When I hear the word ‘garnish’ it makes me think of something nice on the side of my perfect slice of cheesecake, garnished with some strawberries and whipped cream. I could totally go for that right now, with a good strong flat white coffee.
The thing is, Garnishment is not the act of making your dish or dessert look even more appetizing and eatable, far from it.
It is something that takes from you and leaves you feeling violated. When it comes to someone or something taking hard-earned money from you, then that always hurts no matter what.
Beware Federal loan Students the power lender and underwriter of your loan, the Federal Government is well within their rights to take your dollars if you default on your loans.
Private Student Loan Holders are also at risk, although you are somewhat protected in that these companies will usually have to successfully sue you first to get their money back.
So what do you need to know about Wage Garnishment or Potential Tax refund garnishments ?
Let’s take a look at situations in which this might occur and you Student Loan Garnishment Relief options.
Wage Garnishment – It’s not something on you dinner plate
Okay, so you are struggling financially. It happens to a lot of us these days. The Student debt is crippling you and you cannot make the payments.
I get it, most people do. I am going to spend my wages on looking after myself or my family, putting food on the table or a roof over our heads. Yes, this commendable, it’s what most parents or primary money earners in the family would do.
The problem is that if left to long than the government, or a Private firm who has brought a successful legal case against you can take you wages. That’s not cool.
Wage garnishment occurs when the Federal government takes cash directly from every paycheck you receive in order to pay back your loans. Up to maximum of 15% per paycheck !
The Feds can get their hands on your money for you loan repayment purposes with three plays
- Wage garnishment.
The government can take 15 percent of every paycheck until your payments are brought current.
- Tax Garnishment (or Treasury Offset).
You know when you the Tax year comes to an end and you submit that Tax return. In previous years you get a handsome little wad of green from the Government …right ?
Wrong, if you are in default and the federal government has come a calling than it can withhold your entire federal income tax refund up to the amount that is owed.
- Federal Salary Offset.
Employees working for a federal agency can have 15 percent of their disposable income diverted to paying off your defaulted loans. While it can be beneficial to work for the Government in some cases, this is definitely not one of them as they can directly take funds from your wages to pay for previous loans.
How will I know if I am in the Cross hairs?
Basically, you will receive notification, a letter in the post informing you of your status.
What you need to remember is that you need to miss 9 consecutive months before you are considered to be in default of your loan, at which stage proceedings are going to gain momentum and you can find yourself in hot water pretty quickly.
This does give you some time to turn the ship around, but you should be proactive in nature and contact the lender to explain your circumstances. You could have the opportunity for relief with forbearance or deferment.
Ideally you really want to make sure you don’t default !
Another thing that often is forgotten, while you may not be making payment, the interest owing on your loans does not stop. It keeps accruing and growing. So it is really important to try to maintain some payment plan of sorts.
What about deferment or forbearance ?
These are really short term fixes. Yes, they can help with your monthly obligations but long term they are adding time to you loan term which mean that ultimately you are paying more out on your loan and that leaves you out-of-pocket for longer.
This can help you in the short term though, if you have experienced some financial hardship or difficulty after losing your job for example or having to cover some type of medical emergency which we know can go into the 1000s of dollars. You May than ask to defer payment while you recovery your financial situation.
What about Garnishment Relief ?
So what can you do if you are faced with Wage Garnishment. There are a few options for you
- Sign up for an income drive repayment plan
With this strategy you will have your monthly student loan payment set at an amount that is intended to be affordable based on your income and family size. This can reduce you monthly payment substantially. That’s the upside. The downside is that you will likely pay heaps more interest of the term on the loan.
- Consolidate your Loans into one or two loans.
Consolidation, as we have discussed in another posts entails consolidating all your loans into a single loan with another lender. We talk about the benefits and disadvantages of this relating to this in another post.
If you have a loan that is already in default, then you are required to use a consolidation loan with an income-driven repayment option such as:
- Pay as You Earn Repayment Plan (PAYE)
- Income-Based Repayment Plan (IBR)
- Income-Contingent Repayment Plan (ICR)
- Rehabilitate your Loans
- This is one method that will take slightly longer in order to take your loan out of default.
The benefit of loan rehabilitation as opposed to loan consolidation is that rehabilitation will remove the bad credit markings associated with late payments from your credit history, whereas loan consolidation will not.
I know right…that’s a big one especially moving forward if you need decent credit to rent an apartment or you are applying for a large credit purchase say at Nebraska Furniture. We used to say Cash in King…but these days Credit is King.
To rehabilitate a defaulted Direct Loan or FFEL Program loan, you must
- make nine voluntary, reasonable, and affordable monthly payments (as determined by your loan holder) within 20 days of the due date, and
- make all nine payments during a period of 10 consecutive months.
- Pay your debt in Full
Yes, I know …if we had that amount of money you would not be researching wage garnishment. The truth is though, that if you can pay the amount in full you will limit the negative impact of a loan in default and what that does to your credit.
Explore all options, maybe you have a relative that can assist you with funding you to be able to take this option and clear all your debt. Maybe you have a decent enough emergency savings fund that you can use. You decide.
The Silver Lining
Yes, I know that old chestnut …there is always something positive in a bad situation When it comes to Student Loan Wage Garnishment the main positive is that you do have time to make the required changes to your situation and loan payments. You have approximately 9 months before you are in the red or default. That’s enough time to make some decent plays.
You can pro actively look into loan consolidation ,ask for forbearance or deferment due to a financially impacting occurrence or you can settle you loan in full.
Even when you are in default you have a few options, granted they are harder on the bank account, but you still have options. I hope you found this helpful
Editorial Note: This content is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the financial institution