Wage Garnishment of Federal Student Loans
Many Americans are burdened with the weight of making multiple monthly payments on their student loans. For students who graduated and went on to take full-time gainful employment, meeting these payments in a timely fashion may not be a problem. But for thousands of others, the effects of a recessionary economy or failure to manage their bills may have put them in default, with a federal student loan garnishment cresting on the horizon.
Federal Student Loan Defaults
In the world of federal student loans, the term “default" has a special meaning. It does not mean missing one or even several payments. For a federal student loan to be in “default," the borrower must have languished nine months, or 270 days, without making a single payment. Once a loan is officially in default, wage garnishment can become a reality in short order.
Wage Garnishment Process
As soon as a federal student loan goes into default, the United States Department of Education can spring into action with a very efficient little collection device known as an “Administrative Wage Garnishment," or AWG. An AWG does not require the Department to file a cumbersome lawsuit against the student debtor or obtain a court Judgment. The Department can initiate the wage garnishment process merely by providing the debtor a Notice that a garnishment is forthcoming.
Valid Notice of Intent to Garnish
A valid Notice of Intent to Garnish must inform the defaulted student borrower of certain rights and opportunities. These are as follows:
- That the debtor has 30 days in which to request a formal hearing,
- That the debtor has the right to inspect the loan records, and
- That the debtor may raise certain defenses and present evidence at the hearing.
Requesting a hearing is always a good move.
Defenses to Wage Garnishment
First and foremost, a hearing affords the debtor the opportunity to prove hardship to himself or his dependents. Factors considered by the Administrative Law Judge (“ALJ") include the family’s size, living expense, and income. Upon proof of hardship, the ALJ will normally limit the garnishment to 15% of the debtor’s disposable income. “Disposable income" is income remaining after legally-necessary withholding like Social Security and taxes.
Other potential defenses include:
- The loan was paid off,
- The debt is subject to a new repayment agreement,
- The debt has been consolidated and is no longer owed, and
- The debt has been discharged, forgiven or cancelled.
Whether any of these defenses have merit will depend on the facts of the particular situation.
Surprisingly overlooked by many struggling borrowers is the very viable option of “Direct Consolidation Loan." Student loan consolidation means to combine all existing student loan debts into a single loan, with a single monthly payment.
All of the consolidated loans are deemed paid in full, and the payment process begins anew. The new payment amount is based on income and ability to pay, there is no prohibitive loan application fee, and the consolidated loan can be prepaid without penalty at any time. Believe it or not, the repayment period can be as long as 30 years, thus keeping monthly payments very low.
Not every federal student loan qualifies, but many of them do qualify. Experienced Labor, Debtor-Creditor and Student Loan attorneys can assist the debtor in navigating the choppy waters of wage garnishment for defaulted student loans, or finding a comfortable alternative that the debtor can live with.
Student Loan Garnishment: