a short term. Acting fast ensures you do not start thinking about solutions when you already face the wage garnishment.
Final Words
Debt repayment is hard, but involuntary debt repayment is hard. If you do not make payments on time and default, you can face wage garnishment or Treasury offset process. Both consequences are not desirable as you will let go of some portion of your salary or federal benefits. Luckily, there are still ways to deal with these negative consequences.
You can request a hearing if you disagree with the decision of involuntary collection. For example, you can claim that repaying the debt in this way will not allow you to meet living standards. Hearing can stop wage garnishment or reduce the amount required per month.
Additionally, if you eliminate the cause- student loan default- wage garnishment or Treasury offset can also stop. You can use loan rehabilitation or consolidation to get out of default status. Repaying the total debt is also a strategy to eliminate loan default. However, it is understandable that many people will not have this amount to pay.
This guide specifically focused on wage garnishment, which happens by withholding 15% of your disposable income. The employer pays this amount directly to the loan servicers or collection agencies as your debt repayment. Your salary, commissions, bonuses, etc., can be garnished. Please, get familiar with your options in this guide to ensure you do not face wage garnishment or stop this process. For more details on the Treasury offset process, you can contact our debt specialists or read our blogs.
