Late Student Loan Payments? Here's How Much the Feds Will Dock Your Wages

Life
ByJames Dennin

The federal government has withheld more than half a billion dollars from the paychecks of people behind on their student loans during the end of 2015 and beginning of 2016, according to reports from the Department of Education.

Uncle Sam is permitted by law to take up to 15% of your paycheck automatically — which amounts to about $124 per week, based on median earnings in the United States. 

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Known as "wage garnishment," the controversial practice is reportedly on the rise, as the federal government tries to figure out what to do about $125 billion in student loan debt that's currently in default, the term used when your payments are more than 270 days overdue

When loans enter default, the entire balance, plus interest, is due.

The government first began publishing data about its use of debt collection agencies late last year, meaning the available data is somewhat limited. 

Still, the numbers are jarring: The U.S. has withheld about $515 million in student debtors' wages between July 2015 and March 2016, using about 20 different collection agencies

In July, the White House issued a new report on the state of student loan debt that suggested the crisis has a silver lining — at least for those who finish their degree. 

Specifically, higher education (even if it leads to debt) is a good "investment" for those who go on to earn more than they would otherwise, the report claimed.  And data shows most people whose loans fall into default have what's called "small-volume loans," meaning the balance is less than $10,000. (Then again, even just a little bit of student loan debt can be devastating if you don't have a degree and are at a low- or minimum-wage job.)

If you're far behind on your own repayments, don't bury your head in the sand: Research alternative repayment options, like Pay As You Earn. Otherwise, watch out for the government, which could easily just cut a piece out of your paycheck. 

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