Student loan wage garnishment could start soon: Here's what you can do

Roughly 3 million student loan borrowers could move into default by August, leaving them at risk of having their paychecks garnished by the federal government. 

After the pandemic-era pause on student loan payments ended, borrowers have had to reassess the state of their loans and budgets. According to TransUnion credit bureau, another 2 million borrowers are on course to default in September.

The Department of Education has sent notices to borrowers warning that tax refunds and wages could be withheld starting this summer if borrowers don’t take steps to restart payments. But wait times for student borrowers attempting to contact their loan servicers have been long, with many dropped calls, in part due to layoffs at the Education Department. 

When do student loans go into default? 

By the numbers:

Student loans move into default when they’re 270 days past due on payment. At that point, loan holders are at risk of having 15% of their pay docked by the government, with the money going toward the outstanding debt. 

Timeline:

It’s still unclear when wage garnishment will start.

Why are student loan defaults rising? 

The backstory:

A Biden-administration grace period, during which late or missed payments were not counted against credit scores, ended in the fall. 

Since then, millions of borrowers have seen hits to their credit ratings.

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The Trump administration announced that the government would start referring borrowers in default for collections in May.

What can borrowers do? 

There’s still time to take action.

What they're saying:

"The most important thing borrowers can do before administrative wage garnishment restarts is to log into studentaid.gov to check whether their federal student loans are in default and take steps now to remove them from default," said Kyra Taylor, staff attorney at the National Consumer Law Center.

What you can do:

If you are in default, you can get your loans back into good standing by either entering a rehabilitation agreement, where you must make nine consecutive payments based on their income, or by consolidating your loans into a new federal Direct Loan.

The Department of Education must provide 30 days notice before it sends a garnishment order to your employer. During that time, you can request a hearing to object by telling the department that the garnishment would cause you financial hardship. You can also request that the department reduce the amount being garnished and submit documentation about your income and expenses.

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To do this, you must make your hearing request in writing, postmarked no later than 30 days after the garnishment order. Your loan holder will then arrange the hearing. If you’re unsure who your loan holder is, you can contact the Education Department’s Default Resolution Group.

If you request the hearing within 30 days of receiving the garnishment notice, the department cannot start garnishment until it issues a decision on the borrower’s hardship request. 

You can request a hearing after the 30 day period is up, but in those cases the department will generally not stop garnishing your wages while the hearing request is pending.

If you were laid off from your last job, you can also object to garnishment if you have not been in your current job for 12 consecutive months. You can further request a hearing and object if you submitted an application for certain kinds of statutory discharges and those have not yet been decided. Some common reasons for statutory discharge of student loans include: if the school you attended closed before you could complete your degree, if your school owes you a refund but fails to pay it, if you’re experiencing total disability, or if you’re experiencing bankruptcy.

You can also contact your representatives in Congress. U.S. representatives and senators have entire teams dedicated to constituent work.