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

Core Insights - Over 5.5 million borrowers are currently in default on their student loans, facing negative credit report entries, loss of eligibility for federal aid, and potential garnishment of up to 15% of their after-tax income [1] Group 1: Current Situation - The Department of Education has temporarily paused wage garnishments and involuntary collections, including tax refund seizures, providing borrowers a limited opportunity to address their defaulted loans [2] - Borrowers can utilize this pause to consolidate their loans or apply for loan rehabilitation to restore their loans to good standing before collections resume [2][7] Group 2: Options for Borrowers - Two primary methods exist for borrowers with defaulted loans to regain good standing and avoid future wage garnishments: loan consolidation and loan rehabilitation [3] - A federal student loan is considered in default if payments have not been made for over 270 days [4] Group 3: Loan Consolidation - Loan consolidation involves combining multiple student loans into a single loan, which can help borrowers exit default [5] - To consolidate, borrowers must enroll in an income-driven repayment plan or make three consecutive, voluntary, on-time payments on the defaulted loan [5] - It is important to note that accrued interest is added to the balance upon consolidation, and the record of default and late payments will remain on the credit report [6] Group 4: Loan Rehabilitation - Loan rehabilitation may take longer than consolidation but removes the defaulted loan from the borrower's credit report and does not add accrued interest to the balance [7] - To rehabilitate a loan, borrowers must make nine voluntary, reasonable, and affordable monthly payments over 10 consecutive months, as determined by their loan servicer [7]