After a pause of more than four years, the Department of Education (DOE) is set to resume collection efforts against consumers who have defaulted on their student loans. Those efforts will include wage garnishment. Interestingly, the DOE does not need a court order to garnish a portion of a consumer’s disposable income.
That might seem odd to you given the fact that a commercial creditor cannot garnish debtor wages without first obtaining a civil judgment. But that is the way it works. Federal and state laws differ when it comes to wage garnishment, and federal law gives agencies like the DOE an advantage that private-sector judgment creditors do not have.
More About the DOE’s Plans
A recent report from Forbes explains that student loan collections were suspended during the COVID pandemic. Once collection efforts resumed, the government resumed them slowly. They gave debtors a “temporary on-ramp period during which missed payments wouldn’t immediately trigger defaults or collections.”
That temporary grace period has come to an end. The DOE plans to utilize wage garnishment, tax refund interception, and other means to collect unpaid student loans. Successful efforts by the DOE could mean big headaches for consumers who have not had to pay their student loans for years.
How It Works in the Private Sector
In the private sector, wage garnishment is quite different. Salt Lake City’s Judgment Collectors, a collection agency that specializes in money judgments, says that it starts with a civil lawsuit. A plaintiff sues a defendant seeking a monetary award. Should the plaintiff win, wage garnishment is one of the options available for collection.
The plaintiff, known as the judgment creditor, asks the court for a writ of garnishment. That writ is then delivered to the judgment debtor’s employer who is compelled to withhold a certain amount of the debtor’s disposable income and forward it to the creditor for payment.
In the private sector, garnishment requires an order from the local court. But such an order is only possible after a civil trial and subsequent judgment. It explains why collection agencies cannot garnish wages on their own. They need court intervention. However, Washington does not.
Washington Not Subservient to the States
The way our system of governance is set up establishes that Washington is not subservient to the states. Federal law always supersedes state law. And under federal statutes, agencies like the DOE have the authority to garnish wages without court approval.
The one saving grace for consumers behind on their student loans is that the DOE can only garnish 15% of their disposable income. Disposable income is defined as income a consumer does not need to meet basic obligations.
Let us assume a consumer whose weekly pay is $800. Of that amount, only $100 is considered disposable income. The most the government could take from his paycheck is $15 per week. It is not much in the short term. However, combining wage garnishment with tax refund interception and Social Security offsets all add up.
A Word About Social Security Offsets
In closing, a brief word about Social Security offsets is appropriate. In order to make good on student loans, any outstanding balances will be applied to a consumer’s Social Security benefits once those benefits kick in. So failing to pay student loans will lead to reduced benefits once a consumer begins collecting Social Security.
It is in the consumer’s best interests to find a way to pay those outstanding loans. Consumers have had more than four years of payment relief. But that relief has come to an end. It is time to repay what was borrowed.
