Summer slump: What to do if you’re at risk of student loan wage garnishment
Summer tends to provide a respite from school. However, due to a couple of recent changes at the Education Department, thoughts of school this summer have weighed heavily not necessarily on current students, but on those who have graduated.
That’s because on Friday, student loan interest relief officially ended for more than 8 million borrowers. What’s more, an increasing number of borrowers are entering default status, meaning the Department of Education can begin garnishing up to 15% of their wages.
4.8 million borrowers could default by September
According to a report recently published by TransUnion, since April, roughly 5.8 million federal student loan borrowers have gone more than 90 days without making a payment, meaning they have entered the first phase of loan delinquency. Once they’re 270 days past due, the borrower is considered to be in default –– that’s when the Education Department can garnish wages.
Of the 5.8 million newly delinquent borrowers, about 4.8 million are expected to reach default status by September, according to TransUnion’s analysis.
“We continue to see more and more federal student loan borrowers being reported as the 90+ days delinquent, making a larger number of consumers vulnerable to entering default and the start of collections activities,” said Michele Raneri, vice president and head of U.S. research and consulting at TransUnion.
Back in May, the Department of Education announced that about 195,000 borrowers received a notice saying they had defaulted on their student loans. The department added that by the end of the summer, 5.3 million Americans would receive the same notice, and that the government would begin garnishing their wages –– whether that be Social Security, income or tax refunds.
What options are available to borrowers in default?
So, what can be done if you find yourself at risk of having your wages garnished? Well, for some borrowers, they might not even know that they’ve reached that point, especially if they have multiple loans from different service providers.
“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,” Kyra Taylor, staff attorney at the National Consumer Law Center, told The Associated Press.
Once you figure out if your loans are delinquent or in default, there are various routes to right the ship.
“Options may include income-driven repayment or other payment plans specific to their situation,” said Raneri. “There are also loan rehabilitation programs that may allow those who do default to get out of default status.”
Loan rehabilitation programs generally require 10 consecutive payments, commensurate with a borrower’s income.
Meanwhile, Taylor of the National Consumer Law Center told the AP that those who fear their wages could be garnished have several options at their disposal, including requesting a hearing with the Education Department if wage garnishment will result in financial hardship.
“If the borrower requests a hearing within 30 days after receiving the garnishment notice, the department cannot start garnishment until it issues a decision on the borrower’s objections and financial hardship request,” Taylor said.
Hearings can also be requested for other reasons, such as if a school closes before a student receives their degree, if the school owes a borrower a refund and hasn’t paid it, if a student has filed for bankruptcy, or if they experience “total disability,” according to the AP.
Additionally, if a borrower was laid off from their previous job and has not been at their current job for at least a year, they are also able to contest wage garnishment.
Lastly, studentaid.gov recommends never paying for help to get a loan out of default.
“If you are contacted by a company asking you to pay ‘enrollment,’ ‘subscription,’ or ‘maintenance’ fees to help you get out of default, you should walk away,” the government writes. “The Default Resolution Group can help you get your loan out of default for free.”
For a comprehensive list of all the resources available to borrowers who are at risk of defaulting, click here.
Ella Rae Greene, Editor In Chief
