Student Loan Garnishment

Over 40 million Americans feel the burden of student loan debt, which recent reports find is over $1.7 trillion. Sometimes, the debt may become so unmanageable to pay back that lenders start garnishing your wages.

That’s right: If your loan defaults, the consequences could reach your paycheck. Garnishment enables a loan holder to withhold up to 15% of your disposable income toward repaying past-due debt until you pay off the loan or are no longer in default.

We’ve researched student loan garnishment, including what it is, how it works, and how best to avoid it. You can work toward getting out of default or set yourself up for success from the start of repayment.

In this guide:

• What is student loan wage garnishment?
• How does tax return garnishment work for student loans?
• How does Social Security garnishment work for student loans?
• Your rights
• How to stop student loans from garnishing wages or other sources of income

What is student loan wage garnishment?

Student loan wage garnishment is the legal process by which a lender can obtain repayment of past-due debt from a borrower’s paycheck. This process can happen for federal and private student loans, but the two differ in how they garnish wages for loans in default.

Only certain federal loans may be subject to wage garnishment. These include:

• William D. Ford Federal Direct Loans
• Federal Family Education Loan (FFEL)
• Federal Perkins Loans

For these loan types, wage garnishment can occur after the borrower fails to make nine consecutive monthly payments. Moreover, the U.S. Department of Education must notify the borrower at least 30 days before initiating any wage garnishment.

Unlike federal student loans, private student loan holders can consider a loan in default after 90 days of missed payments. Regarding private loans, collectors can only start garnishing your wages through your state’s judicial procedure. 

This often means before garnishing your earnings, the debt holder must file a lawsuit in court and get a judgment. You must be notified of the lawsuit against you, and if you don’t respond to it, your lender will win in a default judgment.

Some forms of income, however, are exempt from garnishment. Private student loan garnishment can’t apply to:

• Social Security benefits
• Alimony or child support
• Disability benefits
• Annuity or most pensions

Federal and private lenders are limited in how much they can take from each paycheck during wage garnishment. For federal loans, up to 15% of your disposable income can be garnished. This is your net income after taxes and deductions, such as health insurance premiums. 

Private loan holders may garnish the lesser of 25% of your disposable income or your earnings that exceed 30 times the federal minimum wage.

How does tax return garnishment work for student loans?

Tax return garnishment occurs when federal loan servicers obtain funds from a borrower’s tax refunds to collect on unpaid loans. The U.S. Treasury Department will withhold money from your federal or state income tax returns via a treasury offset. Private student loan lenders aren’t permitted to garnish tax returns.

The federal government uses the Treasury Offset Program to seize tax returns. Once a borrower defaults for 270 consecutive days, the Department of Education will send their information to the program. 

Before the Treasury Department sends your tax return, it will check the Treasury Offset Program database to determine whether you owe a past-due debt. If you do, it may withhold some or all of your tax return to repay your student loans each year you’re in default.

Tax return garnishment is not automatic. A notification of intent sent to your last-known address will advise you the offset will begin 65 days later. Take the following steps to avoid garnishment:

• Negotiate loan repayment with your lender.
• Make your first payment within 65 days.
• Continue to make payments on time. 

You can only stop initiated Treasury Offsets if you fully pay your debt or remove the default status. The federal government can garnish your wages and tax returns simultaneously. 

How does Social Security garnishment work for student loans?

Social Security garnishment is only allowed for federal loan servicers, not private creditors. The Social Security Act prohibits private student loan collectors from garnishing your Social Security payments or other federal benefits, such as disability payments.

The law limits the amount that can be taken out of your monthly check. As of February 2023, the limit is 15% of your Social Security benefits, but it can’t reduce your monthly benefit below $750.

Social Security benefit garnishment is another type of Treasury Offset, so you’ll get a notification 65 days before the garnishment begins. Similar to a tax return Treasury Offset notification, you have this time to do either of the following:

• Enter a repayment agreement and start making payments on your loan. 
• Request a review of your account, which may result in no offset or a reduced offset from your Social Security benefits. 

As part of the Treasury Offset program, your tax returns and Social Security benefits can be garnished at the same time, and this can also occur at the same time as wage garnishment. 

If the Social Security Administration determines you are disabled with no expectation of medical improvement, it will suspend the withholding of Social Security benefits. 

But if your disability benefits are converted to retirement benefits, the suspension will be canceled, and your Social Security benefits can be withheld as an offset without notice. 

Your rights if you’re subject to student loan garnishment

Wage garnishment can be intimidating, but it’s essential to remember that you still have legal rights. 

Right to a formal notice

By law, before the garnishment begins, you are entitled to formal notice and contact information for the agency that proposed it. 

For private student loans, creditors must file a lawsuit against you and obtain a court judgment before garnishing your wages. 

Court garnishment papers will include information about how you can object to the garnishment and request a hearing. 

Read the entire garnishment notice or lawsuit notification to understand the details. Federal garnishment notices should contain the following information in writing: 

• Amount you owe
• Instructions to get loan-related records 
• How to enter into a repayment agreement
• How to request a hearing

Right to challenge or contest a garnishment notice

If you think the notice includes incorrect information or the loan isn’t enforceable by law, you can challenge it in court. You can also contest a wage garnishment order if you think it will cause extreme financial hardship.

Right to employment

If you’re worried about consequences at work due to wage garnishment, you can’t get fired for garnishment from any one debt. 

However, Title III of the Consumer Credit Protection Act protects employees from termination due to garnishing a single debt. So it won’t protect you if you have two or more garnishment orders.

Statute of limitations

Once the age of the unpaid debt reaches the statute of limitations in your state, by law, creditors can no longer seek repayment. 

Note: Federal student loans are not subject to the statute of limitations.

Private lenders have anywhere from three to 20 years during which they may attempt to collect this debt. (The table in our student loan statute of limitations guide lists each state’s policy.) After this period, you’re no longer responsible for paying back the debt. 

You have a legal defense that your creditor violated the Fair Debt Collection Practice Act if it sues or threatens to sue you when it knows a debt is past the statute of limitations. 

How to stop student loans from garnishing wages or other sources of income

You can stop student loan wage garnishment before it’s initiated. First, verify the notice you received to ensure accuracy. If you don’t think you owe the debt in question or think the notice contains incorrect information, you may challenge it in court through a hearing request. 

If the debt is accurate and enforceable, you can still avoid wage garnishment by contacting your loan servicer to discuss how to prevent student loan garnishment by entering a repayment agreement. 

Federal student loan options to avoid garnishment

For federal loans, options include the following:

• Income-driven repayment plans, which can reduce monthly payments and make repayment more feasible
• Deferment or forbearance, which can suspend collection activity

Private student loan options to avoid garnishment

If you’re a private loan borrower, contact your lender to ensure you know your repayment terms, such as how much you’ll owe and how long repayment will take. 

Remain in communication with your lender throughout the repayment process. Your lender may be willing to work out a plan, such as:

• Loan consolidation
• Negotiate repayment terms
• A loan rehabilitation program to prevent wage garnishment if you keep up with payments

What if wage garnishment has begun?

If wage garnishment has already begun, you can contact a consumer credit counseling service to make a repayment agreement with your creditors that doesn’t include wage garnishment. 

For federal student loans, you may enter into a rehabilitation agreement. After your fifth payment under the agreement, your wage garnishment is suspended until you satisfy the terms. 

You can also request a hearing even after wage garnishment has begun. If the court rules in your favor, your wage garnishment may cease. 

By familiarizing yourself with how to stop student loan wage garnishment and exploring repayment options, you can ensure your wages remain protected while managing your debt. With the right plan, you can pay off your outstanding student loan debt before it’s taken out of your paycheck.