No matter the reason, neglecting to pay your federal student loans can result in a slew of negative consequences, from bill collectors knocking at your door to a big drop in your credit score. It can also make it difficult to be approved for other loans further down the road.
But it doesn’t end there. In fact, one of the biggest problems associated with defaulting on federal student loan debt is one that will hit hard every time you get a paycheck: wage garnishment.
To that end, it’s important to understand that the federal government can take up to 15 percent of each paycheck as a way to satisfy your debt. So, if you take home $2,000 per month, the Education Department can take $300 out of your paychecks each month.
And that’s not all they can take. They can also withhold federal benefits such as tax refunds and Social Security payments.
While there are ways to avoid wage garnishment, many of the options aren’t available until your loan is in good standing. That’s why it’s important to avoid having your loan go into default, which, for most federal loans, is nearly nine months past due.
Here are some options to consider if your student loan is about to go into default:
Change Your Repayment Plan
If you’re having trouble making the minimum monthly payment, then it’s a good time to ask your loan servicer for other repayment options.
The federal government has many types of payment plans. Options include loan forgiveness for government and nonprofit employees, income-driven plans to make payment affordable and an extended repayment plan that allows 25 years to repay a loan.
Refinance or Consolidate
If you’ve made loan payments on time, you may be able to refinance your student loans at a lower interest rate. Ask your loan provider if this is an option.
If you have multiple student loans, you may be able to save some money by consolidating the federal loans into a single loan with its own interest rate.
Use the 30-Day Window
If your loan is about to go into default, a collection agency that’s working for the federal government will notify you by mail 30 days ahead of time that it’s going to garnish your wages. You can use that time to negotiate payment arrangements with the agency, provided your first payment is made within that 30-day window.
To avoid any of your pay being garnished, you must request a hearing within that window to appeal the garnishment. You’ll fill out a form detailing your income, debt and expenses.
Rehabilitate Your Loan
Borrowers are offered a one-time chance to get out of default through loan rehabilitation. While your wages will still be garnished, they’ll be taken into consideration—along with other bills—when deciding how much your monthly payment should be.
Make nine of those payments within 10 months and your loans move out of default. Wage garnishment will then stop, and you can choose a repayment plan that works best for you.
This article is intended for informational purposes only and should not be construed as professional or legal advice.