Student Loan Wage Garnishment

Federal government helps students pursue higher education by providing a number of loans under the Federal Student Aid Program. The loans, that are sanctioned under the Federal Student Aid Program, can be obtained directly from the Federal Govt, or one may be required to obtain the loan from institutions participating in the FFEL (Federal Family Education Loans) program. Federal Stafford Loans and Federal Perkins Loans are administered by the govt. under the Direct and FFEL programs. Repaying student loans, that are sanctioned under the Federal Student Aid Program, usually begins 6 to 9 months after a person graduates or drops out of school. The rate of interest on student loans is generally reasonable, more so, for Perkins and subsidized Stafford loans. Defaulting on student loans can backfire since the govt. has devised a number of ways of ensuring that defaulters make good their promise to pay. Wage garnishment, wherein the government takes away or 'garnishes' 15% of a student's disposable income as penalty, is one of the ways of recovering defaulted loans. The rules regarding student loan wage garnishment are as follows:

Student Loan Wage Garnishment

The Debt Collection Improvement Act of 1996 (DCIA) authorizes Federal agencies to garnish the disposable income of an individual, without a court order, in order to collect delinquent non-tax debt that is owed to the Govt. provided the individual is not a Federal employee. According to this Act, The US Department of Education (ED) is authorized to garnish 15 % percent of the erstwhile student's disposable income in lieu of unpaid student loans. The organization, that employs the student after graduating/dropping out of school, is expected to comply with rules regarding garnishment even in the event of filing bankruptcy. If the employee files bankruptcy, the employer, in addition to informing the ED, is supposed to advise the debtor to report the change in status to the government. A person whose wages are to be garnished can annul the proposed garnishment by repaying the dues within 30 days of notification. The ex-student also has the option of making alternate payments, that would equal 15 percent of his/her salary, to avoid garnishments. People, who have been unable to repay the borrowed sum on account of hardships, may be given due consideration by the ED. Wage garnishment can be disputed by thwarting the existence of the debt or by proving that the proposed garnishment could result in extreme financial hardship. The ED does not have the authority to garnish wages if the former student has been involuntarily unemployed for a period of 12 months. The Consumer Credit Protection Act limits the amount of money that can be withheld to 25% of the debtor's pay. In case of multiple garnishments, the employer can garnish wages, in lieu of student aid, provided the total amount of garnishments are limited to 25% of the disposable pay. Garnishments continue until the ED's Administrative Wage Garnishment system sends notification regarding cancellation. In case the employee quits the job, the former employer is expected to notify the ED, in writing or by phone within 10 business days, so that garnishments can be resumed by the new employer in accordance with the wage garnishment laws. One may seek legal counsel for further clarification regarding wage garnishment rules, stopping wage garnishment and wage garnishment exemptions.

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.

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.