After Jona Morales took out federal student loans for college, he worked to stay on top of payments. He enrolled in an income-based repayment plan and set his account on autopay.
Morales, who graduated and now works as a therapist, said he’s struggled to get into his account and his autopayment stopped working.
He’s concerned after learning the federal government will start garnishing wages from borrowers in default who haven’t made a payment for 270 days – about nine months.
“How am I going to afford it?” Morales asked.
He’s worried about what could happen if he can’t get back on track with payments.
The U.S. Department of Education announced in December that it will resume garnishing paychecks and tax returns from defaulted loan borrowers, a practice that was paused in March 2020 in response to COVID.
The Department of Education sent its first notices to about 1,000 defaulted borrowers last week, and notices will increase in scale on a month-to-month basis, the department told NNS in an email.
Jack Wallace, loan expert and financial adviser with private loan refinancing company Yrefy, said it’s difficult to get out of garnishment, so borrowers in default should come up with a plan to prevent it from happening as soon as possible.
“Pay attention and be proactive,” he said. “Let’s start the new year off right.”
How do loan servicers garnish earnings?
Loan servicers can garnish tax returns, wages and Social Security benefits. Borrowers can face one or all of these garnishments.
If you have a tax return coming, Wallace said they can take the entire tax return to pay off the loan.
“A lot of people are going to get bigger tax refunds this year, so you don’t want to get nailed with that,” Wallace said.
With wage garnishment, your loan servicer can withhold up to 15% of your wages after tax. They will continue to garnish wages until either the loan is paid in full or removed from default, Wallace said.
Am I at risk of garnishment?
Garnishment happens when a borrower is in default. Most borrowers enter default if they haven’t made a payment on their loans in 270 days.
The Department of Education told NNS that garnishment will only be conducted after student and parent borrowers have received sufficient notice and opportunity to repay their loans.
Loan servicers must notify you 30 days before garnishing your wages or tax returns. This notice should include information about your debt and your rights related to repayment and objections to garnishment.
Carole Trone, executive director of the Wisconsin Coalition on Student Debt, said borrowers should be aware of whether you are on track, delinquent (which happens as soon as you miss a loan payment) or in default.
Trone said borrowers can check their loan status by signing into their student aid account here.
After signing in, click on ‘my loans,’ and scroll down to ‘loans and repayment information.’ Under ‘loan status,’ you will see whether your loans are in repayment, in deferment, default or have been canceled.
The page will also show you who your loan servicers are, which is who you will need to contact if you’re in default on your loans.
“It’s important for people to look at that because if they were in school several years, most likely they took out several different loans,” Trone said. “They should see the whole snapshot there.”
What should I do if I’m in default?
Wallace said it’s difficult to get out of garnishment once it starts. If you’re currently in default, it’s critical to be proactive and set up a plan before you receive a notice of garnishment.
Your notice will let you know of your options and how to contact your servicer.
How can defaulted borrowers get back on track to avoid garnishment?
Wallace said defaulted borrowers should go to the Debt Resolution Federal Student Aid website and explore their options.
There are two main options for borrowers in default:
- Consolidate your loan, where you pay off all loans by consolidating them all into a new loan.
- Enter the loan rehabilitation program. Wallace said borrowers will need to make nine on-time payments to get out of default and stay in good standing with the Department of Education.
I received a garnishment notice. What should I do?
Wallace said to contact your loan servicer as soon as you’re notified that they will garnish your earnings.
Where can I go to get help?
Trone said the Wisconsin Coalition on Student Debt hotline is equipped to help borrowers with all kinds of student loan-related questions, including how to avoid entering default and how to get out.
Hotline employees can also help borrowers understand what questions to ask their loan servicer when contacting them about defaulted loans or garnishment.
The hotline is open from 8 a.m. to 4:30 p.m. Monday through Friday at 833-589-0750.
Those who can’t call during business hours can email their questions to Studentloanquestions@debtsmarts.org. The coalition’s website also has resources for borrowers.
“These people are student loan experts,” Trone said. “You can ask whatever questions you want related to your student loans.”
Alex Klaus is the education solutions reporter for the Milwaukee Neighborhood News Service and a corps member of Report for America, a national service program that places journalists in local newsrooms to report on under-covered issues and communities. Report for America plays no role in editorial decisions in the NNS newsroom.
Jonathan Aguilar is a visual journalist at Milwaukee Neighborhood News Service who is supported through a partnership between CatchLight Local and Report for America.
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