As reported by the American Bankruptcy Institute, the federal government is stepping up wage garnishments of student-loan borrowers who have defaulted on their loan. Administrative wage garnishments are just another lingering effect of the nation’s ballooning college debt, as reported by the Wall Street Journal.
175,000 defaulting borrowers saw the US Department of Education Department take some money out of at least one paycheck in the 2013 fiscal year. That figure was up 45 percent from 10 years earlier and excludes individuals working for the federal government. The US Department of Education can automatically begin taking as much as 15 percent of borrowers’ after-tax wages without court approval. Most borrowers who wind up in garnishment stay there for a while. About 72 percent of garnished borrowers in fiscal year 2011 were still getting garnished the following year.
According to Mark Kantrowitz, Senior Vice President at Edvisors.com, many defaulted borrowers remain in garnishment for at least 5 to 10 years. Pressure has been mounting on the Education Department to rein in its lending as losses have grown in recent years. There was a total of $1.1 trillion in outstanding federal student loan debt by the end of March 2014, up 9.2 percent from the previous year and 53 percent from 2007, according to Edvisors.com.
If you get to the point where your wages are being garnished by the federal government, your loans are in default and you must seek rehabilitation. Chapter 13 provides the perfect vehicle and you can emerge from bankruptcy in better financial condition than before filing. The key is to understand how the process works and then engage in steps to address any credit issues so that you can recover your credit score quickly.