The government can garnish 15 percent of disposable pay to collect a defaulted student loan. They do not need a court judgment to do so. “Disposable pay” means the amount of money left in your paycheck after amounts required by law, like taxes, come out. However, you are always guaranteed to be left with an amount per week that is 30 times the federal minimum wage, which is now $7.25 per hour. If you have other debt troubles and are getting garnished for other debts, the maximum total amount that can be taken from you is 25 percent of your disposable income.
Being subject to a student loan garnishment is tough, but there are strategies for dealing with it. One option is to rehabilitation the loan by arranging to make payments. Another option is to consolidate out of the defaulted loan. Some people even file Chapter 13 bankruptcy cases to stop the garnishment and get a three to five year reprieve from their student loan problems, though this only makes sense if one has other debt problems.
Student loan are the next wave of defaults in this country, as I wrote about here.
Nicholas Ortiz, Boston Bankruptcy Attorney
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Last modified: March 23, 2013