Student Loan Borrowers: Got Notified of a Pay Reduction Today? Steps to Take Next

Wage Garnishment Notices for Defaulted Student Loan Borrowers Begin

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The U.S. Department of Education has announced that, starting Wednesday, it will begin issuing wage garnishment notifications to individuals who have defaulted on their federal student loans.

Main Points to Know

• Federal student loan holders in default will soon receive notices that their wages may be withheld, according to the Department of Education.
• Recipients of these notices have a 30-day window to either pay their outstanding balance or request a hearing.
• Borrowers can also choose to consolidate or rehabilitate their loans, which can restore their accounts to good standing and help them avoid wage garnishment.

Millions of Americans with federal student loans are expected to receive wage garnishment notifications this week. However, there are steps borrowers can take to prevent their wages from being withheld.

The Department of Education will notify those in default that a portion of their paychecks—up to 15%—could be withheld to cover missed loan payments. This process, known as wage garnishment, is a consequence of failing to make payments.

Currently, about 9 million federal student loan borrowers are in default, meaning they have not made a payment for over 270 days. Once notified, borrowers have 30 days to resolve their default or request a hearing before wage garnishment begins.

When a loan enters default, the entire remaining balance, including principal and interest, becomes due immediately. Wage garnishment will continue until the debt is paid in full or the borrower takes action to resolve the default. Additionally, borrowers in default lose the ability to pause payments through deferment or forbearance.

Why This Is Important

Having up to 15% of your paycheck withheld can significantly impact your finances, making it even more difficult to manage monthly expenses. Acting quickly can help borrowers avoid income loss and reduce the risk of long-term financial harm.

If you are facing wage garnishment, consider these options:

Option 1: Pay Off Your Loan in Full

If you have the means, paying your entire student loan balance before wage garnishment begins will prevent your wages from being withheld.

However, this may not be realistic for many, as the average student loan balance is close to $40,000, while the typical American household has about $8,000 in savings, according to recent Federal Reserve data.

Option 2: Restore Your Loan to Good Standing

The primary ways to avoid wage garnishment are through loan rehabilitation or consolidation.

Consolidation must be completed before garnishment starts, while rehabilitation can still be pursued even if your wages are already being withheld. Each option can only be used once.

Consolidating your loans merges multiple loans into one, removing the default status. This process is faster than rehabilitation and can stop garnishment before it begins. However, consolidation does not erase the default from your credit report and adds any unpaid interest to your balance.

Before consolidating, you must either enroll in an income-driven repayment plan or make three consecutive, voluntary, on-time, and full monthly payments.

For rehabilitation, you need to contact your loan servicer, who will set a reasonable monthly payment. You must make nine voluntary payments within ten consecutive months. Since rehabilitation takes longer, wage garnishment may continue while you complete the required payments.

Option 3: Request a Hearing

If you disagree with your default status or the amount owed, you can ask for a hearing to challenge the wage garnishment. You may also request a hearing if garnishment would cause severe financial hardship or if you have been employed for less than a year.

To request a hearing, submit a written request to the collection agency listed on your notice within 30 days of receiving it. You must provide supporting evidence for your case, cover any legal costs, and attend the hearing in person.

A decision is usually made within 60 days after your hearing request is received.