Get Out of Debt Guy

My Paycheck is Being Garnished for Student Loans

Posted October 17, 2013

WRAL Reader Question

Dear Steve,

Due to financial hardship, I had to defer a student loan in March of 2011. This went through September 2012, then I applied for Forbearance. I went a long thinking everything was fine. I received no communication otherwise. I event reapplied in April of this year. Fast forward to October 2013.

I review my pay statement and see I am being garnished 15% of my pay. I call my HR Payroll department and find out it is for student loan default. Remember, nothing in email/phone/writing from the company I paid through (ACS). I find out a company called NCO has taken over my loan, and they try to set me up on a repayment plan through the government (Federal Rehab Program?) in which I pay consistent for 9 months and then it comes off my Credit Report.

I explain this was in Forbearance, and I had followed the procedures. Unfortunately, ACS isn't responding to my inquiries and I have no paper trail. I get a contract from NCO showing the monthly amounts I'm agreeing to, and the 24% interest I get to pay them at the end due to collections fees.

The only big issue here is they said they would drop the 15% garnishment to 1% if I joined this Federal program. Nowhere in the contract does it say this. So I call and ask for that in writing. I speak to two different people named Melissa, and they forward me to a Supervisor named Bridget. She says they will send the request to my payroll upon receiving a signature on the contract. I tell her I will have to do some research first. They even said the call is recorded so there is proof. I asked for a copy of the recording. Of course that was declined.

(1) I've read quite a few horror stories about NCO. Do I sign and trust they will change the garnishment? I will be giving them about $350 a month if they don't.

(2) Is it worth getting legal representation to follow up on ACS not letting me know the forbearance wasn't acknowledged? I contacted the OMBUDSMAN to get info and they said ACS is not required to communicate with me one way or another. Which I find sketchy.

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Dear Paul,

Complaints about servicing loans are quite common. Unfortunately your situation is not unusual.

The safest way to manage your student loans is by checking your student loan statements regularly. You just can't rely on an imperfect system to keep things straight. Ultimately it is your responsibility to make sure your statements reflect correct current activity.

On top of that the transfer of accounts between servicers is a nightmare as well. ACS and NCO are both contracted parties for dealing with federal student loans.

But since your loans were administratively garnished that tells me this issue begin long ago. What most likely happened was the second forbearance was never carried out and that's when you fell into default. Rehabilitating your loan will remove the delinquent notation on your credit report after nine full payments but many get into trouble because they can't afford to make the full payments.

The federal loan rehab program was a good historical program but in my opinion, better programs exist today if you are struggling to make your full payments. Depending on your income you can consolidate your federal student loans, put them on a Pay-As-You-Earn (PAYE) or Income Based Repayment (IBR) plan.

Additionally, if you pay off the defaulted loan by taking out a Direct Consolidation Loan, the amount you borrow must be enough to pay off your defaulted loan, including principal, interest, and collection costs. This means that the amount of the new loan may need to be up to 18.5% larger than the principal and interest outstanding on your defaulted loan.

This guide of mine is where I would suggest you start to better understand your options.


Steve Rhode
WRAL Get Out of Debt Guy

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About this Blog:

Steve Rhode has had careers in opthalmology, real estate and as the head of a nonprofit debt counseling firm. On his blog, he offers hard-won, free advice about getting out of debt, consolidation and making the right choices as you manage your money.