I am 26 years old and would like to go back to college. I have
$12,000 in student loans which are currently in administrative wage
garnishment. I make $27,000 a year and would like to get my loans back
in good standing. I have called the collection agency in charge of my
loan and they insist on me paying $120 extra on top of the already
$350 garnished a month. Is there any way I can get the $120 reduced to
something more affordable for me to allow me to go back to college?
— A. D.
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Administrative wage garnishment on a defaulted federal student loan
may not exceed 15% of the borrower's disposable income without the
written consent of the borrower, per section 488A(a)(1) of the Higher
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Education Act of 1965 and the regulations at 34 CFR 682.401(b)(9).
Disposable income is defined by section 488A(e) of the Higher
Education Act of 1965 and the regulations at 34 CFR 682.200(b) as the
income that remains after deducting any amounts required by law to be
withheld. Amounts required by law to be withheld include federal,
state and local taxes, FICA taxes and other wage garnishment payments.
In addition, 15 USC 1673 requires that the weekly wage garnishment
amount leave the borrower with at least 30 times the federal minimum
hourly wage. The current federal minimum wage as specified in 29 USC
206(a)(1) has been $7.25 an hour since July 24, 2009. That means
borrowers subjected to administrative wage garnishment on their
federal student loans must be left with at least $217.50 a week,
$942.50 per month and $11,310 per year. These figures are barely above
the poverty line.
$350 a month in wage garnishment on a $27,000 annual salary appears to
exceed the 15% of disposable income limit on wage garnishment. Federal
income tax is about 6.5% of adjusted gross income (AGI) for AGI
between $25,000 and $30,000. FICA taxes are 7.65% of gross
income. These taxes along with state income tax represent
approximately 14% of gross income. The $350 monthly wage garnishment
amount appears to be about 18% of disposable income. It is possible
that the wage garnishment amount was incorrectly calculated based on
gross income instead of disposable income.
A borrower who is in default on a federal education loan may regain
eligibility for federal student aid by making six consecutive, on-time
(within 15 days of the due date), voluntary full monthly payments on
the defaulted loans, per the definition of "Satisfactory repayment
arrangement" in the regulations at 34 CFR 682.200(b) and the
regulations at 34 CFR 682.401(b)(4). This is a one-time opportunity.
Voluntary payments do not include any amounts paid through wage
garnishment and the offset of income tax refunds. In most cases the
collection agencies will want to receive an additional payment on top
of the wage garnishment, and it is not uncommon for them to ask for 1%
of the outstanding loan amount per month. The standard ten-year
monthly payment on an unsubsidized Stafford loan is 1.15% of the
original loan balance.
However, the regulations also require the full monthly payment to "not
be more than is reasonable and affordable based on the borrower's
total financial circumstances." The determination of what is
reasonable and affordable must include consideration of the borrower's
disposable income and necessary expenses such as food, housing,
utilities, medical care, dependent care, work-related expenses and
other federal student loan repayment obligations.
While collection agencies will initially ask for a full payment on
top of the wage garnishment amount, in many cases they may reduce the
voluntary payment to the difference between a reasonable and
affordable payment and the wage garnishment amount. Providing the
collection agency with a copy of a monthly budget of the necessary
expenses listed above may help demonstrate whether the additional
payment requested by the collection agency is reasonable and affordable.
The monthly payment on $12,000 in unsubsidized Stafford loans under
the standard 10-year repayment plan is $138 a month. A $350 wage
garnishment amount is 2.5 times this figure, already unreasonably
high. At $350 a month and assuming collection charges of 25% deducted
from each payment, a $12,000 loan will be paid in full in 4.5 years,
less than half the standard 10-year repayment term. It is hard to see
how an additional $120 a month could be considered reasonable and
affordable on top of this, especially for a borrower with annual
income that is less than 250% of the poverty line. Since the payment
required for regaining federal student aid eligibility must be
voluntary, perhaps the collection agency should consider an extra $1 a
month to be voluntary. Or perhaps the collection agency should reduce
the monthly wage garnishment amount by $120 so that the current
monthly payment can be considered as satisfying the full and voluntary
If the collection agency is unwilling to work with you on determining
a reasonable and affordable payment, you should seek help from a legal
aid attorney. Otherwise you'll be forced to either find an extra $120
a month for six months in your budget or wait about 5 years to go
back to college.