What is wage garnishment?
Wage garnishment happens when your loans are in default and have been for a while. It is how your loan provider or debt collector tries to get you to pay on your loans. They are legally authorized to collect by taking your wages, tax refund, or even Social Security.
Do these payments count toward loan forgiveness?
Even though garnished funds are credited toward paying your loans, wage garnishment does not count as qualifying payments. As long as your servicer is taking your wages or tax refund and your loans are in default, your loans are not in good standing. You cannot apply for loan forgiveness until their loans are out of default and back to current.
How do I get my loans back into good standing?
You can always call your loan servicer to ask what to do. If you do not know who holds your loans, you can call the Federal Student Aid Information Center (FSAIC) at 1-800-433-3243. They will steer you in the right direction.
The loan servicer will tell you what your options are. These are the most common options:
- Pay off the remaining balance; this could also be settled at a negotiated final balance. Collectors are generally motivated to resolve the debt, even if it’s less than the full balance. The caveat is it has to be resolved in full and with an immediate deadline.
- Consolidate; make three good standing payments on your loans and then consolidate the defaulted loans. This will put the loans back into good standing, but it will not wipe the default from your record.
- Loan Rehabilitation, which means that you must agree in writing to make nine voluntary, on-time monthly payments over the course of ten months, and then your loans will be taken out of default and into good standing. Your wages will no longer be garnished, and the record of default will be purged. Also, your federal student loans will be re-assigned to a Federal Student Loan Servicer.
What are the drawbacks to loan rehabilitation?
- If your wages are already being garnished, the garnished payments and your voluntary (loan rehabilitation) payments will have to be made at the same time (for up to 5 months)
- These payments don’t count toward PSLF
- You can only do loan rehabilitation once
What if I can’t afford to get my wages garnished while making the voluntary payments?
Ask your loan servicer for an income and expense form. This form allows you to write out your monthly budget of expenses, and could help make the case for why you can’t make these payments.