You’re in default on your federal student loans, so you expect the nasty phone calls and collection letters. Then one day you get paid – and you realize your check is a bit lighter than usual. Are your federal student loans to blame?
Sadly, the government can garnish your wages. In contrast to private creditors, however, the government doesn’t need to go through the same legal processes to take this action. Under both the Higher Education Act and the Debt Collection Improvement Act, the government can go through administrative wage garnishment.
It’s important to note that some states place restrictions on wage garnishment or prohibit the practice outright. These state law limitations on garnishment do not apply to garnishments to satisfy student loan obligations.
Therefore, you’re not safe even if you live in a state that doesn’t permit wage garnishments.
How Much Can Be Garnished By The Federal Government?
Under the Debt Collection Improvement Act, the U.S. Department of Education may garnish up to the lesser of 15% of disposable income or the amount exceeding thirty times the minimum wage in your state.
This means that, no matter what, you can keep an amount equal to thirty times the minimum wage.
The minimum wage in New York State is $7.25/hour, and the minimum wage in California is $8.00/hour. If you’re making minimum wage, you’re safe from a garnishment of your wages from the government for student loans.
Federal law also limits total garnishments to 25% of disposable earnings, so if you’ve got another creditor garnishing your wages then the student loan garnishment is limited to the difference.
Your Disposable Pay May Not Be What You Think
“Disposable pay” is defined in the DCIA as compensation remaining after deducting amounts required by law to be withheld. This includes deductions such as Social Security taxes and withholding taxes but not including any amounts withheld under a court order such as child support or restitution.
This definition of disposable pay also does not take into account deductions for retirement plans or health insurance.
Watch Your Paycheck
It’s always a good idea to watch your paycheck each time it comes to you, even if you’re not in default on your student loans. Grab a calculator and be certain all of the deductions line up and there’s no money missing. If you see a deduction you don’t recognize, ask your payroll folks for clarification. This will keep you in the clear and well-informed about your financial situation.