There are two types of student loans---federal loans and private loans. Federal loans are provided by the federal government while private loans are extended by banks and private institutions. If you fail to pay a private student loan, your lender must win a civil lawsuit against you before it can garnish your wages. If your student loan is federal, however, the government has the right to garnish your wages at any time without first filing and winning a lawsuit against you.
A private student loan provider may only garnish your wages if your state allows wage garnishment for private debts. Nine states have laws prohibiting such garnishment. If you live in a state that prohibits the practice, a private lender may attempt to collect the debt from you by calling you, sending you letters or transferring your debt to a collection agency. Although the company reserves the right to file a lawsuit against you, neither it nor any company it hires to help collect the debt may garnish your wages. If the lender is the federal government, however, your wages may be garnished in all 50 states regardless of consumer protection laws.
If you owe a student loan debt to the federal government, you have the option to enter the federal student loan rehabilitation program. This program allows you to "rehabilitate" your loan and stop wage garnishment. The requirements for rehabilitation differ slightly depending on the type of student loan that you owe. Typically, you must make nine payments on time to rehabilitate your loan and stop wage garnishment.
There are limitations to the amount any lender may garnish from your paycheck every week. These limitations are set by Title III of the Consumer Credit Protection Act. If the lender is a private lender, it may not garnish more than 25 percent of your weekly disposable earnings or the amount by which your earnings exceed the current minimum wage by 30. The federal government, however, restricts student loan garnishments to 15 percent of your disposable earnings .
Although filing bankruptcy can help individuals escape many types of debt that they cannot afford to pay and put a stop to wage garnishments, this is often not the case with student loan debts. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made it extremely challenging for individuals with overdue student loans to have the debts discharged. Thus, filing for bankruptcy is often ineffective for discharging student loan debt and avoiding wage garnishment.