You’re scared. I get it. You’re on this page looking for information on how to stop student loan garnishment. You need that information for one of two reasons:
- you got a letter telling you your wages were about to be garnished or
- your pay check was already garnished.
Either way, you need the garnishment to stop.
And you’re not alone.
From October 2015 until that December, over $176 million in wages were garnished for defaulted student loans.
Let me show you how.
Let’s talk about exactly what’s happening.
Related: How to find out whose garnishing your wages for a defaulted student loan[forthcoming]
Defaulted student loans garnishment
At some point, you borrowed a federal student loan.
What I mean by superpowers is this:
The government, unlike lenders, can garnish your wages without taking you to court. The government doesn’t need a judgment to take your wages. Or your social security benefits. Or your your tax refund.
Basically, defaulting on your federal student loans puts you in a terrible spot.
But I guess you already knew that (or at least are learning that right now).
With that background, let’s move onto answering the question you came here with…
Is there a way to stop wage garnishment for student loans?
But the process for stopping the garnishment depends on whether the garnishment has yet to start or has already started.
Let me explain.
You have more options if you fight an administrative wage garnishment before it starts.
- stop the garnishment by entering a voluntary repayment agreement
- stop the garnishment by settling the defaulted student loan amount.
- stop the garnishment by rehabilitating your defaulted student loans
- stop the garnishment by consolidating your defaulted student loans
- temporarily stop the garnishment by timely requesting a hearing
- temporarily stop the garnishment by filing bankruptcy
But if the garnishment has already started, you have fewer options. And most times it will take several weeks for one of those options to stop your wages from getting garnished.
How to remove a student loan wage garnishment before it starts
You’re supposed to get notice of the garnishment at least 30 days before it’s scheduled to start.
I say “supposed to” because often borrowers don’t get that notice. That’s because the notice was sent to the last address the servicer has on file. And that address is usually where they lived while they were in school.
But let’s say you get that notice.
What does it say?
One of the first things it tells you is you can…
You got the letter telling you your wages will be garnished.
In that letter, there’s a telephone number for a collection agency.
The collection agency might be Pioneer Credit Recovery. Or it may be Performant Recovery. Or it may be any of these 31 collection agencies the Department of Education has hired to garnish wages.
Once you call the collection agency you should be given three options:
- enter into a voluntary repayment agreement
- settle the loan for about 90% of the balance or
- rehabilitate the defaulted loan
I’ll talk about the settlement and rehabilitation options later. But first, let me tell you what’s meant by a voluntary repayment agreement.
Entering a voluntary repayment agreement allows you to stop a garnishment before it starts. Your payments should be 15% of your disposable pay. “Disposable pay” is your pay that remains after deductions required by law are withheld.
Here’s what you need to know: If you enter a voluntary repayment agreement, you’ll be paying about the same amount you would be if you were being garnished. Plus, there’s no guarantee you’ll get out of default. And that means your tax refund can still be taken.
Instead of entering into a voluntary repayment agreement, you can settle the debt.
Settling a federal student loan sounds attractive.
It’s only later, when you learn the offered settlement requires you to pay about 90% of the principal and interest, that you realize settling is ugly — to your finances.
You might think:
If I had that type of money, I would’ve been paying my student loan and I wouldn’t be in default.
Look, I didn’t say settling a defaulted federal student loan was a great option.
It’s just simply an option to stop a garnishment.
Rehabilitating a defaulted federal student loan is one of my two favorite ways to stop a garnishment. (The other is the next option: consolidation.)
Student loan rehabilitation is similar to entering a voluntary repayment agreement in that you’re required to make monthly payments. The two options differ, however, in the amount of your monthly payments and the benefits you get for making those payments.
Here’s what I mean.
Remember, a voluntary repayment agreement does nothing more than stop a pending wage garnishment. There may not be a cap on how many payments you must make. There’s usually no way to lower your payment from the 15% of your disposable income formula. And there’s no guarantee you’ll get out of default by making the payments.
When you rehabilitate a defaulted student loan, there’s a limit on the number of monthly payments you’ll make: 9.
You typically must make 9 monthly payments within 10 months to rehabilitate a loan.1 Meanwhile, your monthly payment can be as high as what your payment would be under the income based repayment program. Or it can be as low as $5. Lastly, after you make your last payment, your loan will be removed from default status and your credit report will be updated to reflect that status change.
Those are all wins.
- How to rehabilitate a defaulted federal student loan
- Do this when you can’t rehabilitate a defaulted federal student loan
Consolidating a loan out of default has several benefits.
First, consolidation gets you out of default fast. While rehabilitation takes at least 9 months, consolidation will have you out of default in about 2 to 3 months.
Second, the resulting consolidation loan may be eligible for the Revised Pay As You Earn Plan.2
Third, the consolidation loan will be eligible for forgiveness under the Public Service Loan Forgiveness Program.3
Finally, repaying your loan will be simpler. You’ll have just one servicer to pay and send paperwork to.4
Move quickly if you choose consolidation to stop the garnishment. You can’t consolidate a defaulted loan if there’s an active garnishment. Since it takes about 2 to 3 months for a consolidation to complete, set up a repayment agreement or rehabilitation with the collection agency first. Doing one of those things, should buy you enough time to allow the consolidation process to complete.
- Most (if not everything) you need to know about consolidating your federal student loans
- Free electronic consolidation application process from studentloans.gov
Requesting an administrative hearing before your garnishment starts will stop the garnishment in its tracks.
Yes, the garnishment can’t start if you timely request a hearing but…
…the garnishment can restart if you lose the hearing.
You can request hearing by submitting this request for an administrative wage garnishment hearing form.
You’ll need to give a reason why you’re requesting a hearing.
The most common reason given is that a student loan garnishment would cause financial hardship to you and your dependents. If you’re wondering, you have a financial hardship when you’re unable to:
Meet basic living expenses for goods and services necessary for the survival of [you] and [your] spouse and dependents.5
You can raise more than one defense. So don’t just argue financial hardship.
- you don’t owe the debt because you never borrowed the loan;
- you don’t owe on your student loan because you repaid the debt;
- you’re repaying your loan as required by a repayment agreement;
- you filed for bankruptcy and your case is still open;
- you debt was discharged in bankruptcy;
- you’re totally and permanently disabled;
- your school failed to pay you a refund it owed you; or
- you’re eligible to discharge your loans because your school closed or your school falsely certified you were eligible for federal aid.
And if those defenses aren’t enough for you, you can also raise any other defense you believe prohibits the debt from being enforced.
…filing bankruptcy will stop a wage garnishment.
But this is a drastic measure.
You may not want to file bankruptcy just to stop a garnishment. Bankruptcy is a really powerful option you probably should use only if you have other debt you want to get rid of.
Here’s what I mean.
When you file bankruptcy, almost all collection activities against you stop. That means no more letters, no more harassing phone calls, nothing.
And when the bankruptcy completes, you should have way more room in your budget. That’s because you will have discharged your debt from payday loans, credit cards, medical bills, etc. As a result, you’ll be able to (theoretically) save more money and spend money on things you want (travel, family, etc.).
There are drawbacks to filing bankruptcy to stop a garnishment, however.
First, you’ll likely have to get your loans out of default before your bankruptcy ends.6
Second, your credit score may take a dip. But if you already have a low score — and you likely do because of your defaulted student loans — what difference does a few less points make?
Finally, your bankruptcy can stay on your credit report for up to 10 years. The first year or two of it being on your report may make it difficult for you to finance certain things like a mortgage. But your financing options should improve each year if you’re rebuilding your credit.
Related: What happens to your student loans when you file chapter 13 bankruptcy [forthcoming]
Bottom line: How to stop student loan garnishment all depends on your willingness to act fast. When you get notice of the garnishment, move. Do something. Or else it may be too late.
If you have a Perkins Loan, you get only 9 months to make the 9 payments.↩
The consolidation loan will be eligible for the REPAYE plan if you included no Parent Plus loan in the loan.↩
You still must work full-time for the government or a nonprofit to qualify for forgiveness.↩
This is true if you consolidate all of your federal student loans. If you don’t, you still may have more than one servicer.↩