If you do not have the ability to make your loan payments, you must contact your loan servicer. The Department of Education uses for-profit companies to service student loans. These companies collect the payments and keep records for the Department of Education. Since their job is to take payments, they are not very forgiving. Bear in mind that they are for-profit companies, and they want to keep their lucrative contracts.
Below, you can see the rate of defaults on student loans is increasing. It is now about 12%, which leads me to believe that there is a serious problem with the student loan program.
Figure 8.3. Percent of Balance 90+ Days Delinquent by Loan Type by Federal Reserve Bank of New York has no known copyright restrictions.
If you default, most creditors must first sue you in court and get a money judgment to start garnishing your wages. Federal student loans, however, get special status and does not have to get a court judgment before attempting to garnish your wages. It also depends on the local state laws. In Pennsylvania, for example, creditors cannot garnish your wages. Moreover, the interest keeps growing, adding to the total loan amount.
Federal law allows the loan holder to garnish up to 15% of your disposable pay. You will get a 30-day notice that explains the U.S. Department of Education’s intention to garnish your wages. This will include an explanation of the nature and amount of your debt, your opportunity to inspect and copy records, your right to object to garnishment, and your option to avoid garnishment by voluntary repayment.
If you are struggling to make payments, you need to talk to the servicer. There are programs that could help.