Financial Counseling Certification Program (FiCEP) Practice Exam

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True or False: Wages cannot be garnished if a federal student loan is in default.

True
False
Depends on the state
Only for specific professions

The correct answer is: False

Wages can indeed be garnished if a federal student loan is in default. When a borrower defaults on a federal student loan, the government has the authority to take various actions to recover the amount owed, and one of those actions includes the garnishment of wages. The maximum amount that can be garnished from an individual's paycheck for federal student loans is 15% of the disposable income. In addition to wage garnishment, a borrower in default may also face other consequences, such as tax refund offsets and loss of eligibility for future federal financial aid. This ability to garnish wages applies regardless of the state a borrower resides in, making it a uniform federal policy applicable to all borrowers with federal student loans in default. Understanding this process is essential for financial counselors, as it highlights the importance of addressing loan default proactively to avoid such punitive measures.