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Intercepting Wages May Be Legal

Dear Mary,

My nephew is having his wages garnished by a credit card company for a past due account. Are they allowed to do that? Bonnie, New Hampshire

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Dear Bonnie,

Generally, if your nephew has a job and the creditor has sued, won in court and received a judgment, they may be able to grab up to 25 percent of your nephew’s wages until that judgment is satisfied.

The process, permitted in nearly every state, is called a “wage garnishment.” To garnish his wages, your nephew’s pay must be above the poverty line, no other garnishments must be in effect (unless the garnishment is for child or spousal support), and he must not have filed for bankruptcy. 

Dear Mary,

I have been told that if I have any “extra” money at the time my child is applying for college financial aid, I should withdraw the amount in cash and hide it.

For example, if my Contingency Fund has a balance of $10,000 and my Freedom Account has $9,500, it will look like I have $20,000 at my disposal for college.

My friend says it would be better to get a safe deposit box and put the $20,000 in there in cash. She also says that if it is on our bank statement, then it will count against us as far as financial aid. What do you say? Sandy, Colorado

Dear Sandy,

I’m sure your friend means well, but if you follow this advice you might find yourself looking out at the world from behind bars.

Hiding assets on a Financial Aid form constitutes fraud and is punishable by a $20,000 fine (bye-bye CF and FA), up to 19 months in federal prison or both. There’s a fine line between maximizing eligibility for college financial aid by sheltering assets, and hiding assets in order to qualify. One is legal, the other is not.

The children of people making $150,000 a year may qualify for financial aid while the kids of people making $50,000 may not. It all depends on how the rest of the parents’ finances shake out and whether the school uses the popular “federal methodology” to determine financial aid (where home equity doesn’t count) or the “institutional methodology” used by more elite schools, where it does.

College saving and asset planning has become very complicated. I suggest you do a lot of research, which can easily be done on the web. A site like www.FinAid.org and its sister site www.FastWeb.com, offer information on financial planning for college, and scholarship research, tips and searches.

With the change in the economy and tightening of the credit industry, private loans are harder to get. But that’s not necessarily a bad thing. As I’m sure you’ve read, parents and graduates alike are feeling the burden of too much student loan debt. Figuring out creative solutions for paying for college might seem like a drag now, but you’ll be so thankful four years from now.

Question: Have you applied for college financial aid—either for you or your child? If so, what websites or resources would you recommend for others going through this? Tell us here

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4 replies
  1. Janice
    Janice says:

    Just wanted to comment on the “take it out in cash” comment. When you fill out your FASFA form (to try to qualify for grants/ loans) there is actually a line on there where they ask you how much cash you have.

    Reply
  2. Linda
    Linda says:

    Mary, having finished college at a much older age, I found that going to the financial aid office of your anticipated college, they will work with you to get the lowest rate loanDO NOT GET A PRIVATE LOAN-THEY RANGE FROM 15-20% INTEREST, SURE IT IS EASIER BUT YOU PAY IN THE LONG RUN. a

    In securing student loans the best option is to visit your anticipated college financial aid office and get a student loan thru them. They will give you an under 5% loan. Do not take a private loan from a bank-they run 15-20% and a $15,000 loan will end of costing you $45,000 when repaid. I am speaking from experience. It is hard enough to repay the under 5% loan. God Luck parents and students! ( A good college education is worth every cent)

    Reply
  3. Mark
    Mark says:

    Of course wages can be garnished. That’s the last resource for creditors to deal with debtors who won’t pay. If you were a creditor, you would want that same step of last resort. Without that, there would be no credit at all.

    Reply
  4. Student Finance Lady
    Student Finance Lady says:

    In the 16 years I have worked in Student Finance I have found…….Financial aid information is free – never pay for the information!! www.FAFSA.ed.gov. The federal process is pretty much the same across the country. Each College may have an additional financial aid paperwork process – check with the financial aid offices – they are a great source of information. Hunt up every scholarship you can – search engines on line and every local organization – never give out personally identifying info like social security numbers or bank account numbers. Check out www.cheapscholar.org – a great site for college related budget saving ideas. The best way to cut down on student loans is to make sure your personal finances are in order! Students who start college with credit card debt, car loans, mortgages, etc endanger their academic success ( often finding their educational time investment needs are circumvented by the need to work extra hours to pay all those bills!) and end up mortgaging their future by taking out more student loans – not for an investment in education but to maintain a standard of living. Don’t be afraid to be poor for a season! Scour great resources like Everyday Cheapskate to learn to creatively stretch your budget! Oh yeah- live on a budget – plan how you will spend that financial aid so you can pay your bills and enjoy college life too! You’ll be glad you don’t have the debt in the future!

    Reply

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