What are employers' garnishment obligations for unpaid student loans?

Amounts subject to withholding. Up to 15 percent of an employee's disposable pay may be withheld to repay an unpaid student loan under a Department of Education garnishment order. In contrast, up to 10 percent of an employee's disposable pay may be withheld to satisfy a garnishment order issued by a state student loan guaranty agency. "Disposable pay" refers to employee compensation after legally required deductions.

The maximum amount that multiple holders of defaulted student loans may garnish any one employee is governed by the 25-percent limit set forth in the Consumer Credit Protection Act. The 10-percent garnishment limit set forth in the Higher Education Act applies to each individual holder of a defaulted student loan.

Notice requirements. An employee must receive 30 days' prior written notice from the federal or state agency informing the employee of the nature of the student loan obligation and the agency's intention to collect the debt through pay deductions. At this point, the employee may avoid deductions from pay by entering into a written agreement that sets forth a payment schedule for repayment of the loan. The employee is also entitled to inspect and copy records relating to the debt and to request a hearing regarding the existence or amount of the debt.

Employers must pay withheld amounts to the federal or state agency as directed in the withholding order, but are not required to vary their normal pay and disbursement cycles in order to comply with such withholding orders.

Reprinted with permission. © CCH