7 million federal student loans are in default, and garnishment is one of the many ways the government can get their money back from you.
Under federal regulations, the government can take up to 15% of your disposable pay if you’re in default on your federal student loans.
Though the Department of Education doesn’t need to go to court and get a judgment to start a garnishment, there are administrative procedures in place to protect your rights and give you a chance in stopping student loan garnishment.
The first step in stopping student loan garnishment
The first step in the process, called an Administrative Wage Garnishment, is for the lender or loan servicer to to notify in writing. This letter will let you know how to object to the garnishment and request a hearing. (It’s sent by regular mail to the best address on file for you.)
You can request the hearing at any time. But the only way to stop the garnishment from starting is to make sure your request is received by the date stated in the letter. Send your request so it’s received on time.
Once you request a hearing, an independent hearing officer will review your written statement and other documents to decide whether there’s a reason to halt the garnishment attempt.
You can object to the administrative wage garnishment on three grounds:
- the existence or amount of the debt;
- the enforceability of the debt; or
- that making installment payments in amounts equal to 15% of your disposable pay, or having payments of that amount withheld from your disposable pay would constitute an extreme financial hardship.
The most common objection is that the garnishment would cause financial hardship to you and your dependents. Essentially you are telling the lender that if the garnishment goes through, you won’t be able to support yourself and your family.
To prove that, you’ll need to fill out a financial disclosure form detailing all of your regular monthly expenses. You’ll submit proof of your monthly income and expenses.
For the remaining three objections- the existence of the debt, the amount of the debt, and the validity of the debt – it’s important to be as specific as possible. For example:
- If you don’t believe that you owe the debt then provide copies of the front and back of all checks, money orders and any receipts showing payments made to the loan company.
- If your student loan was wiped out in a bankruptcy case, send your bankruptcy filing information and the order specifically discharging the debt. Remember that bankruptcy does not automatically wipe out student loan debts. A separate judicial finding of dischargeability needs to be issued; so don’t just send a copy of your bankruptcy discharge and expect that’s going to be enough.
- If the borrower has died, send a copy of the death certificate as proof.
You may be eligible for a discharge of your Direct Loan or FFEL Program loan if:
- you are totally and permanently disabled
- your school closed and you satisfy the other requirements for a Closed School Discharge;
- you withdrew from school, but the school didn’t pay a refund that it owed to the U.S. Department of Education or to the lender, as appropriate;
- your school falsely certified your eligibility to receive the loan based on your ability to benefit from its training, and you did not meet the ability to benefit student eligibility requirements.
- the school signed your name on the application or promissory note without your authorization
- the school endorsed your loan check or signed your authorization for electronic funds transfer without your knowledge (Unless the proceeds of the loan were delivered to you or applied to charges owed by you to the school.)
- Your federal student loans may be discharged if was falsely certified because you were a victim of identity theft.
- the school certified your eligibility, but because of a physical or mental condition, age, criminal record, or other reason you are disqualified from employment in the occupation in which you were being trained.
If you think you have grounds to seek a discharge for any of those reasons, make sure to submit your application as is normally required. Also send along a copy with the request for hearing.
You may also be able to halt an Administrative Wage Garnishment if you were involuntarily terminated from your last job and have been in your current job for less than 12 months.
If your objection fails…
If your objection fails, there are only two basic ways to stop an Administrative Wage Garnishment: You can pay the loan in full or get out of default.
As far as getting out of default goes, you can use rehabilitation or consolidation.
Rehabilitation involves making nine monthly payments over a 10 month period of time to the debt collector. Payment amounts ares set using a “reasonable and affordable” standard equal to 15% of your discretionary income. If your income is less than that amount, then your monthly rehabilitation payments will be set at $5 per month month.
You can prevent the garnishment by entering into a rehabilitation agreement before the expiration of the time to file an objection. If you don’t enter into rehabilitation within that time, you can stop the garnishment only by entering into rehabilitation and making 5 of the required 9 monthly payments.
The other way to get out of default on your federal student loans is through consolidation with the US Department of Education. (This is different from other forms of debt consolidation.) Though consolidation takes longer to complete than the 30 day window of opportunity to request a hearing, providing proof that you have submitted a consolidation application will usually halt the garnishment process.
For consolidation, timing is everything because federal regulations prohibit you from consolidating while a garnishment is in effect.
Take quick action for the best chance at stopping student loan garnishment.
With so many options for dealing with a student loan garnishment, it’s easy to avoid the strain on your paycheck. Taking decisive action is important, and can make your life easier.
Call the collection agency in charge of the account or the US Department of Education as soon as you receive a notice. If you need help, it’s useful to speak with an attorney who works with student loan borrowers.
Whatever you decide, be sure that you maintain control over the situation by being proactive. Remember, being proactive and taking quick action gives you the best chance at stopping student loan garnishment.
Jay S. Fleischman is a consumer protection lawyer helping people with student loans, consumer debt problems, collection harassment and credit reporting issues. He writes at Consumer Help Central, and is the host of The Student Loan Show, a weekly podcast covering student loan issues.