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Did you know that your student loans could lead to your termination?
Imagine this: One day, your boss calls you into his office, sits you down, and says there's a problem. Your work itself was flawless, however. But he doesn't want to talk to you about work – he wants to talk to you about your credit report.
When you were hired, you agreed to let your employer look at your credit report (perhaps unknowingly, simply by signing a form in your hiring packet). And now, for whatever reason, your boss tells you that HR has concerns about your debt. Suddenly, you go from being a star employee to looking for a job.
You already know that student loans suck. That's a fact. But did you know that your student loan debt can get you fired? It's happened before, and here are eight reasons why and what you can do to prevent it.
1. You are distracted by your debt
This is a difficult question because it is entirely subjective. Your employer may be concerned that your student loan debt will make you distracted and unproductive. Your employer may be concerned that you will not be able to pay off your debt, and that will put pressure on you at work.
If you receive calls, emails, or even letters at work about your debt, it could be the nail in the coffin—beyond your student loans and your credit score.
The bottom line is that you need to make sure your student loan debt doesn't show up at work or you risk getting fired.
2. They are viewed as unreliable
The sad truth is that many people view high levels of debt as a character weakness. Your boss might think, “Well, you can't handle your finances, so you probably can't hold down a job.” It doesn't matter that you took on that debt to go to school and further your education.
Many employers check credit scores as part of the hiring process, and high levels of debt (including student loan debt) can prevent you from getting the job.
However, with many companies, it takes a while to discover this. For example, this woman was fired after six months of work because her debt took so long to pay off. Imagine working at a new job for six months before getting fired because of your student loan debt! That's awful.
3. Debt and cash management don’t go together
If you are in contact with cash or perhaps the company's bank accounts, your employer may be concerned that there may be a shortage and you may be the cause. Going back to point 2 above, they may have concerns about your character and think that you might use the company's money as an easy way out of your own student loan problems.
If you work in the banking or financial services sector, it's common practice for the institution to check an employee's credit score on a regular basis – every six months or annually. If you're deemed to be heavily in debt or there are concerns that you won't make your minimum monthly payment, you'll be considered a high-risk employee. And in turn, you could be fired because of that student loan debt.
4. You must complete a security check
If you have a job that requires a security clearance (and there were over a million jobs in the public and private sectors that required a security clearance), your credit score will be checked. Student loan debt shouldn't hurt you, but falling behind on student loan repayments can lead to your firing. The risk is that you could be bribed by a foreign government to pay off your student loans.
Some contractors may even hire you, try to get you a permit, and if you don't get one because of your credit, they'll fire you. If you're in the military, you may be demoted or transferred.
But in most cases, they don't just revoke your clearance, they fire you.
5. Your employment contract states that you must maintain a “good” credit rating
Many companies use employment contracts when hiring employees. In the fine print of many of these contracts, you will find phrases like: “The employee must have a good or higher credit score…” While this is very vague, it also gives employers a valid reason to fire an employee if they have student loan debt.
It is important to note that it is not simply a matter of having student loans, but it can be a problem if you have taken out too many student loans. If your debt to income ratio is over 50%, your employer may be concerned and, depending on your contract, you may be fired.
6. Workplace rules require you to maintain a “good” credit rating
If you work in a low-paying job, you may not have an employment contract – but there is probably a set of rules or an employee handbook. This is the equivalent of an actual employment contract and you are required to follow these rules even if you haven't signed a specific contract requiring you to do so – it is part of the terms and conditions of employment.
In this case, if workplace policies require you to maintain good credit, you could also be fired if you have student loan debt or other credit problems.
Related: How to get a free credit report and credit score
7. You cause a loss to your company
As crazy as it sounds, if you work in the financial services sector, you can be fired if you cause losses to your company. For example, if you work for a bank that has given you student loans and you don't pay them back, you are causing losses to your employer – and can therefore be fired.
While it doesn't happen often, failing to pay back your student loan to your employer is tantamount to theft. Employers have fired employees for this very reason. And as if being fired wasn't bad enough, there's a chance your employer will pursue you as a creditor anyway.
8. Your wages are seized
Finally, you can also be fired if your wages are garnished because of your student loan debt. However, you cannot be fired just because your wages were garnished – that is illegal. But if your wages have been garnished two or more times, you can be fired.
So if multiple student loan lenders garnish your wages, you could lose your job. Or if one student loan lender and another lender garnish your wages, you could lose your job as well.
What an employer can do under the law
To request a credit check
Under the Fair Credit Reporting Act, an employer can require an employee to submit to a credit check. To conduct such a check, the employer needs the employee's explicit written permission. However, most employers simply do this when they hire a new employee and include an opt-out check box in the plethora of employment contracts you have to sign on your first day. However, it is perfectly legal to fire an employee who does not submit to a credit check (in most countries). It is akin to refusing to take a drug test.
You should know what this credit check entails. Track your credit score for free at Credit Karma or get your report annually at AnnualCreditReport.com.
On the result of a credit check
This depends entirely on your employment contract. If your employment contract states that your employment is dependent on good creditworthiness, your employer must can fire you for your student loan debt.
However, if you do not have an employment contract (as is the case with many low-paying jobs), you will need to consult your employee handbook or workplace rules. Similar to an employment contract, if there are rules that require good credit, They can be terminated.
If there are no legitimate rules regarding credit scores and credit reports in the workplace, then U.S. law applies. The United States Code, Chapter 11, states: for an employer, the dismissal of an employee is unlawful solely due to bad credit or bankruptcy. This is the same code that governs bankruptcy law. However, it does not apply if an employment contract or company rules state otherwise – so it still depends.
In the case of wage garnishments
The Consumer Credit Protection Act states that an employer can not fire an employee due to wage garnishment.
However, it is legal to fire an employee because more than one Wage garnishment.
This means that if you have problems with your student loan debt and more than one creditor wants to collect your wages, you could lose your job.
So you know where you stand
The best defense against being fired for student loans is knowing where you stand. That means checking your credit report regularly and never missing a student loan payment. You should also check your credit score before you start your job search.
If you want to check your credit report, there are many free services like Credit Karma that will not only show you your credit score, but also tell you what you need to do to improve it. We love Credit Karma because it's free and has a lot of great tools to help you improve your credit score. They also offer monitoring to help you make sure you're maintaining your credit score over time.
If you're ever called into your employer's office to discuss your credit, don't accept being fired. It doesn't happen often, and in most cases, your employer will work with you to improve your credit. Many larger companies offer employee services that can help – like free financial planning. And even if you don't take advantage of those, simply telling your employer your debt-relief plan and offering to keep them updated and informed can help save your job.
Have you ever been threatened with termination because of your student loan debt? Do you know anyone who has been fired because of their student loans?
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