Student loan creditors can garnish your wages if you get behind in payments. Whether your loan is guaranteed by the federal government or not dictates whether the creditor must first sue you in court, and how much it can garnish from your paycheck.
Here are the rules for student loans guaranteed by the federal government, and student loans not guaranteed by the federal government (private student loans).
Student Loans Guaranteed By the Federal Government
Most student loans are guaranteed by the federal government which means that if you fail to pay back the lender, the federal government will ensure that that money gets repaid one way or another. (Learn more about what a guaranteed student loan is in Nolo's Types of Federal Student Loans article.)
The Government Doesn't Need a Judgment to Garnish
Most creditors must first sue you in court and get a money judgment in order to start garnishing your wages. Creditors that own student loans guaranteed by the federal government, however, get special status. They do not have to get a state court judgment before attempting to garnish your wages.
Notice and Hearing Requirements Before Garnishment
Instead, the creditor must send a 30-day notice to your last known address prior to trying to garnish your wages. You can request a hearing before an administrative law judge to make a determination of whether you should garnished. At this hearing, you can contest whether the loan is actually in default or the amount of the debt, or you can tell the judge that you want to enter into a payment plan.
Even if a garnishment has already started, you may still request a hearing to assert your rights and concerns. However, the garnishment will continue until the guaranty agency holds the hearing and makes a determination.
How Much Can the Student Loan Creditor Garnish?
Federal law allows creditors who own student loans guaranteed by the federal government to garnish up to 15% of your disposable income. Disposable income is your after-tax or “take-home” pay after federal and state taxes are withheld. Your employer will garnish this money and then remit the funds to the appropriate creditor.
Alternatives to Wage Garnishment
Keep in mind that student loan creditors usually only resorts to garnishment if you have outright refused to make payments on your student loans. The federal government actually offers several payment alternatives if you are unable to meet your current monthly obligations. If you qualify for one of these programs, you can pay less without going into delinquent status.
One option is to consolidate your loans into one federal government consolidation loan. This may allow you to get a lower interest rate and to simplify your finances by combining all the monthly payments into to one, easy-to-manage account.
The federal government offers numerous repayment options once you have consolidated. When you consolidate your student loans with the federal government, you open up your options as it relates to loan repayment. You can choose from “Income-based Repayment,” “Income-contingent Repayment,” and many others. To learn more about student loan repayment options, visit our Student Loan Debt topic area.
Student Loans Not Guaranteed By the Federal Government (Private Student Loans)
If the federal government has not guaranteed your student loans (these are often called private student loans) the loans do not enjoy any special status and the normal garnishment rules apply. The creditor will first have to sue you in federal or state court, obtain a judgment, and then submit a court order to your employer directing it how much garnish. (Learn more about the regular wage garnishment process and the wage garnishment rules in your state.)