Student Loan Wage/Tax Garnishment


Student Loan Wage and Tax Garnishment: What Borrowers Need to Know

Student loan debt is a growing problem in America, with over 43 million borrowers owing more than $1.6 trillion in student loans. When borrowers fall behind on their payments and default on their loans, the government can take action to collect on the debt through wage garnishment and tax refund intercepts. This can come as an unwelcome surprise to borrowers who may already be struggling financially. At Delancey Street, we want to help borrowers understand how wage and tax garnishment work, their rights in the process, and most importantly, how to avoid default in the first place.

What is Wage Garnishment?

If you default on your federal student loans – after missing payments for 270 days – the government can order your employer to withhold a portion of your paycheck to repay the past-due debt. This is known as wage garnishment.

  • Up to 15% of your disposable pay can be taken for federal student loans in default. This is the amount of your paycheck left after deducting taxes and certain expenses.
  • For private student loans in default, up to 25% of disposable pay may be garnished, depending on state law.
  • Your wages can continue to be garnished until the defaulted loan balance and fees are repaid in full.

Wage garnishment can be a significant hit to your take-home pay. For someone earning $2,000 per month, 15% garnishment would amount to $300 less in their pocket each pay period.

What is Tax Refund Offset?

If you have federal student loans in default, the government can also seize part or all of your tax refund through the Treasury Offset Program. This is known as a tax refund offset.

  • You will receive a notice in advance indicating your refund will be taken.
  • You have a limited time to contest the offset if you disagree with the debt.
  • Tax refunds are currently protected from federal loan offsets through December 31, 2023 due to the pandemic payment pause.

Losing your tax refund can make it harder to cover expenses like bills, rent, and groceries when you are counting on that money.

Know Your Rights

If you face federal student loan wage garnishment or tax refund offset, it’s important to understand your rights:

  • You have the right to be notified in writing at least 30 days before wage garnishment starts.
  • You can request records relating to your student loan debt from the loan holder.
  • You have the right to object and request a hearing on the proposed garnishment.
  • Any wages garnished between March 13, 2020 and December 31, 2023 must be refunded per the payment pause.

Don’t ignore any notices about garnishment or tax offsets. Respond promptly to avoid losing your hard-earned money.

How to Stop Wage Garnishment

The best way to avoid student loan wage garnishment is to stay out of default in the first place. But if you receive a notice that your wages will be garnished, here are some options:

  • Enter into a repayment plan – Contact your loan holder immediately to discuss entering into a voluntary repayment plan. This can stop garnishment if you make your first payment within 30 days of receiving the notice.
  • Consolidate your loans – Consolidating federal loans can help you get out of default. You must either enroll in an income-driven plan or make 3 consecutive monthly payments on the defaulted loan first.
  • Rehabilitate your loans – Bring your federal loans out of default by making 9 payments over 10 months. This stops collections and erases the default from your credit report.
  • Object to garnishment – You can formally contest the proposed garnishment by requesting a hearing in writing within 30 days of receiving the notice. Provide evidence to support your dispute over the debt.

Avoiding Default

Defaulting on your student loans should be avoided at all costs. Here are some tips:

  • Contact your loan servicer immediately if you are struggling to make payments. Ask about options like income-driven repayment plans, deferment or forbearance.
  • Stay on top of paperwork and re-certify your income on time if you are on an income-driven plan.
  • Consolidate federal loans to simplify payments to one monthly bill.
  • Look into student loan forgiveness programs you may qualify for.
  • Avoid deferments and forbearances if possible, as interest will continue growing during these periods.

Getting help from a nonprofit credit counseling agency can also point you toward resources to avoid default on your student loans.

We Can Help

Dealing with wage garnishment or tax refund offset can be stressful. At Delancey Street, we want to help student loan borrowers find solutions to avoid default or get their loans back in good standing. Our student loan advisors are available to:

  • Explain how wage/tax garnishment works and your rights in the process.
  • Help you assess options like income-driven repayment, deferment or rehabilitation.
  • Assist you in contacting your loan servicer and organizing documents to stop collections.
  • Provide guidance on disputing a wage garnishment or tax refund offset.
  • Help consolidate federal loans to simplify repayment.
  • Advise you on avoiding default in the future.

Don’t let student loan default turn into a financial nightmare. Contact us today to discuss your situation completely free of charge. Our dedicated advisors will provide the information and resources you need to move forward.

Delancey Street is here for you

Our team is available always to help you. Regardless of whether you need advice, or just want to run a scenario by us. We take pride in the fact our team loves working with our clients - and truly cares about their financial and mental wellbeing.

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