Student loan wage garnishment: How defaulting could dent your paycheck

Student loan wage garnishment involves a private lender or the federal government withholding part of your income to repay overdue student loan debt.

Federal student loan payments were paused during the pandemic but resumed in October 2023. Around 40 percent of borrowers missed their first payments, according to the U.S. Department of Education. Borrowers who fail to make required payments on their student loans could be at risk of having their wages garnished when collection calls resume in September 2024.

Understanding how federal and private student loan wage garnishment works can help you get back on track or avoid defaulting.

Federal student loan wage garnishment

You must have missed nine months of payments for federal loans before the government can garnish your wages. Your servicer does not need to take you to court to begin garnishing.

With federal student loans, wage garnishment can continue until your loan balances plus interest and fees are paid back, but it can also end if your loan is removed from default. The federal government can garnish up to 15 percent of your disposable income to repay federal student loans.

 Can the government garnish my Social Security benefits?

Under the Treasury Offset Program, the Social Security Administration can withhold up to 15 percent of your Social Security income to cover delinquent student loan debt.

A bill that would protect Social Security from being garnished — the Protection of Social Security Benefits Restoration Act — was reintroduced in the U.S. House of Representatives in September 2023. However, members of the House haven’t voted on it yet.

Other types of income the government can garnish for student loans in default include:

• Tax refunds
• Your salary
• Worker’s compensation
• Severance pay
• Payout from an insurance settlement

Private student loan wage garnishment

Private student loans generally go into default after three months of missed payments, though this can vary. Unlike federal student loans, a loan lender must get permission from a court to garnish your wages, meaning it must sue you and win a judgment.

A private lender can garnish up to 25 percent of your disposable income to repay federal student loans, depending on how much you earn and where you live.

With a private student loan, some of your income is generally protected from wage garnishment, including:

• Alimony
• Social Security
• Retirement
• Disability

How to stop student loan wage garnishment

You have rights around wage garnishment when it comes to federal student loans. For example, you have the right to be sent a notice from the U.S. Department of Education explaining its plans to garnish your wages in 30 days. You also have the right to see records relating to your student loan debt.

Additionally, you can take steps to avoid wage garnishment on defaulted student loans.

Enter into a voluntary repayment agreement

To avoid wage garnishment relating to federal student loans, you can negotiate repayment terms with the U.S. Department of Education or the collection agency assigned to your account. For this to work, however, you must ensure that your first payment is made no later than 30 days from the day the wage garnishment notice was sent.

Entering into a voluntary repayment agreement is the first step to getting back on track and getting your federal student loans out of default. Eventually, though, you could also consider loan rehabilitation or loan consolidation.

With loan rehabilitation, you are asked to sign an agreement to make nine on-time monthly payments based on your income over a period of 10 consecutive months.

To consolidate defaulted federal student loans, you must either sign up for a new income-driven repayment plan or make three consecutive, on-time, full monthly payments on the defaulted loan.

Private lenders may also be willing to negotiate a repayment agreement or a loan settlement. Contact your lender for more information, as the requirements and availability will vary from lender to lender.

Object to garnishment and request a hearing

With federal student loans, you may also decide to object to wage garnishment and ask for an official hearing. This could be your best option if you do not agree about owing the student loan debt you’re being asked to pay, if you disagree with the amount or if you believe you weren’t properly notified about the garnishment.

You may also ask for a hearing if you believe that wage garnishment could create extreme financial hardship or if you have been employed for less than 12 months after losing a previous job.

In any case, you must:

1. Request a hearing in writing. Ensure your request is postmarked no later than 30 days from the date the wage garnishment notification was sent.
2. Provide proof to support your objections to the debt or the garnishment and pay for your own legal representation for an in-person hearing. Many organizations offer help navigating this system, either free or for a fee.

If your hearing is successful, either your wages won’t be garnished for a 12-month period or you may qualify for a partial (reduced) garnishment. If your hearing is unsuccessful, your wages will be garnished at 15 percent of your disposable income.

Tips for avoiding student loan default

Student loan default can quickly become a costly mess, and that’s especially true once a collection agency gets involved. As a result, your best bet is avoiding default at all costs if you can.

If you’re worried about the future repayment of your student loans, here are some tips that can help:

• Look into deferment and forbearance. The federal government has several options available for federal loans, and you can learn what options you have on your private loans by reaching out to your lender.
• Switch repayment plans to get a lower monthly payment. Several repayment plans are available for federal student loans, including extended repayment plans that can last up to 30 years. You may be able to get a lower monthly payment if you opt for a longer repayment term.
• Switch to an income-driven repayment plan. Federal student loans come with access to income-driven repayment plans that let you pay a percentage of your discretionary income toward federal loans for 20 to 25 years, at which point the remaining loan balances are forgiven. Considering your monthly payment could be as low as $0 on these plans, they can be a good option for borrowers with low incomes who are struggling to repay their loans.
• Refinance your student loans. Consider refinancing your student loans to get a lower interest rate, a lower monthly payment or both. Just remember that refinancing federal loans with a private lender means giving up federal protections like deferment, forbearance and access to income-driven repayment plans.