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Many retirees continue working or take on a new job, but working after retirement can have downsides.

Whether you have private or federal student loans, defaulting on your debt can eventually lead to wage garnishment. For federal loans, the government can garnish your wages without a court order. For private loans, the lender must first sue you and obtain a court judgment before they can legally garnish your wages. Private lenders are also more limited in the types of income they can garnish compared to federal loans.

Below, we break down how private student loan wage garnishment works, what your rights are, and what you can do to avoid it.

What Is Wage Garnishment?

Wage garnishment is a debt collection method that legally requires your employer to hold back a set amount of your paycheck each payroll period. The withheld funds are then directed to the creditor to satisfy the past due debt.

With private student loans, the lender must take you to court and prove the debt is valid to get a judgment. Once a judgment is granted, the lender can request a court order for wage garnishment. This is a court-issued document that officially authorizes your employer to garnish your wages. The maximum that can be withheld for private student loan garnishment is 25% of your disposable (after tax) income.

Other Debt Collection Methods

Before wage garnishment comes into play, private student loan lenders typically try several other collection methods. Garnishment is usually their last resort, since it involves time, legal costs, and court proceedings.

Some common collection tactics include:

•   Phone calls and letters: Private lenders will often contact you via calls and letters to arrange payment and seek to recover the past-due amount.

•   Collection agencies: If your lender cannot collect, they may sell or assign the debt to a collection agency, which will likely then pursue repayment aggressively.

•   Settlement offers: Sometimes, lenders or collection agencies will propose a reduced lump sum payment to close out the debt if you are willing to pay upfront.

•   Legal action: As a last step, leaders may file a lawsuit to obtain a judgment that allows them to pursue collections actions such as wage garnishment or seizing assets.

Private Loan vs. Federal Loan Garnishment

Both private and federal student loans can lead to wage garnishment after default, but the processes for doing so are different.

With federal student loans, the government can garnish wages without going to court. Once you’re in default (typically after 270 days of missed payments), the Education Department can order your employer to withhold up to 15% of your disposable income to collect your defaulted debt. Federal agencies can also withhold tax refunds or Social Security benefits to collect what’s owed.

Private student loans work differently because they’re issued by banks or private lenders, not the government. These lenders must sue you and get permission from a court to garnish your wages. A private lender can garnish up to 25% of your weekly disposable income, depending on how much you earn and where you live. Unlike federal loans, private lenders can’t seize tax refunds or federal benefits.

How Wage Garnishment Works for Private Student Loans

Here’s a closer look at how student loan wage garnishment actually unfolds for private student loans, from the first missed payment to paycheck deductions.

Default Timelines

Depending on the lender, private student loans are considered to be in default after three to six months of missed payments. Once in default, a lender may:

•   Report the default to the consumer credit bureaus.

•   Send your account to a collection agency.

•   File a lawsuit to recover the debt.

At this stage, communication with your lender is key. Some will offer settlement options or hardship forbearance, which can help you avoid a wage garnishment down the road.

Recommended: How to Get Student Loans Out of Default

Lawsuit and Judgment Process

If the lender decides to take legal action, you’ll be served with a complaint and a court summons. You typically have a set time period to respond to the lawsuit by filing an answer with the court. If you don’t file your answer on time, the lender can get a default judgment, which is an automatic ruling in their favor.

If you respond to the lawsuit and go to court, you will likely appear before a judge who will hear both sides. If you win, you won’t need to pay the debt in question. If the creditor wins, they will have established a legal right to collect the debt. They can then seek permission to do so, typically through a wage garnishment.

Employer Notification and Paycheck Deductions

If the lender gets a court order for wage garnishment, they can legally require your employer to withhold a portion of your paycheck and send those funds directly to them. The employer, also known as the garnishee, is notified of the wage garnishment order. They must legally comply with the order and in accordance with state law.

A portion of your earned wages may then be automatically deducted from your net paycheck each payroll period until the debt is fully repaid or otherwise resolved.

Percentage of Wages Garnished

The amount that can be garnished from your paycheck depends on federal and state laws. Under federal law, the maximum garnishment for most debts (including private student loans) is:

•   25% of your disposable income, or

•   The amount by which your weekly disposable earnings exceed 30 times the federal minimum wage (currently $7.25 per hour), whichever is less.

Disposable income is an employee’s gross pay minus legally required deductions, such as federal, state, and local taxes, Social Security, and Medicare.

Some states, however, impose stricter limits.

State-by-State Differences

Each state has its own rules governing wage garnishment. Some states allow the full 25% limit, while others cap it lower — or even prohibit garnishment in certain situations.

In Massachusetts, for example, a creditor is only allowed to garnish the lesser of 15% of your gross weekly wages or 50 times the federal or state minimum wage. In Florida, a judgment creditor cannot garnish your pay if you are head of the family and your wages are $750 per week or less.

If your state has more protective laws, those take precedence over federal limits.

How to Avoid Private Student Loan Wage Garnishment

The most effective way to stop student loan wage garnishment is to prevent it before it starts. Once a garnishment order is in place, it’s difficult to reverse -– but there are several proactive steps you can take.

Negotiate Repayment

If you’re struggling to make payments, it’s a good idea to contact your lender. Explain your financial situation, and ask about your options. Many lenders are open to negotiating when they see you’re acting in good faith. The lender might offer temporary forbearance, which is a pause on payments to give you time to recover financially. Or they might be willing to extend the term of your student loan, which will reduce your monthly payment.

If your loan has already been sent to collections, you can negotiate directly with the collector. Just be sure to get all agreements in writing before sending any payment.

Refinance Student Loans

If the debt is eligible, refinancing can be another strategy to prevent wage garnishment down the line. This involves taking out a new loan (ideally with a lower interest rate) and using it to pay your original student loan (or loans) in full. You then repay the new loan according to that loan’s rate and terms. Using an online student loan refinance calculator can help you see how much a refinance could save you monthly and over the loan term.

Keep in mind, however, that you generally need good credit and stable income to qualify for student loan refinancing. If you’re already in default, refinancing might not be immediately available. However, building your credit profile and paying off some debt can make it possible later.

If you have federal as well as private student loans, keep in mind that refinancing federal loans with a private lender means giving up federal benefits and protections like income-based repayment and forgiveness programs.

Your Rights and Legal Protections

If you end up facing private student loan garnishment, you still have a number of rights under both federal and state law. Here are some to keep in mind:

•   You must receive proper notice: Before any garnishment begins, you’re entitled to written notice that a wage garnishment order has been issued to your employer. In some states, this notice must include certain instructions, such as how to request a change to their garnishment order.

•   You can contest the garnishment: You may be able to file an objection if you weren’t properly notified of the lawsuit before the judgment, the debt isn’t actually yours, or the amount being garnished exceeds legal limits. This typically triggers a hearing where you can present your case before a judge. If successful, the garnishment may be reduced or eliminated entirely.

•   You’re protected from retaliation: Under federal law, employers cannot fire an employee for having their wages garnished for a single debt. That protection doesn’t extend to employees with multiple wage garnishments. However, some states provide stronger safeguards.

•   Some income is exempted: Some kinds of earnings can’t be garnished by private lenders. This generally includes: Social Security payments, child support, alimony, disability benefits, as well as income from pensions, individual retirement accounts (IRAs), 401(k)s, and other retirement funds.

The Takeaway

For private student loans, wage garnishment is a serious consequence of default, but it’s not automatic. Unlike federal loans, private lenders must first successfully sue you and obtain a court order to legally garnish your wages, which is limited to a maximum of 25% of your disposable income under federal law.

The best way to protect your paycheck is to be proactive: Communicate with your lender, explore options like forbearance or refinancing before default occurs, and know your rights regarding notice, legal protections, and the types of income that are exempt from garnishment.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

Can private lenders take money from my bank account?

Private lenders cannot directly take money from your bank account without your permission or a court order. However, if you signed an agreement allowing automatic payments, they may legally withdraw funds as outlined in the contract. If you default on a loan, the lender must sue you and obtain a judgment before garnishing your wages or seizing funds from your bank account through a legal process.

What’s the difference between wage garnishment and a lien?

Wage garnishment and liens are both methods creditors use to collect debts, but they work differently. Wage garnishment deducts money directly from your paycheck before you receive it, continuing until the debt is paid. A lien, on the other hand, is a legal claim on one of your assets (such as a house or car). It gives a lender or creditor the right to receive a portion of any money you would receive if the property is sold or refinanced.

Will garnishment affect my credit score?

While wage garnishment itself doesn’t appear on your credit report, the events that led to it (such as missed payments and loan default) will. These items can stay on your credit report for up to seven years and negatively impact your credit score.

Can I be fired because of wage garnishment?

Federal law protects employees from being fired over a single wage garnishment, meaning your employer cannot terminate you for one debt being garnished. However, if multiple garnishments are issued against you, these protections may not apply and your employer could take actions. State laws vary, with some offering stronger protections than others.

Is wage garnishment public record?

Yes, wage garnishment is part of the public record because it results from a court order. When a creditor sues and wins a judgment against you, that legal action becomes accessible through public court records.

Photo credit: iStock/Pekic

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Bank, N.A. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOISL-Q425-007

Having a car can make college life easier, especially if you’re balancing classes, work, and off-campus living. It’s natural to wonder whether student loans can help cover this major expense. After all, they can pay for tuition, housing, and other college-related costs.

However, student loans come with strict rules about how the money can be used — and buying a car isn’t one of them. That said, you can use student loans for certain car-related expenses, such as gas, maintenance, and parking. You can also use student loans to cover other transportation costs like bus, train, or subway passes.

Here’s a closer look at what expenses student loans can and can’t cover, plus some alternative ways to afford a car while you’re in college.

What Student Loans Can Be Used For

Both federal student loans (which are funded by the U.S. government) and private student loans (which are funded by banks, credit unions, and other private lenders) are meant to be used for expenses essential to your education.

Generally, you can use your student loans to pay for:

•   Tuition: Your loan can be used to cover the cost of attending classes.

•   Books, supplies, and fees: This includes course materials, required supplies (like notebooks and pens), and lab and other fees not covered by tuition.

•   On-campus room and board: You can use your loan to cover your dorm expenses and meal plan.

•   Off-campus housing and food: If you live off-campus, eligible expenses include rent, utilities, and groceries.

•   Transportation: You can use loan funds for transportation expenses such as gas, car maintenance, and public transportation to get to and from school.

•   Study abroad: If you choose to spend a semester or year abroad, you can use your loan to cover those costs.

•   Technology and equipment: This includes a laptop, software, or any other equipment needed for your classes.

•   Professional expenses: You can use your loan to pay for professional certification tests and licenses related to your career field.

•   Disability needs: Loans can be used to pay for specialty services, equipment, and necessary supplies.

•   Child care: If you’re a parent, you may be able to use your loan to cover child care necessary for you to study and attend classes.

The list of qualifying expenses is relatively broad. Essentially, if the expense is essential to your educational success (meaning it supports your living arrangements, basic daily needs, or attendance at school), then it is likely an acceptable use of student loan funds.

Why Student Loans Generally Can’t Be Used to Buy a Car

While transportation is considered a legitimate educational expense, buying a car itself is not. In fact, federal regulations specifically exclude the purchase of vehicles as an allowable use of student loan funds.

If you want to purchase a new or used car, that money has to come from another source, such as savings or a car loan. The same goes for buying a motorcycle or e-scooter, since these are also considered personal purchases not necessary to your education.

Here are some other purchases student loans should not be used for:

•   Clothing and accessories

•   Grooming items

•   Nonessential household goods (like a TV, video gaming device, decor)

•   Restaurants and entertainment (e.g., eating out, takeout, concerts, sports tickets)

•   Nonessential travel (such as vacations or nonschool related trips)

•   Purchasing a home (such as down payment)

Though lenders and financial aid offices generally don’t actively monitor your use of student loan funds, you could potentially face consequences for misusing the money. Though rare, a lender could terminate your loan agreement and require you to pay back the full amount right away. Misuse of federal student loans could make you ineligible for future federal student aid, making it harder to pay for college moving forward.

Transportation Costs That May Be Covered by Student Loans

While you can’t buy a car with student loans, you can use these funds for transportation costs related to car ownership. For example, if you use a family car or buy a car with other funds, you can use your student loan to cover the cost of gas, oil, essential repairs, general maintenance, and insurance payments.

Student loans can also be used for parking costs and tolls, as well as other forms of transportation, such as buses, trains, subways, and bike-sharing programs.

Recommended: How Do Student Loans Work?

Alternatives to Using Student Loans to Buy a Car

While you can’t use student loan money to buy a car, there are other ways to finance a car purchase while you’re in college. You might also consider some alternative (less costly) ways to get around. Some ideas:

•   Save up and pay cash: The best way to avoid debt is to choose a car you can afford to pay for upfront. Consider working part-time during the school year or over the summer to help stash money away so you can buy an inexpensive but reliable used car. Websites like Kelley Blue Book and Edmunds can help you find affordable, fuel-efficient options for students.

•   Apply for a car loan: This type of financing is offered through banks, credit unions, private lenders, and car dealerships. Some lenders and dealerships offer special deals on car loans for college students, such as a rate discount or more flexible qualification requirements (such as using grades in lieu of a credit score).

•   Apply with a cosigner: As a student, you may have limited or no credit history. A creditworthy cosigner (like a parent) can significantly improve your chances of loan approval and help you secure a better interest rate.

•   Use public or campus transportation: If your school is in an area with solid public transit, a monthly bus or train pass might be cheaper and more practical than owning a car. Some campuses also offer free shuttles or student discounts for local transportation.

•   Car sharing/ridesharing: Services like Zipcar or use of Uber/Lyft can be cost-effective for occasional trips, allowing you to avoid car maintenance, insurance, and monthly parking costs.

•   Biking or walking: If you live close to campus or work, human-powered transport can be a free and healthy alternative to buying a car.

How Having Student Loans Can Affect Getting a Car Loan

If you feel you really need a car and want to pursue separate financing, it’s important to understand how your existing student debt can influence your ability to get approved for a car loan. Two key factors to keep in mind:

•   Your debt-to-income (DTI) ratio: Lenders look at your DTI ratio — the percentage of your monthly income that goes toward debt payments — to determine how much additional debt you can handle. If you have high student loan payments, your DTI may be too high to qualify for another loan.

•   Student loans can impact your credit: Having student loans can help you build credit if you make on-time payments. This can make it easier to qualify for a car loan with attractive rates and terms. On the flip side, however, missed or late payments can hurt your score and make qualifying for a car loan more difficult.

If you’re still in school and relying heavily on federal or private student loans, it might be smarter to wait until after graduation, when your income is more stable and you’ve established a stronger credit profile, to take on an auto loan.

The Takeaway

Using student loan funds to purchase a car is generally prohibited by both federal and private student loan rules, as a vehicle is considered a nonessential personal asset.

While these loans can cover transportation costs related to your education, such as gas, insurance, and maintenance for a car you already own, or public transit fares, they cannot be used for the vehicle purchase itself.

Misusing student loan money can lead to severe penalties, including the potential loss of future financial aid or immediate repayment of the loan. If you need a car for college, consider alternatives like saving up to pay cash or applying for a separate auto loan.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

Can I use leftover student loan money to buy a car?

No. Although student loan funds can be used to cover transportation costs associated with your education, buying a car itself is not considered an allowable or qualified education expense. Student loan funds are meant for essential costs like tuition, books, fees, and housing. The purchase of a personal asset like a car is generally viewed as a nonessential expense by both federal and private student loan lenders.

Are cars considered a qualified education expense?

No, a car purchase is explicitly not considered a qualified education expense by federal student loan regulations, and private student lenders typically have similar guidelines. While transportation costs (like gas, car maintenance, and public transit) that are essential for attending school may be covered, purchasing the vehicle itself is considered a personal, nonessential asset acquisition.

What happens if I use student loans for noneducational expenses?

Though lenders generally do not actively monitor your spending, misusing student loan funds can lead to negative consequences. If the misuse is discovered, the lender may terminate your loan agreement and require you to pay back the full loan amount right away. Misusing federal student aid can also result in losing your eligibility for all future federal financial aid, making it significantly harder to afford the remainder of your education.

Can I get an auto loan while repaying student loans?

Yes, you can get an auto loan while repaying student loans. Lenders will assess your overall financial situation, including your student loan debt, to determine your eligibility and interest rate. Key factors include your credit score and your debt-to-income (DTI) ratio. If your student loan payments are high relative to your income, that could make it harder to qualify for an auto loan or result in a higher interest rate. However, making consistent, on-time payments on your student loans can help build a positive credit history, which can improve your chances of securing a favorable auto loan.

Are there student transportation assistance programs?

Yes, many colleges offer student transportation assistance programs, including free or reduced-fare public transit passes, campus shuttle services, and emergency grants for transportation. Some schools offer transportation assistance programs targeted to specific student populations, such as low-income students, students with disabilities, or students experiencing homelessness or housing insecurity.

Photo credit: iStock/yuki-ramen1025

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Bank, N.A. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOISL-Q425-006

How to Open a Brokerage Account

There are a few simple steps to opening your first brokerage account. We’ll dive deep into each one below.

Step 1: Choose a Brokerage Provider

There are several types of brokerage accounts^[2], and the type you choose will depend on what you’re trying to accomplish.

The accounts above are known as cash accounts: You must buy securities with funds you put in your account ahead of time.

You may also encounter other more complicated types of brokerage accounts known as margin accounts, which allow you to borrow money from your brokerage to make investments, using your case account as collateral. These accounts tend to be for sophisticated investors willing to shoulder the risk that investments bought with borrowed funds will lose value.

Before working with an individual investment advisor or a firm and opening a cash or margin account, it can be a good idea to run a check on their background. The Financial Industry Regulatory Authority (FINRA) offers online broker checks where you can enter a broker’s name, or the name of a firm, to learn whether a broker is registered to sell securities, offer investment advice, or both.^[3]

And you can learn about a broker’s employment history, regulatory actions, and whether there are past or current arbitrations and complaints.

Step 2: Sign Up for a Brokerage Account

Most brokers of all kinds allow you to open and access your brokerage account online. When you open the account, you will likely be asked to provide your Social Security number or taxpayer identification number, your address, date of birth, driver’s license or passport information, employment status, annual income and net worth. You may also be asked about your investment goals and risk tolerance.

For the most part, they should not charge you a fee for opening an account. While some may require account minimums, others allow you to open an account with no minimum deposit. There is no limit on the number of brokerage accounts you can open, and you may be able to hold multiple accounts with multiple brokerage firms.

Step 3: Transfer Money

You will need to fund your new brokerage account before you can purchase any types of securities. You can deposit money in a brokerage account like you would in a traditional bank account.

Step 4: Start Trading

Many brokerage firms will offer a way for you to earn interest on uninvested funds so that your money continues to work for you even when not invested in the market.

How Do Brokerage Accounts Work?

The brokerage firm with which you hold your account maintains the account and acts as the custodian for the assets you hold. In other words, the custodian provides a space for investors to use their account in the way that it was intended.

However, you own the investments in the account and can buy and sell them as you wish. The brokerage firm acts as a middleman between you and the markets, matching you with buyers and sellers, and executing trades based on your instructions.

For example, if you place an order with your brokerage to buy a certain number of shares of stock, the brokerage will match you with a seller looking to sell those shares and make the trade for you.

What’s the Difference Between Brokerage Accounts and Retirement Accounts?

Brokerage accounts are also known as taxable accounts, because profits on sales of securities inside the account are potentially subject to capital gains taxes. Generally speaking, these accounts offer no tax advantages for investors.

Retirement accounts, on the other hand, offer a number of tax advantages that may make them preferable to taxable accounts if you’re planning to save for retirement. Retirement accounts place limits on how much money you can contribute and when you can withdraw funds.

If retirement planning is your main concern, you may consider saving as much as you can in both a 401(k) if your employer offers one, and a traditional or Roth IRA. If you have funds left over, you may choose to invest those in your taxable brokerage account.

Is My Money Safe in a Brokerage Account?

The money and securities held in a brokerage account are insured by the Securities Investor Protection Corporation (SIPC). The SIPC protects against the loss of cash and securities held at failing brokerage firms. If your brokerage firm goes bankrupt, the SIPC covers $500,000 worth of losses, including $250,000 in cash losses.

The SIPC only provides protection for the custody function of a brokerage firm. In other words, they work to restore the cash and securities that were in a customer’s account when the brokerage started its liquidation proceedings. The organization does not protect against declines in value of the securities you hold, nor does it protect against receiving and acting upon bad investment advice.

It is important that any investor realizes and accepts that investment comes with a certain amount of risk. While security prices may gain in value, it is also possible that you could lose some or all of your investment.

The Takeaway

Opening a brokerage account is a simple process that allows you to invest in securities. Effectively, you’re depositing money at a brokerage, which will allow you to buy investments such as stocks, bonds, or ETFs. There are numerous brokerages out there, and different types of brokerage accounts.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

FAQ