Save Money Student loan default can gut your paycheck

There’s a dirty little secret of the student debt crisis. One that affects millions of borrowers, but isn’t talked about at dinner tables, on social media or in think pieces about student loans.

The taboo topic is wage garnishment and it works like this: Default on your federal student loans and the government can take up to 15 percent of each paycheck to satisfy your debt. That amounts to $300 per month for someone who normally takes home $2,000 per month. The Education Department can also withhold federal benefits such as tax returns and Social Security payments.

If you received notice of garnishment or are already in the thick of it, don’t panic; you have options that are far less painful than a 15 percent hit to your paycheck.

Stop garnishment before it starts: The ideal time to take action is when you begin struggling to make payments. At that point, your loan servicer can help you explore other repayment options, including income-based plans that cap your monthly payment.

Once your loans are in default, those options are off the table until your loan is in good standing.

Rehabilitate your loan: Loan rehabilitation is a one-time “Get out of default” card. The collection agency sets a monthly payment based on your income, minus any reasonable monthly expenses. The amount could be as low as $5 a month. — Nerdwallet