Student Loan Payment Collections Restart in 4 Days. Here’s What Experts Say to Do Now

The US Department of Education is resuming collection efforts on defaulted student loans starting on Monday. If you’re more than nine months behind on your student loan payments, that means your wages could be garnished as soon as this summer.

It may sound scary, but wage garnishment to pay off a debt isn’t new. Currently, some Americans have their wages garnished to pay back taxes, child support and other debt, including student loans. It just might feel “new” since there were protections in place to allow borrowers in default time to catch up since the COVID-19 pandemic. But starting in May, payments will begin to come due.

“This is actually the norm,” said Elaine Rubin, a student loan expert and corporate communications director for Edvisors. “If a loan is in default, then actions will be taken to then collect on the default loan.”

Student loans are considered in default after you’ve missed 270 days of payments (excluding payment pauses). It’s estimated that 5 million borrowers are in default and will have their loans sent to collections next week. If you’re one of them, here’s what you need to know.

When will the government start garnishing wages for student debt?

There’s less than a week left to pull your loans out of default with the administration indicating it plans to restart collection efforts on May 5. However, that doesn’t mean you’ll see a hit to your paycheck starting next week. The Department of Education has to notify you 30 days ahead of your wage garnishment.

Expect your defaulted student loan account to move from your current servicer to a private collections agency around the beginning of May and wage garnishment to begin about one month later, Rubin explained.

Will SAVE borrowers have their wages garnished? 

There’s a lot of confusion on Reddit and social media about how wage garnishment will affect SAVE borrowers. If you’re enrolled in the Saving on a Valuable Education plan, your loans have been placed in an administrative forbearance since last summer. With SAVE on hold, millions of borrowers have not been required to make payments, which has led to some wondering if that means their loans are in default.

“It is confusing, because they haven’t been making a payment and believe that it could be at risk of defaulting,” said Rubin. “If you’re not required to make a payment because you’re in an approved forbearance, a deferment or you actually have a $0 IDR payment, technically, you’re making a payment in that situation.”

The best way to check if your loans are in default is to visit StudentAid.gov or your loan servicer’s website to check your loan standing.

How will I know if my wages are being garnished?

You can check to see your current loan standing on the StudentAid.gov website or by logging into your loan servicer’s website. If your loans are in default and the Department of Education begins the collections process on your debt, you’ll receive a letter in the mail from the department 30 days in advance. This letter will contain your options, including the ability to voluntarily reenter repayment or object to having your wages offset.

How much can the government pull from my paycheck?

The federal government will pull a percentage of your take-home pay (the amount you receive after deductions) to put toward your student loan debt — up to 15%. It won’t take all of your paycheck. Your tax refund or Social Security benefits could also be garnished.

Can I prevent my wages from being garnished?

Yes, there are steps you can take to avoid wage garnishment, but they may not be feasible for everyone.

“As far as 100% preventing it, not everyone is going to be able to do that,” Rubin said. The two best options for most borrowers will be applying for a loan rehabilitation or direct loan consolidation. The third is to pay your loan in full, which Rubin acknowledged will not be possible for most borrowers. 

The loan rehabilitation program allows you to get your student loans back in good standing after nine months of voluntary, on-time payments. Loan consolidation allows you to combine multiple eligible federal student loans into one new direct loan, which could potentially lower your payment.

You can also reach out to your loan servicer to see if you can work out a payment agreement to get your loans back into good standing. Whatever you decide, you’ll need to take these steps quickly, since the Department of Education plans to restart the collections process on Monday.

Lastly, if you’re experiencing extreme financial hardship or if you have a valid objection to the wage garnishment, you can request a hearing. To do this, you’ll need to fill out the request for review form that should be delivered along with your wage garnishment notice. 

Do I have any protections if I’m notified my wages will be garnished?

Yes, and it’s important to know your rights as a borrower. According to StudentAid.gov, anyone whose wages are garnished has the right to:

• Receive a notice from the Department of Education 30 days ahead of the garnishment, giving you time to review your account, enter voluntary repayment and object to the garnishment.
• Establish a voluntary repayment agreement with the Department of Education.
• Have a hearing to discuss your case if you object to the garnishment and have it postponed until you receive a ruling.

You also have employment rights that protect you from losing your job or receiving disciplinary action because of the garnishment.

What happens if I do nothing?

You may be feeling overwhelmed by the prospect of restarting your student loan payments but experts warn that ignoring the problem will only make things worse.

If your loans become delinquent, your servicer can report the late or missed payment to the three credit bureaus and your credit score could drop. A lower credit score can make it harder and more expensive to get a mortgage, car loan or credit card. 

Credit expert John Ulzheimer said the impact will vary depending on your current credit score — those with the highest credit scores could see a 100-point drop or more. The effect could be even greater if you took out multiple loans for college, because each student loan disbursement is reported to the credit bureaus.

If your loan goes from delinquent into default, the consequences become even more severe as the unpaid balance plus interest becomes due immediately: 

• Your loan holder can seize your tax refund and order your employer to withhold up to 15% of your disposable pay until your defaulted loan is paid in full or the default status is resolved.
• If you’re on Social Security — and the Consumer Financial Protection Bureau estimates that there are nearly a half million borrowers ages 62 and older with defaulted loans — your loan holder can also withhold up to 15% of your benefits to repay your defaulted student loans.
• Your defaulted student loans are ineligible for income-driven repayment plans, deferment or forbearance. 
• You won’t be able to get additional federal student aid.

What happens if my paycheck is garnished in error?

Rubin said it is highly unlikely that borrowers who are making on-time payments will see their pay garnished. That’s because when your loans fall into default, your account is moved from your federal loan servicer to a private collection agency. It would be difficult to accidentally trigger wage garnishment from an account that remains with a federal servicer.

However, you do need to make sure you’re paying your full student loan payment to avoid falling into default and having your wages garnished. 

“Typically, we see this with someone who may not know if they’re making partial payments,” Rubin explained. If you only make partial payments, you may think paying something rather than nothing will keep your loans in good standing. But you can still fall behind — an eventually land in default — by consistently paying less than your minimum amount.