Good News for CA Student Loan Debtors – State Moves to Block Private Loan Garnishment
April 18, 2013

California has just taken a step in the right direction for those in their state that owe private student loans they’re struggling to repay. The bill, proposed by Assemblyman Bob Wieckowski, a Democrat from Fremont, California, would block private student loan providers from garnishing wages of California residents. This is part of a larger initiative to educate students on educational debt and improve access and affordability to education.

Currently, creditors can garnish up to 25% of disposable income from those who have delinquent student loans. Rather than working with borrowers to find an affordable middle ground, many lenders jump straight to this solution which can be financially disastrous for already cash-strapped borrowers. Wieckowski says, “Creditors, I believe will be more inclined to work with the debtor and figure out a repayment plan that these young people can manage.”

Because student loan debts can rarely be eliminated even in bankruptcy and have no date of expiry, they can be tantamount to a life of perpetual debt. Wieckowski says the amount of student loan debt has “placed an inordinate burden on underemployed graduates.”

According to the Project on Student Debt, roughly 51% of California’s college graduates owe some combination of public and private student loans with total debt upon graduation averaging $18,879. The bill, AB 233, will not impact wage garnishment as a result of federal student loans – only privately made loans.

The California Assembly approved the bill last week, but Republican Assemblyman Don Wagner opposed the bill and feels that it could limit financing options for California students. Wagner says, “The students that will be hurt by this, those that will be driven out of the market are perhaps the ones most in need of these loans, yes they’re incurring debt, but that is their ticket to a college education.”

The bill passed along party lines with Democrats voting to nix the loan garnishment and Republicans opposing the bill. The bill will apply to only those garnishment orders passed on or after January 1st of next year – does this mean there will be a rush by lenders to slap garnishment orders on debtors before this date? We can only hope not.

Wieckowski knows a thing or two about the downside of too much debt – his full time job is as a practicing bankruptcy attorney – so he no doubt hears tales of student loan penury every day. As part of the Student Bill of Rights package he’s working on, Wieckowski is introducing a “Know Before You Owe” program that requires entrance and exit loan counseling for students taking out private student loans to finance their degrees.

Wieckowski added, “Education should be a pathway out of poverty, not into it. Today’s student loan debt crisis is becoming a nightmare for families all across the nation.  The sharp rise in student fees, the unemployment or underemployment of graduates and the inability to discharge these debts through bankruptcy have led to situations where debts can rise to over $100,000 in rare occasions and roughly $26,000 on average.  Having graduates leave school this deep in a financial hole is damaging to our economy and the financial future of young families.”

AB 233 is not yet law, but has been approved by the Assembly and passed on to the California State Senate and is awaiting a vote. If it passes, California will be the fifth state to protect student loan debtors from private loan garnishment. Texas, Pennsylvania, South Carolina and North Carolina all have laws prohibiting private lenders from dipping into borrower’s wages.

To read the text of California’s AB 233 in full, click here. If you are a California resident and want to add your voice to those in favor of this bill, you can search for your state senator here and contact them to ask them to vote in favor of AB 233. In addition, the California Student Bill of Rights Initiative needs your support – they need more signatures on their petition to make change happen.

You can click here to download a petition so you can get involved and help make college more affordable for Californians. A great place to collect signatures and share information is at a large public event such as this weekend’s LA annual cycling event CicLAvia. Hop on your bike with your petition!

If you have student loans, no matter where you live, try Tuition.io’s free student loan tool to view your loans and better manage them, check out repayment options and contact your lenders. Please explore some of our other recent blogs on student loan affordability, student loan debt and collections:

Outrageous Tactics of Student Loan Debt Collectors 

Stop Student Loan Problems Before They Start – Financial Education Is Key

Debt Shocker: Over 1/3 of Student Loans Now Delinquent

Cherry Picking Student Loan Payments – How to Save Big and Pay Down Your Loans Faster

Retiree Alert: How to Reduce or Stop a Social Security Student Loan Garnishment