The federal government is given extra collecting abilities when it comes to getting back their money from federal student and/or parent aid. They can take your tax returns, garnish wages, and more. If you try to avoid them, and do not update your information with them, a person can easily miss any notice that might have been sent out. Or maybe the water garnishment notice was just ignored. The only way to stop it would have been too make a payment agreement equal to the wage garnishment or prove that the percentage being garnished is not affordable. Once the period allowed has passed (15 days?), The garnishment will continue for that employer until they pay back the loan entirely.
If the loan is old and she doesn't remember the details, the first step I would take is to find out about the loan. The National Student Loan Database or NSLDS website would be my first stop. This database lists everything about all federal aid provided, including amounts and who's it's with (collection agency at this point). You night need need this contact information, which should be mostly accurate, if she doesn't have the agency number. It is still good to match up in case someone is pretending to have the loan.
They need to update their information (address, phone number, etc). Since the loans are in default, there's really no running away from them. To get the loans out of default they will have to choices: rehab or consolidation.
Each comes with it's own set of consequences. People usually rehab. It erases the default from a credit report at the end, and sometimes the old lates. It will also preserve the age of those timelines which is usually people's oldest accounts. It takes about 9-10 months for this to happen though. I recommend it. The other option is consolidation. It creates one new loan. This can be completed in 3 payments or immediately if the person is willing to accept that the will be put on an IDR (income-driven repayment) plan such as REPAYE or IBR. This can lower AAoA and any previous payments made on any loan forgiveness program including the automatic forgiveness of IDR will be reset.
I am working with someone on this very issue. Very low credit scores. I ended up adding them as an AU on my account first. Scores rose significant. That put them in a place to get a Discover secured card, which gave a huge score increase and scores about 625. No rehab yet.
You can always add the person as an AU on a card that will reflect good payment history, etc. You can take them off whenever. The score increase becomes flexible in the way. Imo this hike is just to get them in a position to get their own card (secured that might graduate is best imo, not store cards, etc). If they have no need for this, I would not add them. When the rehab or consolidation is done they will also see a jump. The other to collections will prevent the gain they would have gotten off they had a collection-free account though. I would dispute (is it a valid dispute? Otherwise it would be better to ask for a goodwill) the other collections at the same time. This will all be a long process.
It is important to note that I've been told the garnishment does not stop until rehab is complete. Unless they can afford a reduced payment from the rehab and the garnishment, they should be ready to decide how to work it out. They can always dispute if the garnishment payment is affordable based on the guidelines. Until they get a hearing, the garnishments will continue. They should also be able to put the garnishment down as a expense in the income & expenses form that can be used to determine a reduced rehab payment. Read everything the collection agency sends carefully. They are often sketchy and will omit options they don't want you to do. After rehab / consolidation they might want to seriously consider an Income-driven repayment plan. They can always pay more than the minimum on these plans. It they will just get forgiven after the period listed (usually 20 years of payments for undergrad loans).
Any questions? Please ask away.
