If you are in default on a student loan, meaning that you have not made a payment in 270 to 360 days, depending on the lender, your wages can be garnished. In this situation, the lender receives part of your paycheck as a loan payment. The federal government has a few laws that limit the amount that a lender can garnish.
15 Percent
Any one lender can garnish no more than 15 percent of your disposable pay in each paycheck. Your disposable pay is the amount of the check after subtracting taxes. For example, if your weekly base pay is $500 but taxes and withholding reduces this to $425, the lender can take up to 15 percent of this, which is $63.75 per week.
Overall Cap
If you have multiple wage garnishments, lenders can add up to no more than the lesser of 25 percent of your disposable pay or 30 times the hourly minimum wage in your state. For example, suppose your disposable weekly pay is $425 and the minimum wage in your state is $6.25. The total wages garnished on the 25 percent calculation cannot exceed $106.25. On the 30 times the minimum wage calculation, the garnished wages cannot exceed $187.50. Because $106.25 is less, this is the cap for you. This protects you from multiple lenders garnishing 15 percent each.
Floor Wage
The amount garnished from wages must leave you with at least 30 times the minimum wage in your state per week. Therefore, if minimum wage in your state is $6.50, you must be allowed to keep at least 30 times $6.50, or $187.50, of your weekly pay. If you are not making much more than this, the floor wage can limit the amount garnished to less than the result from the above calculations. In addition, you have the right to request a trial if you believe that a particular garnishment would leave you with such low pay that it would cause extreme financial hardship.
Ending Garnishment
The lender can garnish your wages until the loan, along with any fees and interest, is repaid in full. If you would like to stop the lender from garnishing your wages before the loan is repaid, you must contact the lender to work out a voluntary payment plan. The amount of the payment will be based on what the lender feels is reasonable for you, given your financial circumstances. In general, once you have made nine out of 10 payments on time, your loan will no longer be in default.
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