Student loan creditors have the option of garnishing the wages of borrowers who fall behind in their payments. The garnishment rules regarding student loans depends on whether the loans are guaranteed by the federal government.
A wage garnishment is a legal procedure through which creditors attempt to collect a debt. Some student loans are guaranteed by the federal government; if the borrower fails to pay back the lender, the federal government will make sure that the loan is paid back one way or another. For such loans, the creditors do not have to get a state court judgment before trying to garnish the borrower's wages.
Before attempting to garnish the borrower's wages, the lender must send a 30-day notice to the borrower's last known address. The borrower can request a hearing, and then he can contest the amount of loan or whether the loan is actually in default. Even if the creditor has already started a garnishment, the borrower can still request a hearing.
Under federal law, creditors are allowed to garnish up to 15% of the borrower’s disposable income. Disposable income is calculated as total income minus taxes.
Different rules apply to student loans that are not backed by the federal government, also known as private student loans. In such cases, the creditor has to sue the borrower in state or federal court, obtain a judgment, and present a court order to the borrower's employer indicating how much has to be garnished.