After years of working with student loan borrowers, I can safely say that one of my clients’ biggest fears is that lenders will garnish their wages – seizing money directly from their paychecks. This is particularly troubling for folks who are living paycheck to paycheck. Wage garnishment can represent a very real financial danger.
Is this a legitimate fear? Yes. Student loan wage garnishment can and does happen, all the time. But as with so many issues when it comes to student loan debt, it’s a bit more complicated than just a simple “yes” or “no” answer. A lender’s ability to garnish wages – and a borrower’s rights to limit or stop it – really depend on the type of student loan, its status, and the intersection of federal and state law.
Wage Garnishment for Federal Student Loans
One of the most common ways for federal student lenders and the government to pursue borrowers is through something called administrative wage garnishment. By definition, this is a form of wage garnishment that is allowable by federal law and does not require going through the court system or getting a judge’s approval.
Importantly, borrowers have to be in default on their federal student loans for this to even be a possibility. While administrative wage garnishment is usually not an immediate consequence of defaulting on federal loans, it’s likely to occur eventually if the defaults don’t get resolved. Administrative wage garnishment is usually capped at around 15% of the borrower’s gross wages.
Typically, all that is required for the federal lender to begin the process is a 30-day notice sent to the borrower’s last-known address. That notice provides several grounds that the borrower could assert to prevent the garnishment from happening, or delay it. For instance, entering into an agreed-upon repayment arrangement can not only prevent wage garnishment, but it can also get the borrower on track for getting out of default altogether (this is called loan rehabilitation). There are also other grounds for potentially preventing wage garnishment such as disability, bankruptcy, and financial hardship (although that one is particularly tough to prevail on).
In general, it is best to act quickly to prevent wage garnishment before that 30-day notice period expires. While it’s sometimes possible to stop administrative wage garnishment after it’s already begun, it is a lot harder, takes a lot longer, and can be a lot more expensive.
Wage Garnishment for Private Student Loans
Wage garnishment for private student loans is a lot different. Unlike federal student lenders, private student lenders do not have the power to garnish wages administratively. They have to go through the judicial system – that means the loan has to be in default, and the lender has to file a lawsuit against the borrower in state court. The lender must prevail in that lawsuit and obtain a judgment against the borrower, which is an order of the court that says the borrower must repay the lender. If the borrower fails to make satisfactory payment arrangements, the lender could go after the borrower’s assets or income.
The specifics, however, are governed by state law, which varies. Some states do not allow wage garnishment at all (but most do). Here in Massachusetts, private lenders who have obtained a judgment need to initiate a new lawsuit – called “supplemental process” or “trustee process” – to get a new court order allowing them to garnish the borrower’s wages. Whether a court ultimately allows this would depend in part on whether the borrower is covered by any exemptions – for example, borrowers in Massachusetts who have earnings below a certain threshold cannot be garnished at all. Alternatively, working out a voluntary payment arrangement with the lender – like a settlement or a monthly payment plan – can stop the wage garnishment process.
The amount that a private student loan lender can ultimately garnish also varies from state to state. In Massachusetts, borrowers with income above the exemption limit can have up to 15% of their pay garnished. Neighboring states have different limits, ranging from 10% to 25%. So the state where you live, and the state where the judgment and garnishment order were entered, really matters.
Wage garnishment is a real danger when it comes to student loan debt. But student loan borrowers have rights and protections that you can assert; you just have to know what they are. And if you get out in front of the problem, you might be able to prevent garnishment from happening altogether.