Students

Q&A: Student Loan Defaults and Garnished Wages

Comments 39 Comments

The amount of federal and private student loan debt held by Americans, which is expected to top $1 trillion this year, has now surpassed credit card debt. And given the persistently high unemployment rate, it should come as no surprise that more Americans are defaulting on their student loans.

In September, the Department of Education released fiscal year 2009 student loan default rates, which had, “risen to 8.8 percent, up from 7.0 percent in FY 2008… default rates increased for all sectors: from 6.0 percent to 7.2 percent for public institutions, from 4.0 percent to 4.6 percent for private institutions, and from 11.6 percent to 15 percent at for-profit schools.”

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Making matters worse for those in debt, student loans are not dischargeable in bankruptcy proceedings (unless you can convince the judge that you are experiencing a particularly severe and ongoing hardship). This generally means that regardless of your situation (jobless, homeless, broke), the student loan debts are going to stay with you. The government can even garnish your wages if you are in default.

We spoke to Mark Kantrowitz about this issue and some options for people facing this difficult situation. Kantrowitz is publisher of the FinAid and Fastweb web sites and author of the Amazon.com bestseller Secrets to Winning a Scholarship. He has testified before Congress about student aid on several occasions and is on the editorial board of the Council on Law in Higher Education.

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Credit.com: How much can the government take from someone’s wages?
Kantrowitz: The federal government has very strong powers to compel repayment of defaulted federal education loans, including garnishment of up to 15% of the borrower’s take home pay and interception of income tax refunds, both without needing a court order.

Credit.com: Is there any way to stop them from garnishing wages?
Kantrowitz: Borrowers do have a one-time opportunity to rehabilitate their loans by making 9 out of 10 consecutive full voluntary on-time monthly payments. Wage garnishment is involuntary, so that doesn’t count. But the payments are supposed to be reasonable and affordable, so there is some room for negotiation. Once the loan has been rehabilitated, the wage garnishment and refund offset orders are lifted, and the borrower can switch into income-based repayment to get an affordable monthly payment.

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Credit.com: Is it possible to settle the debt in other ways?
Kantrowitz: Defaulted borrowers have the option of making a lump sum payment of what they owe. Sometimes this settlement can be for less than what they owe, such as waiving the collection charges or knocking off 10% of the total debt.

Image: a.mina, via Flickr.com

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • Nicholas Trolio

    Really? Private student loans will not work with you at all. People fail to realize the problem is with private loans. So eveything you said is false if you are trying to include private loans in your article. Moron.

    • Kate

      I think that what Nicholas was saying was that private student loans aren’t held to any of these standards, and are not required to work with borrowers. He knows you didn’t write that – it seems as though you didn’t know that.

      Those of us with private debt are still stuck – however, the bankruptcy laws (as I understand) were changed in June of this year (2011) to make it easier to discharge private student loans through bankruptcy. The hard part is finding any information about this online that’s up-to-date.

      Maybe, if you’re interested in helping out the roughly 1/3 of those with student loan debt who have significant private loans, you could look into that and toss us a bone.

      • Michael Schreiber

        Fair enough. I will do a follow up post that better addresses the difference between public and private loans relating to these issues. Apologies to Nicholas to misreading his comment. The moron thing distracted me.

      • E

        Can agencies/government garnish your wages on private loans? I know they can on federal student loans, but what about private loans?

  • Michael Schreiber

    I never wrote, “Private student loans will not work with you at all.” I wrote, “student loans are not dischargeable in bankruptcy proceedings (unless you can convince the judge that you are experiencing a particularly severe and ongoing hardship.” Read more about the different kinds of loans that are not dischargeable here: http://www.finaid.org/questions/bankruptcy.phtml
    Beyond that, Mr. Kantrowitz specifically says, “Sometimes this settlement can be for less than what they owe, such as waiving the collection charges or knocking off 10% of the total debt.”

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  • ADRIENNE WILLIAMS

    I HAVE A DAFAULETED STUDNET LOAN THAT A THIRD PARTY COLLECTOR HAS TAKEN OVER. THEY ARE THREATENING TO DO WAGE GARNISHMENTS. CAN THEY DO THAT????? IS IT LEGAL

  • R. Williams

    Student loans have absolutely destroyed my life. I have been married since 2004. I work. I have 4 children, one in college and my husband receives Social Security Disability for a mental disorder. Since 2000, my tax refund has been taken and now within the last year, my wages have now been garnished – they take about 10% of my income every pay period. I have to rent my home because I cannot get a mortgage. I pay high interest on everything and my credit has been destroyed. I want to file bankruptcy but I can’t even afford that. I live paycheck to paycheck and I don’t know what to do anymore because the cost of living is increasing and my bank account is practically negative every week. I sent the US Department of Education a Financial Disclosure Statement with copies of my W-2′s, bills, etc…and have never received a response – that was 3 years ago. I am so depressed with all of these mounting bills that I really need to go to the hospital for treatment, but I can’t afford that either. If I don’t work everyday, then my family won’t have a place to live. I don’t even know where to begin but I do know one thing, I cannot afford to have my wages garnished any longer. What should I do?

  • K. Malin

    I have huge private student loans, the total monthy due is almost as much as i make. Is there anything i can do? I can’t afford an apartment, my father is batteling cacner and we’re close to loosing the house. Is there anyway besides bankruptcy?

    • Michael Schreiber

      It’s hard to say without knowing your situation in detail. We are going to be posting some follow up articles with more information, but it would be a good idea to consult with an attorney and/or a financial planner to get a better sense of what your options are.

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  • Zeva

    Hi,
    I’m posting this question with the hopes that someone out there has had the same experience or has further information on the process…
    My elderly mother lives off of her social security income and for the past few years it has been garnished for repayment on a student loan she co-signed for my brother about 20 yrs. ago. Two days ago she was contacted by an outside credit agency, the rep. told her that the debt would no longer be handled through her social security check and would instead be handled by the collection company he works for. Her most recent check no longer reflects the garnishment. Is there anyone that knows more about what this change means?

    • Dirk

      Hi Zeva,

      I live in Europe and draw USA social security . I have been paying back 15 percent of my SS thru a garnishment for an old student loan 30 years ago.

      This past month I also saw that they stopped taking out the student loan debt.

      I will try to find out more.

  • Amy

    I pay on two student loans to Wells Fargo. I am in default and cannot afford to catch up to current (until the hubby gets a job), but make the minimum payment every month. They call me every day. I stopped answering b/c I can’t really do anything new for them, so they called my in-laws, a number we never gave to them. I turned it over to my state’s Attorney General and was told that the original creditor was not covered by fair credit collection laws. By the way, they will not allow us to do a deferral, b/c they require the account to be current. They will not do a forbearance b/c they consider it a personal (not student)loan, even though we receive tax documents every year for the interest we’ve paid.

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  • SP

    Student loans currently in wage garnishment status. They take out a big chunk already and when asked how to get it out of default, their answer was to pay another $500 per pay check for nine months. I didn’t ask where they came up with that number but it’s highly unreasonable. I’ve been on AWG for over a year and all I want to do is get a lower payment or begin paying on my own outside of the garnishmen to get my credit fixed. Willing to do the nine month rehab thing but the amount is ridiculous. Are there any laws to refer to or negotiion points you can guide me to, to try and get this $500 per pay check voluntary payment down some? Thanks.

  • Laura Maynard

    I took out a federal parent loan for my son to attend college. He dropped out the first year and before one year passed he started attending another college. They are garnishering my pay. They are not aware he signed back up for school. Am I able to stop this because he is back in school? What is the time frame?

  • Laura Maynard

    As per my last comment I live in new York state?

  • Arrianne

    PLEASE HELP HUSBAND LEAVING FOR THE ARMY IN 5 MONTHS STUDENT LOANS ARE IN DEFAULT AND IN GARNISHING.My husband wadges have been garnished for a year now and we are in in-come based housing and on food stamps and he has the only income its minimum wadge.He called who has his student and try to pay them the whole default amount but they would not let him the problem is if he does the 10 month payments they will want to garnish his wadges from the Army and that could cause huge problems is there any way around this? The Army is the only hope for our family and both or our credit is shot.PLEASE HELP.

  • Doreen

    I had a student loan 30years ago and I couldnt afford to pay it back so I claimed bankruptcy payed a lawyer went to quart even got discharge papers and they have been taking my income taxes for 10years call and harass my self my family and my job.I was also told they are garnishing my wages starting in my next pay check I dont make enough to pay my bills or feed my kids this is a disgrace however if i wasnt lied to from a lawyer and a judge i might have tryed to find a way to some how pay it back but now im in worse dept then ever I have no idea what my rights are and I have no idea what to do I dont have anything showing what they took already from my income tax. Im so fed up.

  • Carmen

    What is the name of the service that assists in getting the student loans out of default? You mentioned a company wherein you make payments and after 10 payments it gets you out of default.

  • Chris Gadwa

    I want people to read this.

    I had defaulted student loans. A total of $11,000 but with interest in was close to $14,000. The Department of Education sent the default to collections – Pioneer Credit Recovery, Inc. (founded 1980, owned by Sallie Mae). For more information, write to Pioneer Credit Recovery, Inc., PO Box 99, Arcade, NY 14009 or call 1-888-287-0571.
    I tried to reason with the collection agency. The offered me to pay 10% within 20 days and then 900 a month. I could not afford it at the time of the offer. I then tried to offer what I could but they would not accept my offer. They then did a garnishment of wages for more than 14,000.
    My pacheck showed a wage attachment of a little over $400 a paycheck (ouch right) & this started in Feb. 2011. Well here is the kicker folks, they never stopped collecting the debt. I paid them over 19,000 – 5,100.68 more than what was owed to them. I found out today that they never sent in an “Order to Release”. When I called the collection agency they realized the “overpayment” but told me the Department of Education went through a system conversion over the last year and that it was failing to send out seize letters so basically they keep taking money from your paycheck even if you garnishment is settled.
    Today I had to hunt down the appropriate address (since my company does not accept fax numbers) and provide this address to the collection agency so they could send the documents imemdiately to seize the garnishment. It’s too late for this paycheck unfortunately they will get another $400.00 and maybe even next check if they do not send in the paperwork by November 1st.
    I’ve been struggling and to know they have been stealing my money paycheck after paycheck for more than half a year makes me physically sick to my stomach! They can blame their system conversion all they want but this is absolutely not okay. Don’t they have checks n balances? Here is what she said trying to weasel out of looking bad, “Your company doesn’t have a fax number so we didn’t know where to send the seize documentation to so we just left it.” Are you phucking kidding me? They knew they were continuing to steal my money but first blamed it on the Dept of Education (cause they use same program) system conversion then they blamed it on my company for not accepting fax releases.
    I’m not steaming pissed off right now. I had serious issues back in May with my gallbladder and have been struggling to pay my healthcare bills because of the garnishment. I’m not in collections because I couldn’t pay. Had I had that 800.00 I could have made payments on my health care bills (even with insurance the surgery cost me 5k out of pocket).
    Can I sue them? These doesn’t seem at all legal to me?
    Please people if you are being garnished by the IRS or any government agency like Dept. of Education via a collection agency, please make sure you check your paychecks and calculate what is being taken out against the wage garnishment itself – Please people make sure you know they do not stop collecting money even after all your debt has been paid.
    I know they are phucking liars because in 2008 the IRS garnished me for back taxes and the same exact thing happened. They never send in the order to stop collecting until you call them and make it known to them that they need to do so. They are phucking lying thieves!!!!!
    BE AWARE THEY WILL NOT STOP COLLECTING YOUR MONEY EVER UNTIL YOU CALL THEM AND TELL THEM TO SEND IN THE ORDER. THEY WILL PLAY DUMB AND GIVE YOU A MILLION EXCUSES!

  • Joseph

    Hello,

    I borrowed around $60,000 in private student loans to pursue a mathematics degree a few years back. I have a disability (of a psychological sort) that interfered with my ability to finish my degree. I’d planned to get an MA or even a Ph D. However, that never materialized. By the way, I had the disability when I took out the loans.

    At any rate, I’m now confronted with my Sallie Mae student loan debt going into default in a few weeks. I’m not young (65), and I earn low wages for part-time work in a restaurant. I also get Social Security.

    What I really wish to know now is whether or not there’s anything I can do to prevent disaster when my loans default. I cannot come anywhere close to paying what they demand — $450 to $600 per month. I can currently pay only around $50 to $75 per month. I understand that the collector (whoever that turns out to be) will not be able to garnish my Social Security, but they can take part of my earnings through garnishment. It’s not clear to me what the limitations are on what the collectors can take from me.

    I made the terrible misjudgment of borrowing money I should never have borrowed. But that cannot be undone. Now, what options, if any, do I have? Any advice would be appreciated.

    Sincerely,
    Joseph

    • Michael Schreiber

      Joseph — Thanks for sharing your story here. One thing to consider is that while under most circumstance student loans cannot be discharged in a bankruptcy, there are rare exceptions. If that’s something you’re interested in learning more about, you might consider contacting a bankruptcy attorney. Also, would you mind posting this in our forum too? Our experts as well as members of the community will be able to respond and share their insights. Click here: http://forum.credit.com
      Thanks very much.
      Mike

  • Lindsey

    if a collection company (nco) already has a wage garnishment on my paycheck where they have been taking 15% of my wages for the past year and a half can they also take my entire tax return? i am single mother of two children and use my tax return to live off of as additional income for the entire year. this year alone i have paid over 6k in student loans (through the garnishment and a second loan) and i make under 27k a year. i dont know how they expect me to live if they continue to take everything i have. as it is even with using the money throughout the year from my previous return i can barely afford to feed my kids. can they take both the paycheck AND federal tax return?????

    • Gerri Detweiler

      Lindsey –

      Is this a federal student loan they are garnishing your wages for? If so, then your tax refund my be at risk for offset. If you are worried this is going to happen, then please read these instructions for challenging the tax offset for your student loans.

  • Barbi

    My wages are currently being garnished, have started a second job, can this job now be garnished also, or can the garnishment change which job they collect money from?

  • Shelly

    Ok, how about this: I co-signed for some federal student loans. Now, they are not being paid. I know that as a co-signer that I am responsible but is there not any way to garnish her wages if she is on disability? ( I know this sounds cruel but you don’t know the half of it!) or is there anything I can legally do at all?

    • Gerri Detweiler

      Shelly – I am not sure I understand your question. Are you asking how you can garnish her wages? Or how she can protect her wages from garnishment??

  • Renee Sides

    I had been defaulted & then rehabbed my loan with Sallie Mae by paying $100 a month for 12 months about 10 years ago. However, they said after it was rehabbed that I now had to pay $400 a month. I told them I couldn’t afford that & they said they would garnish my wages, which they did. I have been paying for around 10 years. I never got any statements or anything as to what I owed on the $18,000 loan. When I called Sallie Mae for a status last year, they said I now owed $30,000 with penalties & interest. When I tried to get an update this year, it said my servicer was now Southwest Student Services, owned by Wells Fargo. Southwest Student Services website was gone, and when I called the Wells Fargo number listed as the contact for Southwest Student Services, it sent me directly to Sallie Mae, who said they had no information on my loan. My employer gave me the name of the collect on the garnishment, Enterprise Recovery Systems. I called them, and they said now I owe $40,000 because they are charging me $23 a day to handle this account. They tried to get me to reconsolidate with them. I asked them why they would want to make me another loan when they are already getting $23 a day & my wages are being garnished. She said they want to help people. I laughed & Googled the company, and it sounds like they have some shady business practices plus a lawsuit again them. I told them I am contacting an attorney. I’m wondering if even still owe money after reading about the guy whose loan was paid off & they never told him. I don’t know what to do other than contacting a lawyer. Any advice?

  • Dani

    My name is dani. I went to school back in 2010 and only attended for a few months. I signed up for financial aid to pay for my classes. I was suppose to get grants. I never once received any. I have a number calling me telling me I owe money for a student loan that I did not receive. My mother paid the school the money we owed for the classes. Which was $3,000 something odd dollars. This number is telling me I owe $2000. Which is impossible since I didn’t take a loan out. What should I do? I can’t afford them to take my taxes.

  • sebastian

    My name is Sebastian, and as many like me the VA got me good for the post 9/11 gibill. I was reported to the treasury department and to pioneer credit recovery services. Now because of the way I was treated by the military and having lived through afghanistan and iraq, adjusting to every day life has been tough and difficult. The stresses I lived through unfortunately have not left me, for now I am being hunted for an overpayment that was not even my fault. Now pioneer is going to take my wages and my taxes. I have been in contact with treasury and the VA and they have given some options. But after reading some comments here, it appears that Pioneer does not give a f… even if the payments have been agreed with the originator of the debt. I am soon to become a father and I was wondering what options do I have, and how can I get pioneer of my back?

  • megan

    I was contacted by pioneer debt recovery. They told me I have to make a $500 payment by tomrw and $1000 payment by next month. After that I have to pay $600 a month. I live on my own I can’t afford these payments. Can they demand such large amounts? What would happen if I can only make half the amounts they’re requiring? And when will they garnish my paychecks? This is all new to me and I am very worried. Any advice would be greatly appreciated. Oh and this is for a sba disaster loan. I lost everything in a flood 2 years ago.

  • Monique

    My husband has school loan debt from over 13 yrs ago. They just recently garnished our tax return. Can they still do that, even from that long ago? He has filed bankruptcy in 2007.

  • Bucky

    I have a question regarding a garnishment on a federal student loan that has been defaulted on… I do not make very much money & offered to make small monthly payments on my account which were turned down as they wanted huge monthly payments that I couldn’t even begin to afford. So, they garnished my wages. Some weeks (not many) I pay $5.00-10.00 thru the garnishment. And I had offered a bit more than that to start with. Can they continue to call and harass me about payments with the garnishment in force? Thanks

    • Gerri Detweiler

      Bucky –

      I don’t know of any reason why they can’t continue to call. What you need to do now is to focus on getting out of default and getting into Income Based Repayment so you have an affordable payment. Have you tried at all to do that?

  • HDG

    I am in default on 2 student loans. I am a single mother, no income, and I receive government assistance (food stamps). They have taken my income tax return already, but it does reflect that when I call. Since I am get SNAP benefits, and have no income. Can my defaulted loans be stopped/deferred in any way?

    • http://www.credit.com/ Credit.com Credit Experts

      In cases where you’ve suffered a job loss or other economic hardship, you may be eligible for a deferment or forbearance through your lender, though eligibility and terms will vary from lender to lender. In general, the time frames for temporary relief on student loans can range anywhere from a month or two to a year or longer. You may even wish to reach out to your student loan servicer to explain your situation as they may have other options that may help relieve the burden — even if temporarily while you get back on your feet.

      Outside of deferment or forbearance, there are other options that you may qualify for, all of which are explained in detail in a piece Gerri wrote here: The Ultimate Guide to Student Loans

  • Tabitha

    Recently my son was diagnosed with a brain tumor. Its been weeks since the surgery… I only have 5 classes left to graduate. However, now I need to be there for him therapy etc. This is going to be a long term situation… I am worried and scared to death of how I will continue to be there for him and fulfill my responsibilities… He is my priority… Sure I can defer I am sure; but then what?

  • http://consumerrecoverynetwork.com/ask-a-question/ Michael Bovee

    What was the garnishment the result of and was it state or federal?

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