by Aidan Kang, CFA
Senior Writer
UPDATED: May 06, 2022

Are you about to default or have defaulted on your student loan? You might be worried about garnishment.

About 1 in 10 Americans have defaulted on their student loan debts, and over a million student loans (both federal and private) enter default every year.

The consequences of defaulting on your student loans range from ruined credit to accruing massive interest and fees, wage garnishment, and even having your tax refunds seized.

We understand how stressful it can be to lose your income or tax refunds due to garnishment. We've also read about lenders who proceeded with student loan garnishment despite the suspension of payments due to the COVID-19 crisis.

To help you find a solution, we looked into official sources and compiled the best strategies to stop or defer a garnishment.

We recommend reading until the end, or you'll miss critical tips on staving off student loan garnishment before it even begins.

Let's start!

How does garnishment for student loans work?

Missing your student loan payments, whether they're federal or private, will force them to enter default. Your entire balance becomes immediately due, which triggers a variety of collection options, including wage garnishment.

This is a process where the government (or a private lender) can take money directly from your paycheck to repay your debt.

Aside from taking some of your income, the government can also:

  • Intercept your tax refunds
  • Intercept a portion of your Social Security retirements and/or disability benefits
  • Sue you (there are no statute of limitations on government loans)
  • Have your licenses suspended
  • Make you ineligible for forbearance, deferment, or any possible repayment plans
  • Report you to the credit bureau and ruin your credit score

In other words, the consequences of defaulting on a student loan can be catastrophic.

Garnishment, in particular, is a very aggressive form of collection that can trap you in an endless cycle of debt.

10 ways to stop or defer student debt garnishment

The prospect of student loan garnishment can be scary, but don't lose hope just yet.

You have some options that can help you avoid or stop wage garnishment, as well as get out of default and catch up on your student loan payments.

Here are some:

1. Check the status of all your student loans.

The first step is to check and monitor the status of all your student loans, both federal and private. This will give you a clear idea of which ones are in default, as well as their respective interest rates and terms.

Knowing this information will help you create a repayment plan that's tailored to your unique situation.

2. Do your best to make consistent and timely payments.

If your loans are not in default yet, do everything you can to avoid it.

That means making your payments on time, every month. Even if you can only afford the minimum payment, it's still better than nothing.

You can also pay more than the minimum amount (when possible) to reduce the amount of interest you owe and your repayment term.

3. Always respond quickly to a notice of garnishment.

If you ever get a notice from your lender or the government regarding potential student loan garnishment, answer promptly as required by law.

You cannot escape a garnishment by ignoring or being unresponsive to the notice.

By law, you only have 30 days to respond and contest the garnishment, after which the garnishment will begin automatically.  

4. Enroll in a plan that helps you get out of default and catch up on payments.

If your loan is already in default, consider enrolling in an income-driven repayment plan that will allow you to repay your loans in affordable monthly payments.

Income-contingent plans can also help lower your monthly payment based on your income and family size and extend the term of your loan for up to 25 years.

You can apply for these programs through the Department of Education or your loan servicer.

5. Apply for deferment or forbearance.

If you're struggling to make your monthly student loan payments, you have the option of applying for student loan deferment or loan forbearance.

Deferment allows you to postpone making payments on your loans for a certain period, while forbearance allows you to temporarily stop payments or make smaller payments for a limited time.

6. Consolidate your loans to better manage them.

If you have multiple student loans, consider consolidating them into one single loan with a fixed interest rate. 

While it will certainly increase your monthly payment, having only one loan to focus on can make repayment less stressful and more manageable.

7. Rehabilitate your loans to get out of default status.

If you're in default on your federal student loans, you can enter into a repayment plan with your loan servicer to rehabilitate your loans and get them back into good standing. 

To do this, you'll need to make 9 voluntary, on-time, full monthly payments within 20 days of their due date.

8. Refinance your debts to get a lower interest rate.

If you're struggling to keep up with your student loan payments, you can also refinance your debt to get a lower interest rate to reduce your monthly payments.

You can refinance both federal and private student loans, but keep in mind that you'll lose any benefits associated with federal loans if you refinance them into a private loan.

9. Request a settlement if a debt relief option isn't available.

In some cases, there may not be any debt relief options available to you, particularly if your loans are private student loans.

If this is the case, consider requesting a loan settlement in which you can negotiate with your lender to get a lower balance than what you currently owe. 

How this works is that you'll make a lump sum payment to your lender for an amount that's less than what you actually owe.

This can be a good option if you have the money available to make a lump sum payment but can't afford your monthly payments.

10. File for bankruptcy as a last resort.

Just like child support payments, student loans are considered nondischargeable debts in bankruptcy proceedings. This simply means that you're still stuck with your student loan debt even if you file for bankruptcy.

However, there's an exception to this rule.

If you can prove that repaying your student loans would cause undue hardship, you may be able to get them discharged in bankruptcy court.

To do this, you'll need to file a separate action in bankruptcy court and present evidence that supports your claim.

Be aware that very few people qualify for this type of relief; the majority of student loan debtors end up having to repay their loans. 

In any case, make sure to consult with an experienced bankruptcy attorney before taking this step.

FAQs about student loan garnishment

How long does it take to settle student loan garnishment cases?

There’s no set timeline for settling student loan garnishment cases, as the amount of time it takes will depend on a number of factors, including:

  • the type of student loan you have
  • your current financial situation
  • the garnishment amount
  • how well you communicate with your lenders
  • other factors, such as whether you are eligible for any debt relief programs or if you decide to file for bankruptcy

Generally speaking, though, it can take several months or even years to successfully settle a student loan garnishment case.

As such, it is important to act quickly and proactively if you find yourself in this situation.

Can you dispute a student loan garnishment?

Yes, you can dispute a student loan garnishment.

If you believe that your student loan lender has mistakenly garnished your wages or bank account, you can formally dispute the garnishment by submitting a request to your lender.

You can do this by contacting your lender directly or filing a complaint through the U.S. Department of Education's Federal Student Aid website.

What's the maximum amount for student loan garnishment?

Federal student loan lenders can garnish up to 15% of your disposable income. For example, if you earn $1,000 per week, your lender can garnish up to $150 of your wages.

Private student loan lenders do not have a limit on the amount they can garnish from your paycheck. However, most state laws protect a certain percentage of your income from garnishment (usually around 25%).

As such, you may only see a small portion of your wages garnished each pay period.

Can student loan garnishment take income tax refunds?

Yes, the government can garnish your income tax refunds to repay federal student loan debt.

This process, known as wage offset, allows the government to take a portion of your tax refund (up to the amount you owe on your student loans) and apply it towards your outstanding balance.

If you have private student loans, your lender may also be able to garnish your tax refunds.

However, in most cases, they’re not legally allowed to take your entire tax refund. You may still receive at least some of your tax refund each year.

Does Student Loan Garnishment Affect Credit Score?

Yes, student loan garnishment can damage your credit score and make it hard to repair for a long time.

Specifically, if your wages are garnished, or your tax refunds are offset to repay student loan debt, this will be reported to the major credit bureaus (Experian, Equifax, and TransUnion).

This can bring down your credit score by as many as 100 points, making it difficult to get approved for new loans or lines of credit. The negative information will stay on your credit reports for up to seven years, even if you eventually repay your student loan debt in full.

Final thoughts

Despite your best efforts to repay your student loans, many things can prevent you from making your monthly payments on time. This can be anything from losing your job to getting sick or injured.

While wage garnishment and other debt collection activities may seem unfair, it’s important to remember that you’re not alone.

Several resources can help you avoid and resolve student loan garnishment issues, such as federal loan consolidation programs and debt relief agencies.

We hope you found this guide helpful, and we wish you all the best on your journey to financial freedom.