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Student loan borrowers, the government is coming for your paycheck. As initially reported by The Washington Post and other media outlets earlier this week, the Education Department plans on initiating wage garnishment proceedings against borrowers in default on their federal student loans starting in January. More than five million borrowers could be immediately at risk of garnishment, with millions more to follow in the coming months.
The move to garnish borrowers’ paychecks is just the latest step the department has taken under the Trump administration to ramp up collections efforts against defaulted federal student loan borrowers. Under federal law, the government has powerful tools to pursue Americans who default on their federal student loans, without the need for litigation or a court order. Earlier this year, the Education Department began reporting delinquent and defaulted federal student loans to credit bureaus again, and started seizing the federal tax refunds for defaulted borrowers. The department had threatened to start offsetting Social Security benefits, as well, but subsequently walked that back; it’s still unclear if that reprieve is temporary.
Here’s what borrowers who are in default on their federal student loans should know about looming wage garnishment, and how to avoid it.
Update Contact Details To Avoid Wage Garnishment For Student Loans
Under federal law, borrowers in default on their federal student loans must be sent a formal written notice 30 days prior to the initiation of wage garnishment, and be given the opportunity to object or respond.
“With garnishment, you have the right to be sent a notice that explains ED’s intention to garnish your wages in 30 days, the nature and amount of your debt, your opportunity to inspect and copy records relating to your debt, your right to object to garnishment, and your option to avoid garnishment by voluntary repayment,” says the Education Department in online guidance.
The government does not have to make any effort to track you down, however. All the Education Department must do is send the notice to a student loan borrower’s last known address on file. If you haven’t updated your contact information, you may miss critical notices warning you of imminent wage garnishment or tax refund seizure, and lose your opportunity to to respond and prevent it from happening.
“Make sure your contact information is updated with the Department of Education and your loan servicer,” warns the National Consumer Law Center in a blog post about federal student loan default and collections. “Many people who don’t get notice that their tax refunds have been taken have moved and failed to let the government know their new address. Don’t miss out on important updates. Call your loan servicer or log in to your studentaid.gov account to update your contact information.”
Cure Delinquency For Student Loans Before Defaulting
It’s important to know that only borrowers in default on their federal student loans can be subject to administrative wage garnishment and tax refund seizures. Default typically occurs after a borrower is more than 270 days delinquent, or past due, on their balance. That gives borrowers falling behind on their payments at least nine months to pull their student loans back from the cliff and avoid defaulting. According to Education Department data, nearly three million borrowers are between 30 and 270 days delinquent on their federal student loans.
Delinquent borrowers have a few potential avenues for avoiding default. One option is to pay the past due balance to bring the account current. Another is to request a forbearance, which can be applied retroactively to cancel out the past due balance and put the student loan back into good standing again. A retroactive forbearance can potentially even be used for borrowers who defaulted very recently and whose student loans are still being managed by their loan servicer (typically, Direct federal student loans that go into default are transferred from the loan servicer to the Education Department’s Default Resolution Group). However, borrowers should be aware that they typically only have 36 months of hardship forbearance available during the repayment term for the student loan.
Borrowers may also be able to apply for an income-driven repayment plan, which could result in their student loans being placed in a temporary processing forbearance; however, borrowers should verify that with their loan servicer. Those who have exhausted their forbearance options can potentially consolidate their federal student loans via the federal Direct consolidation program, which would result in a new federal student loan in good standing with a fresh supply of forbearance options available. However, consolidating federal student loans that already have time accrued toward eventual student loan forgiveness under income-driven repayment plans could result in the erasure of that credit.
Request A Hearing To Avoid Wage Garnishment For Defaulted Student Loans
If you’re in default on your federal student loans and you receive a formal notice of wage garnishment (usually referred to as a “Notice Prior To Wage Withholding”), you have a short window of time to act. One way to try to stop the wage garnishment before it goes into effect is to request a hearing. According to the Education Department, there are three main reasons for borrowers to request a hearing.
“You have the right to request a hearing and get a ruling on any objection you have to the existence, amount, or enforceability of the debt; any objection that garnishment of 15% of your disposable pay would produce an extreme financial hardship; or any objection stating that garnishment cannot be used at this time because you’ve been employed for less than 12 months after having previously been involuntarily separated from employment.”
The request for a hearing must be submitted in writing (a hearing request form is typically included with the Notice Prior To Wage Withholding) and must be received by the Education Department within the 30-day response window. Borrowers can request a hearing based solely on documentation; they can request a virtual or telephonic hearing; and they can request an in-person hearing. Regardless of the type of hearing requested, student loan borrowers should provide supporting evidence with their hearing request.
“Provide proof to support any objection made to the existence, amount, or enforceability of the debt, or financial hardship,” recommends the department in its online guidance. “A decision about whether your wages will be garnished will usually be made within approximately 60 days from the day that your hearing request is received.”
Borrowers who properly request a hearing prior to the initiation of wage garnishment can pause the garnishment process until the Education Department has rendered a decision. If wage garnishment has already begun, borrowers can still request a hearing, but the garnishment won’t stop until and unless there is a favorable hearing decision.
Apply For Administrative Discharge Of Student Loans To Avoid Wage Garnishment
One specific basis for requesting a hearing, and ultimately objecting to wage garnishment, is if the borrower has a legitimate basis for discharging their student loans. You can qualify for an administrative discharge if “your school lied to you about the program or the loans you were taking out; the school failed to pay you a refund after you withdrew from classes; you are totally and permanently disabled; the loan is not enforceable, for example because of forgery or other reason; or you are eligible for a closed school discharge,” says the National Consumer Law Center in its blog post.
To pursue an administrative discharge, student loan borrowers should respond to the wage garnishment notice by selecting the appropriate administrative discharge option on the hearing request or objection form, and then return that form to the Education Department by the deadline. The department should then send the borrower the appropriate discharge application. As noted, borrowers who properly comply with this process prior to wage garnishment beginning can pause the seizure of their pay until the department issues a decision. Otherwise, wage garnishment will continue until there is a favorable determination on the borrower’s administrative discharge request.
Cure Defaulted Student Loans To Avoid Wage Garnishment
Student loan borrowers who don’t qualify for an administrative discharge and don’t have any other basis for objecting to wage garnishment may ultimately have to cure their defaulted student loans. There are four main avenues for default resolution.
First, borrowers can simply pay the student loan balance in full. However, this may simply not be financially feasible for most borrowers. Another option is to try to settle the balance, whereby the borrower pays a portion of what is owed and the remainder would be waived or cancelled. However, settlements of defaulted federal student loans are governed by strict guidelines, and in many cases, borrowers will only see a marginal reduction of their balance through a settlement. And the waived or cancelled portion of the balance could be treated as taxable “income” to the borrower.
A third option for student loan borrowers to avoid wage garnishment is to enter into a repayment plan with the Education Department.
“One way to avoid garnishment of 15% of your disposable pay is to negotiate repayment terms acceptable to your loan holder and ensure that ED receives the first payment no later than 30 days from the date the garnishment notice was sent,” says department guidance.
One such repayment plan option is a program called loan rehabilitation. This is a temporary repayment plan for defaulted federal student loans whereby borrowers make payments based on their income for at least nine months. After they have complied with all rehabilitation program requirements, their student loans are brought out of default and restored back to good standing, at which point they can access any number of repayment plan options. However, it is important for borrowers interested in loan rehabilitation to formally enter the program prior to wage garnishment beginning; otherwise, they may have to make their rehabilitation payments on top of wage garnishment for the first five months of the program.
A final option for defaulted federal student loan borrowers facing wage garnishment is Direct loan consolidation. This is a process where the borrower takes out a new loan through the Education Department which pays off their defaulted federal student loans. The borrower is then in good standing on the new consolidation loan. This can be a much faster default resolution process than rehabilitation. However, since consolidation can take up to 60 to 90 days, borrowers may not have enough time to consolidate their loans after receiving the 30-day wage garnishment notice (and it may not be possible to consolidate once wage garnishment has begun). In addition, consolidating student loans that already have student loan forgiveness credit can erase that credit. Ultimately, borrowers facing imminent wage garnishment should carefully consider their options to ensure they are making the best decision for their unique circumstances.