My Student Loan Just Went Into Collections. Is My Paycheck About to Get Garnished?

Speaker A00:00:37

A letter shows up with the Department of Elections name on it, your student loan is officially in default and wage garbagement is starting again for the first time in five years. And you start to ask yourself, is your next paycheck about to come up short?Now this is a very timely topic today because millions of borrowers are getting the same letter right now. But there's a specific known path out of it and it doesn't require a lawyer. So stay with me today.Let's talk through exactly what happens next and what you can do about it starting this very day. Hello and welcome to Financially Confident Christian. I'm your guide. I'm Ralph Estep Jr. So I want to thank you so much for joining me today.And today's topic is one that is very timely and that's federal student loan collections restarting after a five year pause. Unless you've been living under a rock. You know this is going on right now. It's all over the news. And we got a great listener question about this.We're going to talk today about what does default actually mean and can they take your paycheck? But more importantly than any of those things, how do you get out of this?Because when we look at the history of this, payments got paused back in the days of COVID Back in 2020, life moved on and now a letter shows up like the last five years didn't happen. Well, I've got some ways to help you on today's show.Now if you've got a question that you would like to have me answer on the show, I would love to hear from you. You can get to the show by going to FinanciallyConfidentChristian.com/question.We'll put a link right in the show notes, but just click on that link and go to financiallyconfidentchristian.com/question Well, let's get right into today's listener question.Listener writes this hi Ralph, I got a letter last week from the Department of Education telling me that my federal student loans are in default. Ralph I honestly forgot they existed for a while.Payments got paused back in 2020 and I lost track of my own loan servicer didn't even know who it was after that. And then life kept happening. A new job, a move and even a new baby.I didn't realize I'd missed enough payments to actually go into default until this letter showed up. Now this letter mentions wage garnishments.I looked it up and apparently, Ralph, they can take money straight out of my paycheck without even going to court up to 15%. My husband and I are already tight every month, and 15% of my paycheck just disappearing would not be okay today.I don't know if I should call the numbers on the letter or if it's even legitimate or if there's some way to fix this before it gets to my employer. I feel like I did something wrong, even though I generally lost track during a really chaotic few years.Is there any way to stop this before it starts, or am I already too late? Thank you. Well, the good news is you're not already too late, and you're facing the same circumstance a lot of people are facing.Default has a specific process with specific deadlines, not some mystery box. And yes, there is a real way out. I'm going to walk you through exactly what happens and what you can do this very week.So let's start off by defining what default actually means. Loans became delinquent the day after you missed one payment. That means they're in default.Now, default, by very nature, by the definition, happens after 270 days of missed payment. So basically, you. You've got to miss about nine months of payments to actually put you into default.When you're in default, the full loan balance becomes due immediately. So, yes, you heard that right. You haven't paid for nine months, 270 consecutive days. Then they can. Basically, what they do is call the loan.It becomes due immediately. You lose eligibility for deferment, you lose eligibility for forbearance, and you actually lose eligibility for most repayment plans.What happens is the loans get transferred from your regular servicer to the department default resolution group or collection agency. That's what's going on right now. That's why you got that letter. So default is staged with a start date.It's not some mystery and it's not the end of the story. But now you got to go a little deeper. You got to understand the garnishment timeline. It's true what you said.The government can garnish up to 15% of what they call your disposable pay without going to court. That's what happened when you sign for these student loans. That's the way it works.But by the law, you must get at least 30 days written notice before they do that. Now, here's the thing you need to understand. They can offset tax refunds. They can offset your Social Security benefits.All those things can be offset. Now, you also have the right to request a hearing and object during the notice window.That's why they give you that 30 days nothing's going to happen automatically the moment the default letter arrives. But it does mean, hey, you've got to pay attention. There's a required window to act. 30 Days notice means 30 days of Runway. So you've got to use that.So this is a very timely question. If you've gotten that same letter, you've got 30 days to get these things in order.One of the things you got to do right now is you got to confirm who holds the loan. And what you mentioned is these things got away from me. And honestly, over the past six years, these loans have changed hands.Here's how you can figure that out. You can log into and we'll put this in the show notes. You can log into a website, studentaid.gov and then you can check the My Loan Servicer section.That's going to tell you exactly who to call, not just the number on some letter. So verify that through studentaid.gov and that'll protect you from scams because I think there are going to be a lot of scams going on right now.People calling and pretending to be collection agencies to try to get you out of your money. So do this before you call any number printed on the letter itself. We talked about scams in the last few days.So this may be a legitimate letter, but go to the servicer directly. So verify your source before you and anyone your information go to the source. Now, there are two ways out of default. Here's option one.It's what they call loan rehabilitation. You've got to make nine on time payments within 10 consecutive months. So they give you a little leeway there. But basically to cure this default mint.So option one, loan rehabilitation. Make nine on time payments. Those rehabilitation payments are based on your income. And here's the best part of that.They can be lower even as a few dollars a month. They just want you to get back in that habit of paying.Then after that 9th month payment post, the default comes off and the loan moves to regular servicing status. So that's option one. Option two is consolidation. Now it's faster, but the default notation can still show up on your credit report.So you might not want to live with that. So rehabilitation is generally limited to once per loan under current rules. So know which option fits before starting.So you got a plan Right now, nine payments is a plan. That default letter alone is just a warning. Now here's one thing I'm going to encourage you to do right away. The listener who sent this in.And if you're listening right now, if you Got this same letter. Or maybe you haven't gotten a letter yet. Be like, rob, you know what? I think I got some student loans. I got to go figure these out.Call before the 30 days run out. Contact the loan holder or the department's default resolution group directly asking about rehabilitation.Ask about any income documentation so that you can understand what that payment amount could be. If you act within that 30 day window, you can stop the garnishment before it starts. This is a phone call. It's not some legal battle.The best time to make the call is before the letter's deadline, not after. Now, I want to address your bigger question here.You didn't do something wrong by losing track of a loan during the years when the whole country lost track of normal. Man, we have been in a position of losing track of normal. Five years of silence on this loan, then one letter.And it sudden feels, suddenly feels like the ground move without warning. That fear of your paycheck just quietly getting smaller is real. And it's heavy. I get it.But faith doesn't promise us that the debt's going to disappear. You sign for this loan. I know that's not a comfortable thing to say and people don't want to hear that, but it's true. Point.You made a decision to sign for this loan. And it doesn't promise our faith that the process is going to feel simple.But what it does promise us, that you're not alone in walking through this without wisdom available to you. And if acting in the light beats sitting frozen in fear of that letter. I Love what Proverbs 22:3 says.A prudent person foresees danger and takes precaution. I mentioned this on the show the other day. The simpleton goes blindly on and suffers the consequences. So today's issue is not about blame.Maybe you should have been making those payments. Maybe you should have been on top of this. That's fine. We're not going to talk about blame.It's about what happens the moment you take one clear step instead of freezing. So call the service this week. That's exactly the kind of prudent step that this verse points to.The fear that that letter created can be answered with action. Not more putting it off, not more waiting. This isn't punishment. It's a deadline with a real door out. And you still got time to walk through it.I know that default letter feels like a verdict. You're like, oh, Ralph, it's already too passed. I'm in default. Yes, technically you are.But it's Actually like that starting gun with a 30 day head start, you're not behind everyone else. Millions of borrowers are in the exact same spot right now. But you can make one phone call this week and it can change your position completely.So here's your win for today. I want you to log into studentaid.gov and confirm who currently holds your loan.Check that my loan servicer section write down their phone number and their name and not just the number on that letter because it could be a scam. But knowing exactly who to call turns a scary letter into a concrete next step. And again we go to Proverbs 22, 3. That's our Bible verse for today.A prudent person foresees danger and takes precautions. The simpleton goes blindly and suffers the consequences. So you're standing right now at the fork that this verse describes exactly.You got a choice to make. You can freeze or you can act. And this verse doesn't shame the danger, it points towards precaution.So confirm your servicer call within 30 days and that's putting precaution into practice. How about we pray together right now?Heavenly Father, I just want to thank you for the listener who is doing her best to provide for her family, Lord, in the middle of a scary letter she didn't see coming. So Lord, right now, calm that fear that came with that garnishment warning.Give her clarity as she confirms her loan servicer, Lord and makes that first call. Provide her family's needs even as she works through this process.And remove that shame that she feels over losing track during a genuinely chaotic season of her life. Give her and her husband peace as they face this together. Because they are facing this together, Lord, and we are doing it with you.And we ask this in Jesus name. Amen, friend. That default letter is a starting point. It's not a final verdict. You can still come back from this.You got a 30 day notice window, you got two clear paths, rehabilitation or consolidation. So here's my takeaways for today. That default started once. You missed nine months worth of payments. That's the legitimate situation we are.So confirm that loan servicer. Look for those nine monthly payments, consider consolidation and do something before that 30 day window runs out.Don't wait for that deadline to come and go because then they will attach your wages. Now if you've got a question for the show or you got something that something that's burdening you right now, I would love to help you.Best way to reach me is to go to financiallyconfidentchristian.com/voicemail we'll put a link right in the show notes, but again, that's financially confidentchristian.com/voicemail I just want to thank you so much for joining me today. As I always say, I want to encourage you today. I know it might seem like I'm being sort of negative today. I I'm just facing the realities.But stay financially savvy. May God bless you. And yes, you will get through this. Have a great day. It.