I am having trouble making my federal student loan payments. I have heard that my employer can deduct loan payments from my wages if I do not make payments on time. Is this correct?
If you fail to make required payments under a government-issued student loan, the federal Department of Education or your state's loan guaranty agency may issue a withholding order, which requires your employer to withhold wages, up to a certain amount, for loan payments.
The amount that may be withheld depends on the agency issuing the withholding order. Up to 15 percent of an employee's disposable pay may be withheld to repay an unpaid student loan under a Department of Education garnishment order. In contrast, up to 10 percent of an employee's disposable pay may be withheld to satisfy a garnishment order issued by a state student loan guaranty agency. Disposable pay refers to employee compensation after legally required deductions. The maximum amount that multiple holders of defaulted student loans may garnish any one employee is governed by the 25-percent limit set forth in the Consumer Credit Protection Act.
Before withholding can take place, you must receive 30 days' prior written notice from the federal or state agency informing you of the nature of the student loan obligation and the agency's intention to collect the debt through pay deductions. At this point, you may avoid withholding by entering into a written agreement that sets forth a payment schedule for repayment of the loan.
The only ground by which you can object to the garnishment is if you had been fired or laid off within the last twelve months, and are just returning to work. Unless the total of all garnishments exceeds 25% of disposable earnings, any questions regarding such garnishments should be referred to the agency initiating the withholding action.