Difficulty in making student loan payments on time is a common problem, especially in a struggling economy. When loans are significantly late, some student loan servicers will request writs of garnishment from the courts to receive regular payments on delinquent loans. When this happens, an employer, by law, must withhold a specified amount from a person’s paycheck and forward it to the court, which, in turn, pays the loan company. There are ways to stop garnishment, despite beliefs to the contrary.
Pay off your loan. If you have savings or can get a low-interest loan from a family member or friend, use those funds to pay your loan off in full. This will close your account, and end the wage garnishment. If you can pull this off, you may wipe out your nest egg; however, the interest savings over time will be quite substantial, especially if you can earn interest on your savings.
Negotiate an alternative payment plan. In today’s economy, lenders are in need of revenue. This means troubled borrowers are often in the perfect position to come with an amount they are able to pay each month in lieu of monthly payments and costly collection procedures.
Pay arrears in a lump sum. Some lenders will not simply swap a simple alternative payment plan for a garnishment. Most will agree, however, to end garnishments if borrowers bring their accounts current. A lump sum is usually preferred.
Refinance. Many lenders out there specialize in buying distressed student loans from other banks. While most don’t offer excellent rates, refinancing does pay off existing accounts and stops wage garnishment, and you’ll start fresh with the new bank.
Petition the court. It is rare for any court to leave people unable to pay utility bills, rent or feed themselves and their dependents if solid efforts are made to pay one’s bills. The process is simple, and involves hiring an attorney to file a Claim of Exemption form with the court. On this form, list a borrower’s dependents, monthly expenses, gross income and a viable explanation of why the garnishment is hampering his or her ability to provide for themselves.
from the July 22-28, 2009, issue