I can’t tell you how frequently people ask me for the best advice to deal with an Administrative Wage Garnishment for a federal student loan. It’s quite often.
And the tragedy is the wage garnishment could have been easily avoided. The loans should never have been allowed to get to that point because there are such good programs to avoid the garnishment.
When it comes to federal student loans the government does not have to sue you or take you to court to just start taking your wages.
Federal student loan servicers are frequently not very helpful when wages start being garnished. I’m not sure if it is because they just don’t care or don’t know about options. Regardless, the end result is the same, wages can be garnished for up to 25% of income if someone has more than one student loan. If all the loans were previously consolidated into one or they only have one in trouble then the maximum is only 15%.
If your student loan servicer or collector won’t give you the straight scoop on how to use rehabilitation to stop the wage garnishment, contact the Department of Education for some advice.
In general though, the Department of Education must agree to a reasonable and affordable payment, that will be temporarily tacked on above your wage garnishment. I’ve seen these payments as low as $5. If you go this route and bite the bullet for the five required payments, the wage garnishment will stop.
The government generally uses the following process to determine your payment, “…once the rehabilitation discussion has begun, initially considers a borrower’s reasonable and affordable loan rehabilitation payment amount to equal 15 percent of the amount by which the borrower’s Adjusted Gross Income (AGI) exceeds 150 percent of the poverty guideline amount applicable to the borrower’s family size and State, divided by 12. If the amount determined using this calculation is less than $5, the borrower’s monthly rehabilitation payment is $5.” – Source
After nine months the loan will be considered rehabilitated and reported as current again to the credit bureaus.
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If you’ve been paying attention you should be asking yourself what happens between the fifth payment when the garnishment stops and the ninth payment when the loan is rehabilitated. The answer, you just have to make that smaller payment.
Once the loan is rehabilitated you go back to a good status with the Department of Education and you’ll be eligible for your choice of consolidating your student loans and a permanent lower payment repayment plan. If you’ve been struggling I’d suggest you take a good hard look at the Income Based Repayment (IBR) program.
In the Income Based Repayment program the government will give you some monthly payment breathing room and reduce your payments down to a level based on your income, discretionary income, and their calculations. After 20-25 years of low payments your student loans will be forgiven.
If you qualify for the Public Service Loan Forgiveness program, after ten years of really low payments the balance can be forgiven. This program is a real blessing for those in the military, teachers, and government employees. For more information, click here.
So there you go, there is no need to ever let your student loans lead to a wage garnishment and if they have, this process is a sure way out of the garnishment pain.
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