Millions of student loan borrowers face the potential of wage garnishment starting as early as this summer. Estimates from credit bureau TransUnion indicate that approximately 3 million borrowers could enter default by August. This means they will be 270 days past due on their payments, putting them at risk of having 15% of their paychecks docked to cover the outstanding debt. The exact start date for wage garnishment remains unclear.
The end of the pandemic-era pause on student loan payments in May has forced borrowers to re-evaluate their financial situations. TransUnion also projects that another 2 million borrowers are on track to default in September.
A grace period implemented by the Biden administration, which shielded borrowers from negative credit reporting for late or missed payments, has now ended. Consequently, many borrowers have experienced negative impacts on their credit ratings.
It is crucial for borrowers to proactively manage their student loan debt to avoid wage garnishment. Kyra Taylor, staff attorney at the National Consumer Law Center, emphasizes the importance of checking loan status on studentaid.gov to identify any loans already in default. Taking immediate action to remove loans from default is essential.
Borrowers may be unaware of their default status, particularly those who attended college or graduate school at different times or have various federal loan types, potentially leading to multiple loan servicers. In such cases, swift action is necessary to regain good standing. This can be achieved through a rehabilitation agreement, requiring nine consecutive income-based payments, or by consolidating loans into a new federal Direct Loan.
Aissa Canchola Bañez, policy director at the Student Borrower Protection Center, highlights the extended period without wage garnishment, leading to potential unawareness among borrowers about their risk. Long wait times and dropped calls when contacting loan servicers, partly due to Education Department layoffs, add to the challenges. Bañez suggests contacting your congressperson and utilizing their casework tool to submit a constituent request for assistance with the Department of Education.
Until past-due payments are resolved or the default status is addressed, borrowers remain vulnerable to having up to 15% of their wages directly deducted from their paychecks.
The Department of Education has issued warnings to borrowers about potential tax refund and wage withholding if they fail to restart payments. However, specific timing details are still pending.
Richelle Brooks, an education administrator with $239,000 in outstanding debt from multiple degrees, expresses concern about her projected $3,000 monthly payments. She plans to enroll in coding classes at least half-time, which could defer her loans while she develops a financial plan.
Borrowers still have time to take action and prevent wage garnishment.
Taylor explains that the Department of Education must provide a 30-day notice before issuing a garnishment order to an employer. During this period, borrowers can request a hearing to object, citing financial hardship. They can also request a reduction in the garnishment amount and provide documentation of their income and expenses.
To request a hearing, borrowers must submit a written request, postmarked within 30 days of the garnishment order. The loan holder will then arrange the hearing. If unsure about the loan holder, borrowers can contact the Education Department’s Default Resolution Group.
Borrowers who were recently laid off and have not been in their current job for 12 consecutive months can also object to garnishment. Additionally, a hearing can be requested if an application for certain statutory discharges is pending. Common reasons for statutory discharge include school closure before degree completion, school owing a refund, total disability, or bankruptcy.
Taylor emphasizes that if a hearing is requested within 30 days of the garnishment notice, the department cannot initiate garnishment until a decision is made regarding the borrower’s objections and financial hardship request. While a hearing request can be submitted after the 30-day period, garnishment typically continues while the request is pending.
