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What payments can be garnished?
The U.S. government possesses considerable authority to recover federal debts, which includes the ability to seize borrowers’ federal tax refunds, wages, and Social Security retirement and disability benefits, as noted by higher education expert Mark Kantrowitz.
The federal government is also allowed to intercept various types of funds, including state income tax refunds and lottery winnings, according to Kantrowitz.
Additionally, borrowers of federal student loans may face legal action from the U.S. Department of Justice, which might include levies on funds in their bank accounts.
How much money can be taken?
For recipients of Social Security, up to 15% of their monthly benefits can be withheld to settle defaulted student loans; however, it is mandated that they retain a minimum of $750 a month for basic living expenses, according to expert guidance.
Carolina Rodriguez, director of the Education Debt Consumer Assistance Program in New York, expressed particular concern regarding the impact of resumed collections on retirees. “Deductions from their Social Security benefits to repay student loans could compromise their ability to afford essentials like food, transportation for medical appointments, and other fundamental needs,” she stated.
In terms of tax refunds, borrowers should be aware that their entire federal tax refund—including refundable credits—can be seized. However, if a borrower has already received their 2024 federal income tax refund, Kantrowitz reassured that the government is unable to reclaim it.
Regarding wage garnishments, the federal government can garnish up to 15% of an individual’s disposable income without necessitating a court order. Kantrowitz mentioned that garnishing wages from federal employees could be comparatively simpler.
How can I avoid collection activity?
Borrowers should take proactive measures to escape default and mitigate the onset of potential garnishments, experts recommend.
According to the Education Department, borrowers in default are to receive an email in the upcoming weeks regarding a new policy initiative. It is advised that they reach out to the government’s Default Resolution Group to explore various options to rectify their loan status, such as enrolling in an income-driven repayment program or participating in loan rehabilitation.
Some borrowers might qualify for deferments or forbearance, which can provide temporary payment relief, as explained by Rodriguez.
“We are advising clients to request retroactive forbearance for unpaid installments, alongside a temporary forbearance until they can transition into an income-driven repayment plan,” she noted.
If a borrower ultimately confronts garnishment of Social Security benefits or wages, they are entitled to a notification prior to the initiation of any collection efforts. According to Kantrowitz, there is a requirement for a 30-day advance warning for wage garnishments, while a 65-day notice is mandated before Social Security benefits can be seized.
Borrowers have the opportunity to request a hearing before an administrative law judge within 30 days after receiving a wage garnishment order. If employment history has been inconsistent or if bankruptcy has been filed, borrowers may have additional protection against wage garnishment, added Kantrowitz.
“Borrowers can also contest wage garnishments if they would lead to significant financial hardship,” he explained.
It is also possible to dispute reductions in Social Security benefits by contacting the Education Department, where the notice received should include information on the appropriate contacts.
Are concerns about the potential garnishment of wages or Social Security benefits weighing on your mind? Sharing personal experiences could be useful for an upcoming story. Please reach out if you’re interested.
Source
www.cnbc.com