Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Mar 21, 2013

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Student lenders can garnish borrowers’ wages, but there are set limits based on the lender type and the state in which a borrower lives.

According to the U.S. Department of Labor, wage garnishment is “any legal or equitable procedure through which some portion of a person’s earnings is required to be withheld by an employer for the payment of a debt.”

Federal student loans are backed by the government for extra financial security and typically offer lower rates due to the reduced risk. For federal lenders, there is a garnishment limit set at 15 percent of a borrower’s disposable earnings (the amount left over after legally required deductions are removed). In order to protect consumers, the government has a limitation restricting any student loan lender, private or federal, from garnishing more than 25 percent of a borrower’s disposable earnings.

Private student loans are taken out directly from private lenders and usually come with slightly higher interest rates than federal loans. For private lenders, the garnishment rate can vary drastically depending on the state that a borrower lives in. Some states garnish wages at the maximum rate of 25 percent, and some states have laws prohibiting wage garnishment entirely.

Harris Solomon, partner at Brinkley Morgan, said the state of Texas does not allow for wage garnishment.

He said the state wants to protect borrower’s wages from creditors in order to reduce costs for the state. This way, creditors have to bear the burden, rather than the state itself, which would have to support a borrower’s housing and food costs.

“Each state has its own scheme for what it thinks is good to protect its creditors or its citizens,” Solomon said.

Besides the garnishment rate, federal and private lenders vary in their determination and methods used to get borrowers to repay their student loan debts.

The federal government is able to garnish wages more easily than private lenders because it can take directly from the borrowers. Private lenders, however, have to file a legal suit in order to garnish wages.

As a result, private lenders tend to work with borrowers more because they want to avoid bankruptcy and its complications, Solomon said.

Even though private lenders are more willing to work around a borrower’s needs and requests, it is likely because they have more limitations.

“The U.S. government has a variety of limitations by statute, but I think ultimately private lenders are more strict, if they can be, than the federal government,” Solomon said.