Student loan wage garnishment: how it works and how you can stop it

When you do not make payments on your student loan debt for long enough, your loan servicer may take another route to get back the money you owe. One of these avenues is seizing your wages, also known as wage garnishment.

Since the pandemic, wage garnishment for federal student loan debt has been off the table, offering borrowers some protection. Soon, however, the practice is expected to restart. "In a new U.S. Department of Education memo obtained by CNBC," it was revealed that "garnishments may resume — in some cases, as early as this summer," said CNBC. This will mean that for "the first time in roughly five years, borrowers who have defaulted on their federal student loan debt will face collection activity, including the garnishment of their wages."

What happens with student loan wage garnishment?

Student loan wage garnishment involves a "private lender or the federal government withholding part of your income to repay overdue student loan debt," said Bankrate. How and when this can happen — as well as how much of your paycheck can be withheld — varies depending on whether it is a private lender or the federal government.

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Federal student loan wage garnishment: You will need to have "missed nine months of payments for federal loans before the government can garnish your wages," said Bankrate. "Your servicer does not need to take you to court to begin garnishing," and they can garnish "up to 15% of your disposable income to repay federal student loans." The practice can continue "until your loan balances plus interest and fees are paid back," or "if your loan is removed from default."

Private student loan wage garnishment: Private student loans can enter default much sooner, "after just one missed payment," but your lender "first must sue you and win a court judgment" before they can garnish your wages, said Experian. How much they are allowed to garnish "depends on the state where you live," but it could be up to "25% of your disposable income" in "some states," said Investopedia.

What can you do to avoid student loan wage garnishment?

If you have had trouble staying on top of your student loan payments and are concerned about the prospect of wage garnishment, there are steps you can take. The most straightforward is to "make consistent, timely payments," ensuring you remember deadlines by "setting up automatic payments or reminders," said LendingTree.

Of course, that may not always be feasible. If you have federal student loans, you might consider entering an income-driven repayment (IDR) plan, which "provides a way to extend your repayment term and limits your monthly payment amount to a percentage of your income," said Experian. For private student loans, you will need to ask your lender about the availability of different payment plan options.

Another possibility for federal — and sometimes private — loans is to "contact your lender and defer your payments or enter forbearance," said LendingTree. "This process allows you to postpone payments — without entering default — while you get back on your feet."

How can you stop student loan wage garnishment?

If you are already facing student loan wage garnishment, there are ways you can reverse the situation:

Consolidate your loans. One way to "move your federal loans out of default is to combine them into a direct loan consolidation" (not to be confused with refinancing), said Experian. You can do so if you "make three on-time monthly payments on the loan before consolidating" or "enroll in an [IDR] plan."

Rehabilitate your loans. For federal loans, you also can enter a loan rehabilitation program to remove your loans from default, wherein "you promise to make nine monthly payments during a period of 10 consecutive months," said LendingTree.

Negotiate a payment plan. "If your loans are through a private lender, you may not have many rehabilitation options," but you can still contact your lender or debt collector to see if you can "negotiate a repayment plan or a lower debt payoff amount," said Experian. This can make repayment feel a bit more feasible.

Request a hearing. If you disagree in some way with the debt you are being asked to repay or are dealing with certain financial challenges, you may consider requesting a hearing. Should it be a success, "either your wages won't be garnished for a 12-month period or you may qualify for a partial (reduced) garnishment," said Bankrate.