We all know in these economic times money is tight. People are facing cuts in pay and in hours available to work. Sometimes a bill or loan payment has to be put off. What happens if the payment you skip for a few months is your student loan? Well there are a few things that can happen. The IRS can take any refund you may be entitled to, the government can take your federal benefits such as Social Security and Social Security Disability Benefits, a private lender or the government can sue you to collect or the government may take “garnish” of your paycheck.
The most common of these is a garnishment from your paycheck. The government can take a portion of your wages, up to 15% but not more than 30 times the current federal minimum wage. You do have some options when dealing with a garnishment. It depends on whether or not you are delinquent with your payments or in default. Default means you have not made a payment in nine months and the entire loan balance becomes due immediately.
Most people end up here because they fail to make payments but a lender can declare you in default if you fail to meet other terms of the contract for nine months also. A delinquency period begins on the first day after you miss a payment. The lender has to follow certain guidelines when this happens. They must send at least one written letter during the first 15 days of when you miss the payment and they must let you know about the Student Loan Ombudsman. The Student Loan Ombudsman is available from the Federal Student Aid office of the Department of Education and helps resolve disputes and other problems with student loans. If your delinquency continues for nine months whether or not you reach out to available resources you will still be considered in default.
After you are considered in default, the next step is always wage garnishment if you are working. The first thing you should do at this point if you feel it is unfair for some reason or there are extenuating circumstances is write a letter of appeal. Unfortunately, this does not work for most people. That being said there are two ways to attempt to stop a garnishment. The best is to try to contact the student loan collection agency and work out a payment plan to repay over 12 months and stick to it. The next is to consolidate any delinquent loans (whatever they are for).
If the worse happens and you do get a wage garnishment, many people think they can be fired because of it. This is not true. An employer legally cannot fire you for one wage garnishment even though it does require additional paperwork etc. on them. If you do get more than one wage garnishment for some reason you are not protected by law from termination.