Financial Counseling Certification Program (FiCEP) Practice Exam

In cases of defaulting on student loans, which demographic is particularly at risk for wage garnishment?

1. Freelancers

2. Public sector employees

3. Retirees on social security

4. Unemployed individuals

The correct answer is: Retirees on social security

Wage garnishment occurs when a creditor legally withholds a portion of a debtor's earnings to satisfy a debt. Among the demographics listed, retirees on social security are particularly at risk for wage garnishment related to defaulting student loans because federal law can allow for the garnishment of certain types of income, including wages and, in some contexts, benefits. Student loan holders can initiate garnishment processes to collect on defaulted loans, and while retirees are not traditionally employed or earning a wage, their social security benefits can be targeted if they also fall into the broader category of debtors. Freelancers, public sector employees, and unemployed individuals face different circumstances regarding income types and stability. Freelancers may have variable income that isn't subject to standard wage garnishment practices, while public sector employees have structured salaries that can undergo garnishment under specific legal conditions. Unemployed individuals are not currently earning an income, making them less vulnerable to garnishment in a practical sense. Therefore, retirees can be seen as particularly at risk when juxtaposed with these other groups due to the potential for their benefits to be garnished under federal law when they default on student loans.