The Most Overlooked Way to Stop a Federal Student Loan Wage Garnishment

“Dear Steve,

Student Loan in default. I have been paying my wage garnishment for almost a year.

First of all, THANK YOU for being so helpful with these articles. I am trying to find more information on this new law is nearly impossible which I find odd and discouraging. So having your articles to read is so helpful. I wanted to know what my next step is in order to get out of wage garnishment now that the new laws have passed.

1) What are my rights as far as the new law goes while in wage garnishment and having been paying for almost a year now?

2) Do I have to make 5 more payments in order to get out of wage garnishment now as of July 1st?

3) I get paid bi-weekly and they take out payment twice a month so is that 5 months of payments or 5 payments?

4) Before the new law, they have told me that I would need to pay an additional $250 on top of the 15% they already take out for my wage garnishment. That would be about $700 a month. IMPOSSIBLE. With the new law, do I only need to make 5 consecutive payments to get out of garnishment, or do I need to pay money on top of that?

Ultimately, I just want to know what my rights are before approaching the company that holds my account as they have not been very helpful thus far and I don’t see that changing. I want to know what I can ask for in order to release myself from garnishment forever. I am starting a new job in the next week or so and I do not want my garnishment to be known at the new company.

Thanks in advance for your help!


Dear Susan,

I’m assuming these are federal student loans you are struggling with since you mentioned the five payment solution.

There is an often missed little trick when it comes to wage garnishments with federal student loans. Servicers never seem to mention this option.

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What I’m about to tell you is a legitimate option and not some shady or sneaky trick. Using this solution you can get out of a wage garnishment and bring your loans current again, fairly quickly. It won’t cost you a penny and the resulting payment can be as low as $5 per month.

But before I get to that, we need to evaluate your larger financial situation. If there is other debt that is holding you back from making your regular full student loan payment you should think about filing bankruptcy to eliminate that debt. This would get you back on a ten year loan elimination payment.

The fact you are unable to make your agreed upon regular student loan payment may be a symptom of a larger problem and it should be thoughtfully examined.

If however the issue is simply one of insufficient income then what I’m about to tell you will do the trick.

You Will Want to Slap Your Head When You Read This

So the answer to getting your federal student loans out of default is actually to jump into a rehabilitation program with the Department of Education. While this won’t immediately stop the garnishment, it will soon enough.

Once in the rehab program your rehabilitation payment can be as low as $5 per month over your garnishment payment. It is calculated based on your available income. The payment must be agreeable to both you and the government to be acceptable. After five payments you loan should be out of default, garnishment will stop, and you would be eligible to consolidate your loans.

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Then you can just roll your loans(s) into a new Direct Consolidation Loan with the U.S. Department of Education. Once you do that you can instantly elect to enter one of the income based repayment plans where your monthly payment is based on your income or available budget.

Just because you are in default it does not prevent you from consolidating your loans into a new one. When you do that your new loan will be current and reported as current. The old delinquent loans will be paid off. Even a loan rehabilitation won’t erase your delinquent repayment history so what’s the point anyway.

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The U.S. Department of Education says “If you want to consolidate a defaulted loan, you must either make satisfactory repayment arrangements on the loan with your current loan servicer before you consolidate, or you must agree to repay your new Direct Consolidation Loan under the Income-Based Repayment Plan, Pay As You Earn Repayment Plan, or Income-Contingent Repayment Plan.” – Source

There are no application fees for a Direct Consolidation Loan, and you may prepay your loan at any time without penalty.

For more information on this and other options read my Ultimate Guide to Dealing With Student Loans You Can’t Afford.

Please post your responses and follow-up messages to me on this in the comments section below.

Damon Day - Pro Debt Coach

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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