If you can’t pay your private student loans, at some point, you might get hit with a wage garnishment (a paycheck deduction). If you do, you won’t be alone—student loan debt is now twice that of credit card debt in the United States. If you’re dealing with a garnishment, keep reading to learn about some options.
Private and Government Student Loans: The Differences
First, it’s important to be sure that you have private rather than government loans. The U.S. Department of Education funds government student loans through several lending programs. For instance, government student loans include:
- Direct Loans (subsidized and unsubsidized)
- Perkins Loans
- Stafford Loans, and
- PLUS Loans (for parents and graduate students).
Private lending institutions also fund student loans. You would have applied for a private loan with a bank or other lending institution in the same way you would apply for other types of credit.
You most likely had to pass a credit check, and if your credit score wasn’t high enough, you might have needed a cosigner. Private student loans often charge a higher interest rate than government student loans, and they have fewer payback options. Unlike government student loans, however, private student loans are subject to a repayment statute of limitations (a period in which to file a collection lawsuit).
What Kind of Loan Do I Have?
If you’re not sure what kind of loan you have, the first place to look is on your student loan statement. If your statement is from one of the government student loan programs, it should have the name of the lending program on it.
If you’re having trouble keeping up with various government student loans, you might try visiting the Federal Student Aid website. Once you apply for and receive an ID, you'll be able to log into your account and view your loans.
Some well-known consumer lenders offer student loan programs. Other entities specialize only in student loan lending. If your student loans are private, your statement will be from a non-governmental commercial lender.
Private Lenders Must Sue You to Collect
A government student loan lender doesn’t have to sue you before garnishing your wages. That’s not the case for a private student loan lender. It must file a lawsuit and receive a money judgment against you first.
If a student loan lender files a lawsuit against you for nonpayment, a copy of the complaint should be given directly to you (personal service), or left at your home or work with a responsible adult (check your state law for specific requirements).
You will have a certain period, usually 20 to 30 days, to file a response to the lawsuit. If you don’t, the lender can ask the court to declare it the winner and to issue a money judgment against you in the amount that you owe. A judgment is the court order that allows the creditor to take direct collection action against you, such as issuing a wage garnishment or levying against your bank account (taking money out of your account).
(Learn more about the process by reading Delinquent Debt Lawsuit: What to Expect When a Creditor Sues You.)
Stopping a Private Student Loan Wage Garnishment
If your lender has garnished your wages, the strategies for stopping the garnishment are the same as those for other types of debts. The most obvious way to head off a wage garnishment is to prevent the creditor from getting a judgment in the first place. Others include:
- filing a claim of exemption
- filing a motion to set aside a default judgment, or
- settling with the creditor.
Filing for bankruptcy will temporarily halt a student loan wage garnishment, but it’s difficult to discharge (wipe out) student loans in bankruptcy. Even after bankruptcy, you will likely have to pay off your student loans. However, a Chapter 7 bankruptcy can improve your ability to repay student loans by discharging other debts you might have, thereby giving you more income to pay toward your loans. If you’re behind on your payments, a Chapter 13 bankruptcy three- to five-year repayment plan might help you get back on track.
Questions for Your Attorney
- Did my student loan creditor sue me within the statute of limitations?
- What can I do to stop a private student loan garnishment?
- Do I have grounds to discharge my student loans in bankruptcy?