What student loan borrowers can do if they're facing wage garnishment: 'Early action' is critical, advisor says
Federal student loan borrowers who have defaulted on their loans face imminent wage garnishments as the Department of Education resumes this process after a pause during the pandemic. Approximately 1,000 borrowers will be notified of upcoming garnishments, which can seize up to 15% of disposable income until debts are settled. Borrowers are advised to take immediate action—such as loan rehabilitation or negotiating payment plans—to regain control of their finances, as failure to do so could exacerbate their financial struggles. Opportunities to challenge garnishments exist, allowing borrowers to request hearings within 30 days of notification, potentially delaying or reducing the garnishment amount. With these developments, borrowers must prioritize proactive communication to navigate their financial obligations effectively.
Dive Deeper:
The Department of Education paused wage garnishments in response to the COVID-19 pandemic, but they are set to resume with notifications starting January 7, 2025, impacting a growing number of defaulted borrowers.
Default occurs when borrowers are at least 270 days late on payments, allowing the government to seize wages, tax refunds, and Social Security benefits to recover debts.
Borrowers can negotiate a repayment plan with their loan servicer to avoid garnishment, with initial payments as low as $5, as long as they act within 30 days of receiving a garnishment notice.
Loan rehabilitation is another option for borrowers to remove their loans from default status, requiring nine consecutive, on-time payments, although wage garnishments can still occur during this process.
If borrowers wish to contest the garnishment, they must submit a written request for a hearing within 30 days, providing supporting documentation to substantiate their objections.
A hearing officer from the Department of Education will review the objection, with a decision typically made within 60 days, potentially delaying or adjusting the garnishment amount.
Over 40% of borrowers report making trade-offs between loan payments and their basic needs, highlighting the urgency of addressing financial pressures from wage garnishments.