The Financially Fierce Blog
An employee from a former corporate client of mine contacted me recently. He needed help with a financial issue that was causing him a problem at work. He remembered me from some trainings I did for his company on financial wellness.
The employee, let’s call him Frank, is having a problem with his student loans. Frank ran into financial trouble a couple of years ago. He didn’t create a “oh sh&t” fund for when emergencies pop up. So when he lost his job two years ago he didn’t have any savings to fall back on while he looked for another job. His bills went unpaid and he defaulted on his student loans.
He subsequently got another job in his career field and has been gainfully employed for the past year. While he has been working on catching up on his bills, his student loans didn’t fit into his new budget. He was so focused on his credit cards, rent, and car note that he didn’t find a way to bring his student loans current.
That decision is now biting him in the ass. His student loan company is now garnishing his paycheck without ever having to go to court. That’s right. His student loan company is getting their money back without a court order. And it’s legal.
Most borrowers don’t know about this quirk in the law. If your student loans are guaranteed by the federal government, the company does not have to get a court order before garnishing your wages. Instead, the company has to send you a 30 day notice before trying to garnish your wages. You can request a hearing to determine if your wages should be garnished. But that’s the whole process.
Oh and they can garnish up to 15% of your after-tax income. Ouch!
So Frank is now feeling the sting of losing 15% of every paycheck. And it is hurting his budget big time. But that’s not the worst of it. His company frowns upon garnishments. His chances for promotions just decreased greatly which also means his future earning potential just took a big hit. Given he’s only had this job for a year after losing his last job, it’s not going to be easy to find a new job that may not care about the garnishment.
The good news is I was able to tell Frank that he can still request a hearing about his garnishment. The garnishment will continue until the hearing is held but he still has a right to the hearing. A determination will be made after the hearing about whether or not his loan was in default, whether he should be garnished, and even possibly a payment plan can be created.
Let Frank’s situation be wake up call for you. Ignore your student loans at your own peril. They could come knocking at work when you least expect it.