Challenging a Student Loan Wage Garnishment

If you've received a letter warning you that your student loans are in default and threatening garnishment of your wages, or if your employer is already garnishing your wages, you should review your options carefully. You might be able to challenge the student loan wage garnishment.

The earlier you address a student loan wage garnishment, the more likely you will be successful in reducing or stopping the garnishment. This article addresses the rules for garnishment of federal student loan debts. The rules for private student loans are different.

Why Is Your Employer Garnishing Your Wages?

Garnishment can't happen unless you are in default on your student loans. "Default" for most federal student loans is defined as failure to make a payment for 270 days. Default for your particular loan might be different—you can find out your loan's default rules by reading the promissory note that you signed when you took out your loan.

When you're in default, your loan servicer (which may be the federal government or a contractor for the federal government) can start the garnishment process with your employer. The loan servicer contacts your employer to determine your earnings. Based on the information provided by your employer, the servicer calculates the amount that can be legally garnished from your wages, usually 15% of your disposable earnings.

You Should Receive Prior Notice and a Chance to Object

Your loan servicer is required to give you 30-days' notice before garnishing your wages. The Notice of Intent to Garnish must include the following information about your rights:

• your right to request and inspect copies of your student loan records
• your right to request a hearing to present evidence that the garnishment should not be allowed, and
• your right to enter into a repayment plan with the loan servicer.

Read the notice carefully. If garnishment occurred less than 30 days after the date of the notice, or if the notice does not contain the required information, that is a reason to request a hearing. If the servicer used improper procedures, the servicer will have to start over with the correct procedures.

Find detailed information on dealing with student loan debt in Solve Your Money Troubles.

Requesting a Hearing to Put the Garnishment on Hold

If you request a hearing within 30 days after the date of the Notice of Intent to Garnish, the garnishment is put on hold. (For some types of federal student loans, you must request a hearing within 15 days. The relevant time period should be in the garnishment notice.) If 30 days have already passed, the garnishment will proceed. However, you can still request a hearing, and the garnishment will end if you win your hearing.

Reasons to Request a Hearing to Challenge a Student Loan Wage Garnishment

The most common reason to request a hearing is to claim that garnishment of 15% of your disposable earnings will impose a "financial hardship" on you or your dependents. Whether the garnishment would impose a financial hardship is determined according to your family size, income, and expenses.

Other reasons to request a hearing include:

• You don't owe the money (you have repaid your loan, the loan was forgiven, or any other reason that you do not owe the money).
• You are currently making payments under a repayment agreement.
• You have filed for bankruptcy. All collection activity must stop while a bankruptcy petition is pending.
• You qualify for forgiveness, cancellation, or discharge of your loan. The Department of Education's website provides details on many circumstances in which you could qualify for discharge. These include discharge because your school closed before you could finish your program, public service loan forgiveness, and discharge for total and permanent disability.

The Notice of Intent to Garnish should include a complete list of reasons to request a hearing. The hearing may be held in person or on the phone.

Make Sure the Garnishment Is for the Right Amount

The amount of money that a student loan servicer can garnish from your paycheck is determined using complex rules. In general, the student loan servicer can only collect 15% of your disposable income through garnishment. "Disposable income" is the income left over after paycheck deductions. If your income is very low, you might be exempt from garnishment.

If your employer is taking too much out of your paycheck, contact your loan servicer and request a correction. If necessary, request a hearing to correct the amount.

Stop Garnishment With Voluntary Payments

The goal of any loan servicer is to set up regular payments on your debt. Even if you have experienced garnishment for many months, you might be able to stop the garnishment by contacting the loan servicer to set up a payment plan. Voluntary payments have many advantages over garnishment: You won't have collection costs added to your loan, you might be able to improve your credit rating, and you might be able to reinstate eligibility for federal student loans in the future.