Avoid Wage Garnishment With 2 Effective Ways To Escape Student Loan Default

More than 5.5 million borrowers are in default on their student loans. These borrowers face damaging credit report entries, loss of eligibility for future federal aid, and the possibility of having up to 15% of their after-tax income garnished.

While the Department of Education temporarily paused wage garnishments and other involuntary collections, including tax refund seizures, this month, that pause won’t last forever. Borrowers can use this time to consolidate their student loans or apply for loan rehabilitation, which will help them exit default and restore their loans to good standing before involuntary collections resume.

Experts say there are two main ways for borrowers with defaulted loans to return to good standing and avoid future wage garnishments.

Loan Consolidation

One way to get a loan out of default is to apply for student loan consolidation. This process pays off multiple student loans to combine them into a single loan, bringing the borrower out of default.

A borrower must sign up for an income-driven repayment plan or make three consecutive, voluntary, on-time full monthly payments on the defaulted loan to consolidate.

However, the accrued interest is added to the balance once a loan is consolidated. Additionally, while a borrower is brought out of default, the record of the default and the late payments before it will still remain on their credit report.

Loan Rehabilitation

Loan rehabilitation can take longer than consolidation, but it takes the defaulted loan off a borrower’s credit report and does not add accrued interest to the balance.

To rehabilitate a loan and get back into good standing, a borrower must agree to and make nine voluntary, reasonable, and affordable monthly payments over 10 consecutive months, as determined by their loan servicer.