Question:
Dear Steve,
I have a defaulted student loan from education at the University of California (education finished in 1994). My employer was just sent a set of papers, dated November 2, 2016, from FMS Investment Corp. — creditor agency for the U.S. Department of Education — to garnish my wages. I had never received any papers as the agency alleges regarding garnishment of wages.
How can I immediately (like now) stop the agency from beginning the garnishing of my wages? I had been trying to find some student loan assistance people to help me with no luck. I would like to prevent the garnishment before my next December 9, 2016, paycheck. My manager said ADP is the entity that handles our company’s garnishment, so we need to act quickly to stop it from happening. Your advice is greatly appreciated. Thank you!
Gina
Answer:
Dear Gina,
I decided to toss in some crummy jokes just to brighten up this dull content. Yes, the jokes are horrible, but the advice is amazing.
Thank you for sending along the copy of the documentation. That was a huge help.
FMS Investment Corp is a private collection agency hired by the Department of Education to collect on delinquent loans.
Q: What does one penny say to the other penny?
A: Let’s get together and make some cents.
As you can see by the copy of the FMS Investment Corp collection contract with the Department of Education, they make the most commission if they can get you to pay, then if they initiate an Administrative Wage Garnishment (AWG), and finally if they assist you with a rehabilitation.
FMS should have attempted to explain to you how to cure the default before putting the AWG in place. That would have included dropping your federal loans, for free, into a new Direct Consolidation loan and then opting to repay it via an Income Driven Repayment plan. This would have given you the lowest payment based on your income.
Unfortunately servicers regularly make mistakes. Before initiating an AWG you should have been notified that a wage garnishment was pending. If you did not receive the notice it might be your mailing address with the loan servicer is incorrect. If so, update it so you receive all notices.
Before garnishing your wages the loan servicer will send you notice of the proposed garnishment at your last known address about 30 days prior.
You have 30 days from the date of the notice to object to garnishment. You must object in writing and request a hearing. If you do so after the 30-day period, garnishment will be initiated and will continue while your objection is considered and a decision issued. In this very small window you can also leap at putting your loans into a Direct Consolidation Loan and opt for an income driven repayment. If you can provide proof of your consolidation application it should stop the Administrative Wage Garnishment.
By the time the garnishment starts your student loan balance has been inflated by up to 18.5% of your balance for collection costs.
According to the Department of Education, “If a borrower who consolidates is assigned to a PCA (Private Collection Agency), the Department will assess collection fees up to 18.5% of the combined principal and interest amount as part of the consolidation payoff. In general, if the borrower does a forced-IDR consolidation, the collection fees charged will be $150 (unless that exceeds 18.5% of combined principal and interest; if the borrower establishes satisfactory repayment (three consecutive monthly payments) prior to certification, the collection fees will be 2.8% of combined principal and interest. All outstanding interest and collection fees are capitalized at the time of consolidation, meaning the initial principal balance of the new consolidation loan will be the sum of principal, interest, and collection fees certified by FSA.” – Source
Either by making monthly payment or consolidating the collection agency will get paid. Except if you consolidate when you first went into default. At that time the collection fee will not be charged if resolved or consolidated within 60 days.
You should always borrow money from pessimists, they don’t expect it back.
The process by which this all happens after you fall behind is set out in the collection contract.
Along with the AWG you may be subject to a tax refund intercept. If you expect a big refund you may not get it and instead it may be diverted towards your loan through the Treasury Offset Program. The easiest way to avoid a tax refund intercept is to adjust with paycheck withholdings so you don’t get a big refund at the end of the year.
At this point you have three options. The first happens once in awhile and is an accident. Some people have managed to attempt to consolidate their loans while in wage garnishment and have been approved. They should not be approved but it has infrequently happened.
The second way is to request a hearing while the wages are being garnished and make your case the garnishment is an economic hardship. Doing this does not eventually get your loans out of default and may just postpone things if your income was to go up. The rehabilitation payment is calculated as 15% of your discretionary income. Discretionary income is defined as “the difference between your income and 150 percent of the poverty guideline for your family size and state of residence.For Income-Contingent Repayment, discretionary income is the difference between your income and 100 percent of the poverty guideline for your family size and state of residence.The poverty guidelines are maintained by the U.S. Department of Health and Human Services and are available at www.aspe.hhs.gov/poverty.
“The only man who sticks closer to you in adversity than a friend is a creditor.”
-Unknown
The way you are supposed to stop an AWG is either to bring your loan current or through loan rehabilitation. See “The Easiest Way to Stop a Student Loan Wage Garnishment – Loan Rehabilitation.”
“Once your loan is rehabilitated, the default status will be removed from your loan. You will regain eligibility for benefits that were available on the loan before you defaulted, such as deferment, forbearance, a choice of repayment plans, and loan forgiveness, and you will be eligible to receive additional federal student aid. In addition, national consumer reporting agencies (credit bureaus) will be instructed to remove the record of the default from your credit history for the rehabilitated loan. However, late payments reported before the loan defaulted will not be removed from your credit history.
You can rehabilitate a defaulted loan only once.” – Source
Here is how the process works.
Your rehabilitation payment will be added on top of your garnishment. About 85% of people in rehabilitation have an additional payment of $5 but there is a formula to calculate what it will be. See the information on discretionary income above. If you can’t afford the initial monthly payment amount, you can ask The Department of Education or the collection company to recalculate the payment amount based on your documented income and expenses. Depending on your individual circumstances, this recalculated payment amount may be lower than the payment amount you were initially offered. You can choose either of the payment amounts.
“If you think nobody cares if you’re alive, try missing a couple of student loan payments.” -Earl Wilson
After making five rehabilitation payments the wage garnishment will stop. After nine payments you will be out of default and eligible to consolidate and get one an income driven repayment plan.
The official language says, “Both guaranty agencies and Federal Student Aid are required by regulation to suspend administrative wage garnishment (AWG) after the fifth valid loan rehabilitation payment. It is important to understand that a rehabilitation payment is only considered valid when we have all the documentation from the borrower. Payments based on preliminary information provided by phone do not count toward the five valid rehabilitation payments needed to suspend AWG unless they are equal to or greater than the eventual valid repayment amount calculated based on complete documentation. Prior to the suspension of AWG, borrowers can request a hearing to reduce AWG amounts during which they can document that the AWG amount represents an economic hardship. This should also be the process for FFEL loans held by guaranty agencies.” – Source
It is important to know that payments such as Administrative Wage Garnishment (AWG) payments and payments received through the Treasury Offset Program (TOP), do not count toward your rehabilitation payments.
You’ll have to keep a close eye on FMS Investments Corp during this process. The Consumer Financial Protection Bureau has loads of reports from people who ran into problems along the rehabilitation path. – Source
Okay, maybe that last one was more true than funny. It’s just the way the world works.
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Gina, I just answered your question.
Question posted.