Garnishment - Student Loan Wage Garnishment
"Garnishment - Student Loan Wage Garnishment" submitted by SchoolGrantsfor Editorial Team and last updated on Thursday 21st July 2011
Defaulting on student loans can have serious consequences like student loan wage garnishment wherein the US Department of Education can instruct employers to withhold a portion of the employee's salary in accordance with the wage garnishment laws. Under the Higher Education Act, the Department and guaranty agencies may require employers who employ individuals who have defaulted on the repayment of a student loan to deduct 15% of the borrower's disposable pay per pay period toward repayment of the debt. Federal regulations require guaranty agencies to collect payment on a student loan debt through a deduction from a debtor's wages, known as Administrative Wage Garnishment (AWG).
Also, the Debt Collection Improvement Act of 1996 permits the Department to garnish up to 15% of disposable pay. Garnishment may continue until the entire balance of the outstanding loan is paid. You should note that wage garnishment is used only for borrowers who refuse to voluntarily repay their defaulted loan and is not used with those borrowers who continue to make regular and timely monthly payments.
In addition, 15 USC 1673 requires that the weekly wage garnishment amount leave the borrower with at least 30 times the federal minimum hourly wage. The current federal minimum wage as specified in 29 USC 206(a)(1) has been $7.25 an hour since July 24, 2009. That means borrowers subjected to administrative wage garnishment on their federal student loans must be left with at least $217.50 a week, $942.50 per month and $11,310 per year. These figures are barely above the poverty line.
You could have up to 15 percent of your disposable income garnished, or withheld, from your paycheck each pay period to make payments on your student loan debt. If you have multiple loans held by multiple guaranty agencies or the Department of Education, you could have up to 25 percent of your disposable income garnished.
$350 a month in wage garnishment on a $27,000 annual salary appears to exceed the 15% of disposable income limit on wage garnishment. Federal income tax is about 6.5% of adjusted gross income (AGI) for AGI between $25,000 and $30,000. FICA taxes are 7.65% of gross income. These taxes along with state income tax represent approximately 14% of gross income. The $350 monthly wage garnishment amount appears to be about 18% of disposable income. It is possible that the wage garnishment amount was incorrectly calculated based on gross income instead of disposable income. Know more about disposable income: Determine an Employee's Disposable Income, Organizations Helping For Increasing Disposable Income
If you’re in default on a federal student loan, you still might be able to consolidate if you make satisfactory repayment arrangements on the defaulted loan or agree to repay the consolidation loan under the Income-Contingent, Income- Sensitive, or Income-Based Repayment Plans, provided the defaulted loan is not subject to a judgment or wage garnishment. Suppose; PLUS loans are not based on income or assets. Payments should not debts delinquent 90 days or more. No defaulted loans, outstanding tax liens, unpaid judgments, bankruptcy, foreclosure or wage garnishment within the past five years.
To recover monies a debtor owes, the related institution can issue a wage garnishment. The U.S. Department of Labor (DOL) notes that the wage garnishment orders the debtor’s employer to withhold a part of his wages to satisfy the debt. The wage garnishment can be court-ordered or from a statutory organization, such as the U.S. Department of Education or the IRS. Notably, statutory institutions can issue a wage garnishment without a court order. The employer must comply with the terms of the wage garnishment.
Garnishment of fifteen (15%) percent of disposable income will an undue financial hardship on the borrower or family. The debt cannot be enforced at this time because the borrower has filed for relief in bankruptcy and the automatic stay is still in effect. The borrower has been reemployed within the past 12 months after being involuntarily terminated from the previous job.
Other Consequences of Not Repaying Student Loans
Defaulting on a single payment may result in the student having to discharge loan obligations in accordance with an accelerated repayment schedule for the remaining amount of the loan. In addition to wage garnishment, the govt. may withhold a portion of social security retirement benefits and disability benefits and deny the defaulter access to FHA (Federal Housing Administration) Insured Loans and VA (Veteran's Administration) Loans. Moreover, a default on student loans remains on record for 7 years.
A wage garnishment occurs only after a creditor files a suit against you in court and succeeds in getting a judgment against you. Once a judgment is passed, there is little you can do to stop the garnishment. Even filing for bankruptcy protection will not help you. It's evident that discharging student loans is an obligation that cannot be taken lightly. A debtor should try and avoid defaulting on student loans and work out a system of discharging obligations in a timely and responsible fashion.
How To Overcome The Garnishment:
- By law, you have certain rights when you are facing Administrative Wage Garnishment (AWG), including:
- You can inspect and copy records relating to your debt.
- You can establish a repayment plan if an Order of Withholding from Earnings has not been issued.
- You can request a hearing.
- An employer may not fire you, refuse to employ you, or discipline you because your wages are garnished
Negotiate a minimum payment
The US Department of Education Debt Collections Services will not garnish wages if you are making the minimum payment. So, if you call them yourself and tell them that you are currently employed and would like to set up a payment plan, then continue on in making the agreed upon minimum payment, wage garnishments will not happen. That only happens when people are not paying the loan payment on their own.
So, if you'd rather they not garnish your wages, be sure to keep in contact with them, set up a payment plan, and start paying it back. Once they receive a minimum of 6 consecutive and voluntary monthly payments, your loan will be eligible for consolidation. This means that the defaulted loan will be repaid with a new loan, thus retiring the defaulted debt. It will still remain on your credit report for years to come, but clearing the default will definitely help. Keep in mind that the 6 payments required for consolidation must be VOLUNTARY so wage garnishments do not count toward this. Prevent wage garnishments by setting up a payment plan and faithfully making your payments.
You have created this mess and getting out of it can be fairly easy. Just 6 months of sacrifice in making your payments, then once you consolidate you will be eligible to request a deferment or forbearance again (deferments or forbearances are NOT an option on defaulted loan debt).
Prove undue hardship or make 9-12 voluntary ADDITIONAL payments. Negotiate a minimum payment that is a qualifying amount for the "Rehabilitation payment program". This is going to sound silly but hear me out.... MAKE PAYMENT ON TOP OF THE GARNISHMENT.... after 9 months your garnishment will cease and you will have most of your collection fees waived. Once a collection agency is getting money from you through garnishment, they will not willingly lift the garnishment. There are a few companies that specialize in getting people out of defualt and lifting garnishments. One company that I know is very good at this is Default Management Services, Inc. You can find them at www.defaultms.com
Challenging Administrative Wage Garnishment (AWG)
You can challenge the garnishment by submitting what is called a "financial statement". Along side with the financial statement you would want to submit all of your bills and expenses. (Remember they consider credit cards, Timeshares, and such as luxuries) If you have medical bills or medical problems make sure that you include proof of all. The borrower is responsible for providing documentation or evidence to substantiate any objection(s) raised in defense to the enforcement of the debt.
The Department of Education or a guaranty agency must notify you before the garnishment. You must be given the opportunity for a hearing to challenge the existence or amount of the debt and the terms of the repayment schedule. The garnishment cannot go forward if you request a hearing within 30 days of the receipt of the notice. If you request a hearing after that date, the garnishment will usually begin, but you can still stop it later if you win your hearing. The first and most common defense is that the garnishment would cause financial hardship to you and your dependents. You will have to fill out AWG Request For Hearing form in order to show hardship and must be submitted in writing to the following address: U.S. Department of Education, Chicago Service Center, Attn: Hearings Branch, P. O. Box 617547, Chicago, Illinois 60661-7763.
Establishing a voluntary repayment agreement, that meets specific eligibility criteria, may suspend the garnishment. You would be notified by EdFund, in writing, of our intent to take part of your wages as loan payments. If you receive a Notice Prior to Wage Withholding, here’s what you would need to do within 30 days of the notice to avoid garnishment. To fully discuss your options, please contact EdFund 's loan repayment counselors at 1.800.367.1589.
The Federal Student Aid Ombudsman of the Department of Education helps resolve disputes and solve other problems with federal student loans. More Details: Tax Offset and Wage Garnishment of ED Federal Student Aid Ombudsman.