Complying with administrative wage garnishment orders for unpaid federal student loan debt

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What is Administrative Wage Garnishment?

Administrative Wage Garnishment (AWG) is a debt collection process that allows a federal agency to order an employer to withhold up to 15 percent of an employee's disposable income to pay a nontax delinquent debt owed to the agency, without a court judgment or order. A higher percentage may be withheld if the borrower consents in writing.

Can any creditor garnish wages through an AWG?

No. Wage garnishments are typically processed via court judgment and order. However, different rules apply to creditors of private student loans and federal student loans. For private student loans, an employer generally should not garnish wages without a court order (and the creditor would need to sue the employee in court).

However, student loans guaranteed by the federal government are treated differently under the Higher Education Act—defaulted federal student loans serviced by an approved guaranty agency do not need a court order to demand that an employer garnish wages. (20 U.S.C. § 1095a; 34 C.F.R. § 682.410(b)(9)).

Instead, the Department of Education or an approved guaranty agency merely has to send a 30 day notice to the employee, who can request a hearing before an Administrative law judge to decide whether garnishment should occur or can notify the guaranty agency if he or she is not the person who owes the debt. But if no hearing is requested and no such notification is timely made, the guaranty agency can issue an Administrative Wage Garnishment Order and the employer must comply. The employee can request a hearing even after garnishment has started, but the garnishment will continue until the determination of the hearing.

Employers, on the other hand, must continue to withhold wages until they receive a Release from the Order of Withholding. They are also typically obligated to notify the guaranty agency if the employee stops working for them.

How to Comply with an AWG

The Department of Education or approved guaranty agency will mail a package to the employer, which typically includes a Letter to Employer & Important Notice to Employer, Order of Withholding From Earnings, Wage Garnishment Worksheet, and Employer Certification or Acknowledgment of Wage Withholding. These materials provide detailed instructions on how to calculate withholdings and how to ensure that minimum earnings are met, so that an employee is not left with too little. The Consumer Credit Protection Act excludes from garnishment a floor level of disposable pay per workweek in an amount equal to 30 times the federal minimum hourly wage. (15 U.S.C. § 1671). Some states also provide greater protections.

Upon receipt of an AWG order, employers should:

  • Verify an employee’s employment.
  • Complete and return the Employer Acknowledgment of Wage Withholding.
  • Deduct the wage garnishment amount from the employee's wages beginning with the first pay period after receipt of the order.
  • Continue to deduct wages and send checks representing the withheld amounts to the address listed in the wage garnishment order until a Release from the Order of Withholding is received or the employee stops working for the employer.
  • If the employee is subject to multiple wage garnishments during a pay period, federal law may limit the ability to withhold the full amount. If so, the creditor agency should be notified, in writing, immediately. (15 U.S.C. § 1673)

What happens if an employer fails to comply with an AWG order?

The employer can be sued by the guaranty agency and will be held liable to pay any amount that such employer fails to properly withhold from an employee’s wages after the employer’s receipt of an applicable Administrative Wage Garnishment Order. The employer would also be liable for the guaranty agency’s attorneys’ fees, costs, and, in the court’s discretion, punitive damages. But the employer does not have to vary the normal pay and disbursement cycles in order to comply with the Higher Education Act. (20 U.S.C. § 1095a(a)(6); 34 C.F.R. § 682.410(b)(9)(P)).

Can I fire, refuse to hire, or take disciplinary action against an employee because they are subject to wage garnishment?

No. While it may be tedious to follow withholding regulations, employers must not terminate, refuse to employ, or take adverse employment action against employees merely because of debt subject to wage garnishment. Doing so is against federal and state law, and the employee may sue an employer who takes such action. 20 U.S. Code § 1095a (a)(8) and California Labor Code §2929, et seq.

An employee who is fired in violation of this California law is entitled to reinstatement and could recover up to 30 days worth of lost wages prior to reinstatement. The employee must notify the employer of his or her intent to make a wage claim under this subdivision within 30 days after being discharged, and has 60 days after discharge within which to file a claim with the Labor Commissioner. Cal. Labor Code §2929(c).