Wage garnishment can occur when your employer takes money from your paycheck to pay the federal government or a private creditor for your defaulted student loan. Your loan went into default when you failed to repay the scheduled payments according to the terms of your legal contract. Federal student loans enter default when no payment has been made for 270 to 330 days, depending on the type of loan. Private loans, however, can go into default much sooner.
Stopping Wage Garnishment Early
If your loan defaulted, the entire balance of the loan becomes due. You will be asked to pay this balance. If you do not, your lender can send you a notice of wage garnishment. If you have a federal student loan, the lender is entitled to collect up to 15 percent of your disposable earnings without any further legal action. It can continue to garnish your wages until the full balance -- both principal and interest -- is repaid or the loan no longer is in default. You can object to wage garnishment within 30 days from the notice you received by requesting a hearing in writing. Contact your lender for information on your hearing, which may be in person, by phone or a review of documentation you provided. A decision is made within 60 days.
Finding Who to Contact
Contact the billing agency or loan holder for the defaulted loan. You can find out who services the loan using the National Student Loan Data System. Select "Financial Aid Review" and then "Accept" the privacy information. Enter your Social Security number, the first two letters of your last name, your date of birth and your Department of Education PIN. Your PIN is the same one you used to file your FAFSA. If you don't know it, you can retrieve it, apply for a PIN, reestablish your PIN or request a duplicate PIN on the Department of Education's website. The Department of Education may use a collection agency to recover the defaulted loan.
Getting Out of Default
Getting the loan out of default will stop your wage garnishment. Contact the loan holder or agency that is servicing the account and ask about options for getting out of default.
You have options available if you ask for their help. You can still repay the loan in full to get out of default. If you cannot afford to do this, ask about loan rehabilitation. This option requires setting up a reasonable and affordable repayment plan and making the specified number of agreed-upon payments to get out of default. Payments collected as wage garnishment do not count -- these must be voluntary payments. If you hold up your end of the deal, your loan will no longer be in default, the damage to your credit report will be removed, and wage garnishment will stop.
Consolidating the Loan
Sometimes, loan consolidation can help you out of a default situation if you have more than one student loan. You still will have to set up a voluntary repayment plan, but this usually only requires three consecutive on-time payments. Once this is done, you can consolidate the loan through a Direct Consolidation Loan. However, consolidating can have some drawbacks. For example, if you have other loans for which you have completed service toward the Public Student Loan Forgiveness Program, consolidating now could mean losing any years that have been credited.
Dealing with Private Loans
If your student loans are private loans not backed by the federal government, the rules are different. The normal wage garnishment rules and limits for your state apply. The creditor first will have to sue you to obtain a judgment and get a court order for the wage garnishment. Generally the most that can be garnished is 25 percent of your pay; although your state may have a lower maximum.
Sara Mahuron specializes in adult/higher education, parenting, budget travel and personal finance. She earned an M.S. in adult/organizational learning and leadership, as well as an Ed.S. in educational leadership, both from the University of Idaho. Mahuron also holds a B.S. in psychology and a B.A. in international studies-business and economics.