Student Loan Wage Garnishment: How Default Can Gut Your Paycheck

Student loan wage garnishment works like this: Default on your federal student loans and the government can take up to 15% of your paychecks. For someone who normally takes home $2,000 each month, that amounts to $300 garnished.

Payments have been paused for most federal student loans since March 13, 2020, as part of the first coronavirus relief bill. Wage garnishment and other collection activities were also paused at the time. The moratorium was extended to commercially held FFEL borrowers on March 30, 2021. Those protections have been extended through six months after payments resume.

The federal student loan payments pause was most recently extended until as late as summer 2023 while lawsuits work their way through the courts, and all borrowers are lifted back into good standing. That means those borrowers will get a fresh start when payments resume. But sliding back into default is still a risk — it happens after 270 days of delinquent payments.

» MORE: These federal student loan borrowers aren't getting relief

The Department of Education has said it will return any money seized between March 13, 2020 and the end of the relief period. But if your wages are still being garnished, talk to your human resources department about your situation.

If your were facing student loan wage garnishment before relief went into effect — or you might when it ends — don’t panic; you have options that are far less painful than a 15% hit to your paycheck.

» MORE: How to get out of student loan default

How to stop student loan wage garnishment

The ideal time to take action is when you begin missing student loan payments. At that point, your loan servicer can help you explore other repayment options, including income-based plans that cap your monthly payment, and deferment or forbearance, which pause repayment altogether.

» MORE: Deferment vs. forbearance: Which is right for you?

Once your loans are in default — nearly nine months past due for most federal loans — those options are off the table until your loan is in good standing. You can rehabilitate your loans to move out of default (more on that below). You also have a brief window to consolidate your federal loans (combining them into a single loan with its own interest rate) before the Education Department, via a private collection agency, moves to garnish your wages.

The collection agency handling your federal loans will notify you by mail before it starts garnishing your wages. The notice serves as your 30-day warning. During this time, you can stop the process by negotiating payment arrangements with the agency. The key: It must receive your first payment in that 30-day window.

If you can’t make a payment within that window, request a hearing to appeal the garnishment. To prevent student loan wage garnishment from starting, you must request the hearing in writing within 30 days of the date on your collection notice. You can still file an appeal after garnishment starts, but the collection agency will continue to take up to 15% of your take-home pay while the case is reviewed, which can take two to three months.

A hearing sounds intimidating but it’s no more than a long form detailing your income, debt and expenses. The goal is to stop or reduce garnishment.

Contact the collection agency handling your loan to talk about payment arrangements or get details on a hearing request. Not sure whom to call? Log in to your studentaid.gov account to find out who is managing your loan and how to reach them.

Wage garnishment hearings aren't being held while collections activities are suspended.

» MORE: How much are collection costs on defaulted student loans?

Rehabilitate your loan

If you default again after the payment pause lifts, the only recourse is loan rehabilitation. It's a one-time only “get out of default” card. It reduces collection costs and stops activities like student loan wage garnishment and the withholding of tax refunds and Social Security payments. Here’s how rehabilitation works:

What you'll pay: The collection agency sets a monthly payment, typically 15% of your discretionary income. If you can't afford that amount, you can request an alternative payment, which could be as low as $5 a month.

Information you need to provide: You’ll need to provide documentation, like copies of pay stubs and bills, and complete a detailed form to help determine the alternative amount. Any wages garnished due to defaulted student loans will be considered among your expenses.

What you need to do: Make nine payments of the agreed-upon amount within 10 months and your loans move out of default.

When wage garnishment will stop: Any wage garnishment will end after your fifth qualified rehabilitation payment.

What happens next: You'll once again be able to pause repayment or choose a plan that works for you, including several income-based options that could drop your monthly payment to $0.

Once out of default, take care to stay out. Make your payments each month. Recertify your income every year if you’re on an income-based plan. And call your loan servicer if you run into trouble. If you default a second time, you’ll have fewer options.